Markets likely to extend yesterday’s gains

Morning Update 11thJan 2012

Opening Bias

The markets are likely to extend yesterday’s gains and open marginally positive today. The SGX Nifty is trading up by 5 points at 4,871, indicating a gap up opening to the markets today.

Overnight, major global indices in the Europe and US ended their respective trading sessions on a positive note after mining majors like Alcoa Inc kicked off the results’ season by posting better than estimated earnings, which also led to a major rally in the commodity stocks there. The Asian stocks have also opened higher in early trades, tracking this strength from the global peers.

Back home, the government has finally given its nodal approval to allow 100 per cent FDI in single-brand retail. However, it has stuck to its decision to ensure a key local sourcing clause for any FDI beyond 51 per cent. In other words, anyone planning to introduce FDI over 51 per cent in single-brand retail would have to ensure that 30 per cent of the sourcing would have to be done from the domestic small and cottage industries which have a maximum investment in plant and machinery of USD 1 million (about Rs 5 crore). Though many global and local majors were keener to see the introduction of the multi-brand FDI, we believe that the single-brand too is a positive step taken by the government. Also, it is believed that the multi-brand retail FDI would also be passed soon as the government initiates some back channel talks to speed up the process.

In other developments, for those who were looking forward to a cut-back in the CRR by the RBI during its next policy review, it may come as a disappointment that the central bank has ruled out any cut-backs in the CRRs citing reasons that the markets may read such a move as a shift away from its anti-inflationary policy stance. Also the RBI is of the view that the liquidity in the system is adequate and comfortable.

In conclusion, we expect the markets to remain volatile as investors adopt the wait and watch approach before the Q3 numbers’ announcements. We advise our readers to stay cautious and stick to cheaply available large-cap bets as they are more likely to see some positive movements.

Stocks In Action

According to a press release filed with the BSE, RPG Life Sciences has received communication from the Ministry of Social and Family Affairs, Health and Consumer Protection, Hamburg, Germany not granting EU GMP for the company’s API facility at Navi Mumbai, Maharashtra post their inspection, citing certain deficiencies. This will have an adverse impact on the export business of the company. The company has taken immediate remedial measures and is reviewing all the issues raised by the said health authority to resolve them in a time-bound manner. The company continues to hold a valid WHO GMP and TGA, Australia certification for its facilities. This is a set-back for the company and we expect negative action.

According to a press release filed with the BSE, Gravita India has initiated steps to strengthen its global presence by deciding to set up a used car battery recycling plant in The Republic of Trinidad & Tobago. On this occasion, the managing director of Gravita India, Rajat Agrawal, and chairman of the trade promotion and investment promotion agency of T&T, Brien Fontin, have signed a MOU for the facilitation of investment in Trinidad & Tobago in the presence of the minister of trade and industry, Stephen Cadiz. Gravita has been operating three plants in India and seven plants overseas and has plans to set up three more plants in the near future. Expect some positive movement.

According to Fitch Ratings, it has assigned a stable outlook for the Indian auto industry in 2012 and stated that the passenger vehicles’ volumes are expected to grow by 3-5 per cent during the year, with car sales increasing by up to 4 per cent. It has further added that the commercial vehicles (CVs) segment is likely to register a higher volume growth of 8-10 per cent. According to the report, the sales volumes of cars will be driven by growth in the sales of diesel cars attributed to the pent up demand from 2011 which saw sales curtailed due to the demand-supply mismatches. It said that the auto sector will remain stable even as competition-led pricing pressure amid muted sales will lead to a drop in operating profitability and a consequent weakening of coverage and leverage indicators. This is positive news of sorts for the overall sector and we expect some movement in the auto index today.

Expect some positive action in the retail stocks of Pantaloon, Raymond and BATA as the government has formally approved 100 per cent FDI in single-brand retail.

Corporate Action