Market may open sideways

Morning Update 12thJan 2012

Opening Bias

The markets are likely to open sideways ahead of Infosys' Q3 earnings' announcement and the Nov IIP data. The SGX Nifty is trading up by 2 points at 4876 indicating a flattish gap up opening to the markets today.

Overnight, most of the European stocks fell but managed to recoup towards the end of the day as Fitch Ratings said that the ECB must do more to prevent debt crisis from spreading and a report indicated that the German economy is shrinking. However, the US stocks rose with the exception of Dow Jones as gains in banking and technology shares helped the market recover from an early slump spurred by growing signs that Europe may slip into recession. Commodities and the euro fell. The global picture currently paints an ongoing tug between the euro debt crisis and the improving US economy. The Asian shares this morning have flagged off on a negative note as the latest data suggests that Chinese consumer prices rose by 4.1 per cent in December compared to a year earlier. 

Back home, the opening trades would be flagged off by the outcome of Infosys’ Q3 earnings which are usually announced before the market hours. As the markets have already priced in their expectations of a good Q3 on the back of a depreciating rupee, the highlight here on would be on the management commentary and the Q4 guidance.

Moving on, the government is also expected to announce the November IIP data and inflation data for the week ended December 31, 2011. Both these data would have an impact on the RBI’s stance in its forthcoming monetary policy. While inflation has shown a considerable easing trend over the past couple of months with the latest set of data also showing a negative rise in prices, that for IIPs suggest that after witnessing a negative 5 per cent growth in October 2011 we may expect some positive surprise in November.

In conclusion, we expect the markets to remain volatile and pick up some momentum towards the day’s end as investors start taking positions before the Q3 numbers’ announcements and the build-up to the RBI policy. 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, the board has approved the restructuring of Genus Power Infrastructure, which will consequently result into the formation of two listed entities – one concentrated on the power business and the other one focused on the paper business. As per the draft proposal, the restructuring scheme involves the merger of Genus Paper Products into the company and the demerger of non-power infrastructure undertaking of the company into a 100 per cent subsidiary with the overall objective of unlocking value for the shareholders of the companies. The stock witnessed a 7 per cent rally on the bourses yesterday, touching an intra-day high of Rs 12.5. It ended its day up by 2 per cent at Rs 11.25. Its CMP discounts the TTM EPS of 4.02 at a PE multiple of 2.94x. The P/BV also stands at a mere 0.51 and let’s add dividend yield of 0.85 per cent to all that.

According to Economic Times, the cash-strapped UK parent of Thomas Cook has decided to sell its Indian arm to raise money to bolster its troubled global operations after heavy debt and write-down pushed the world’s oldest travel firm to the brink of collapse last year. It is believed that the Indian business has been valued at Rs 700 crore for this purpose. However the company management has refuted all this as mere speculation. Nevertheless, we do expect some action in the scrip of Thomas Cook today.

According to Business Standard, RCom, which has a USD 925 million convertible bond maturing in March and has failed so far in its efforts to sell its tower unit, is in talks with China Development Bank for a loan to redeem the bond. The company, controlled by billionaire Anil Ambani, has been trying for more than a year to sell its tower business in a deal that could be worth more than USD 3 billion. It is believed that RCom is in talks with state-owned China Development Bank for a syndicated loan of USD 925 million, the same size as the convertible bond. The Indian cellular firm, battered by fierce competition and thwarted in several attempts to strike deals to ease its debt, has seen its shares get hammered over the past few years. The stock was trading at Rs 82.55 a piece, far below the Rs 654 conversion price on the convertible bonds, which were issued in February 2007 when the Indian markets were booming.

According to Reuters, ITC expects growth in its food business to slow down in the coming fiscal year as continued inflation in key raw materials and sluggish consumer buying are expected to hurt volumes. The Kolkata-based company estimates its food business to grow by 12-13 per cent in the next financial year that begins April 1 from 14-15 per cent expected this year. ITC, which generates 15-20 per cent of its revenues from its food business, is also planning price hikes of at least 6-7 per cent across categories in the coming year to offset the rising costs. Expect some negative action in the stock today.

According to The Hindu Business Line, India’s first water-soluble fertiliser plant is all set to go into commercial production at Coromandel International’s Kakinada plant in Andhra Pradesh. The plant with capacity of 15,000 TPA has been set up as a 50:50 JV between Coromandel and SQM (Chile), which is a global water-soluble speciality plant nutrition solutions provider. Water-soluble fertilisers are crop specific products designed to increase the yield and quality of agri-products. Currently, India consumes about 70,000 tonnes, all of which is imported. The positive development from this is that Coromandel already has the experience of dealing in water soluble fertilisers, having marketed about 10,000 tonnes last year. Also, one must note that the water soluble fertilisers are non-subsidized and the company is free to fix the prices. This is a favourable development for the counter.

After giving a stable outlook to the Indian automobile sector, Fitch ratings has gone on to issue a stable outlook for the auto component sector too, saying that the auto component sector is expected to perform well on the back of demand from OEMs for localised content. Expect some positive action in the auto ancillaries’ pack today.

According to Economic Times, SREI Infrastructure Finance has deferred its plan to raise around USD 1 billion for its proposed infra fund in the current fiscal due to dollar scarcity in the global markets. The Kolkata-based infrastructure financing firm is now looking at raising the money in the first half of FY13 as it expects the global situation to improve in the next fiscal.

Corporate Action