Markets may open negative on weak global cues

Morning Update 16thJan 2012

Opening Bias

The Indian markets are likely to open negative after a string of downgrades from S&P in the Euro zone last Friday sparked off fresh concerns about the overall global health of the economy. The SGX Nifty is trading down by 46 points at 4,840, indicating a gap down opening to the markets today.

The US stocks also gave away a part of their weekly gains last Friday after J P Morgan Chase & Co reported a profit drop and investors fretted about a possible Greek default and the downgrades of Euro area nations. Out in Europe, the markets tumbled as S&P stripped France and Austria of their coveted triple-A ratings and cut seven other Euro zone sovereign ratings. This has also led to a massive sell-off in the Asian markets with the top benchmark indices down by at least 1 per cent in the early trades.

Back on the domestic turf, the domino effect of the sovereign downgrades and resurfacing of the European woes is expected to hit the Indian markets hard. However, there are some important events and corporate earnings to look forward too, which will set the tone for the week ahead. The highlight of this week is going to be the December headline inflation to be announced today, which will provide the final cues leading to the RBI’s monetary policy review on January 24, 2011.

Judging by the steep fall in the WPI primary articles, the marginal easing of WPI fuel in the month of December 2011 and maintaining similar inflationary projections for manufactured articles as seen in the month of November 2011, we expect headline inflation to come around at 7.71 per cent for the month of December 2011 as compared to 9.11 per cent seen in the month of November 2011.

Going forward, we expect the RBI to initiate reversal in the interest rate cycle with its policy review on January 24. The central bank may either cut back on the CRR or the repo rates, which would really help to give a new impetus to the market sentiments.

On the Q3 earnings’ front, major corporates like TCS, Wipro, Bajaj Auto, HDFC Bank, Axis Bank, RIL and ITC are expected to announce their respective December quarter results this week, which will be keenly watched by investors on Dalal Street. On the macro front too there is some heavy action expected as China will announce its industrial production and GDP data this week for the December quarter.

In conclusion, for today we expect the markets to remain negative on weak global cues. However, mid-afternoon a positive surprise on the inflation front may lift the market sentiments as investors will then start building positive hopes about the possibility of rate cut-backs from the RBI. 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

Fertiliser stocks majorly present in the urea manufacturing space are expected to be in action today as the government mulls over plans to raise prices of the politically sensitive fertiliser by 40 per cent to counter its subsidy woes, which have shot up enormously this year. This development to raise urea prices marks a very bold political move by the government on the eve of the five state elections expected to be held this year. The stocks of urea fertiliser majors like Chambal, RCF, Coromandel and Zuari may see some positive action today.

Stocks of Reliance Media Works are expected to be in action today as the board has approved transfer of the company’s cinema exhibition and film and media services into separate 100 per cent subsidiaries. The proposal, which is subject to shareholders’ approval, will position the company to pursue strategic growth opportunities in its specific businesses and enable it to enhance revenues and profitability as also expand products and services.

Expect negative action in the scrip of CMC today as, according to press release filed with the BSE, the company has posted 8.79 per cent decline in consolidated net profit at Rs 41.37 crore for the quarter ended December 31, 2011 as against Rs 45.36 crore in the same period the previous fiscal.

According to Business Standard, realty firm Parsvanath Developers is looking to sell 1.18 acre of commercial land in Delhi for about Rs 700 crore in order to reduce debt. The company had acquired the land in 2008 for about Rs 200 crore and had announced plans to develop a retail-cum-office building at the location. Parsvanath Developers has invited bids for sale of this property and is expecting sales realisation of Rs 700 crore. However, the company has refused to share any details.

Stocks of Sintex Industries may see negative action today as the textiles and plastics firm has reported a 27 per cent decline in its consolidated net profit at Rs 82.20 crore for the quarter ended December 31, 2011, primarily due to the depreciating rupee and a slowdown in its building products business. It has reported a net profit of Rs 112.81 crore in the quarter ended December 31, 2010.

According to Business Standard, Apollo Tyres has been asked to cough up 45 million rands (about Rs 30 crore) as penalty for indulging in cartelisation in South Africa, a dispute which the company said relates to a period when the firm was managed by Dunlop. South African Competition Commission said that Apollo Tyres (formerly Dunlop) has admitted that it took part in the tyre manufacturers’ cartel and agreed on pricing and price hikes. Though the period referred in the case falls under the Dunlop management, the imposed penalty is still expected to eat into the company’s current profit pie. Hence, expect some negative action today.

According to Economic Times, Vijay Mallya-promoted UB Group expects to consolidate its foreign liquor assets under Whyte & Mackay (W&M) and list the Scottish subsidiary as part of a strategy to overcome the financial crisis caused by its floundering airlines business viz. Kingfisher Airlines. The UB Group had acquired whisky maker Whyte & Mackay in 2009 for USD 595 million. It sells liquor brands such as Antiquity, Black Dog, McDowell’s No 1 and Romanov. Though the group has not commented anything on the development, yet, we expect the UB stocks to be in action today.

Mukesh Ambani-led RIL can heave a sigh of relief as according to a news article in the Economic Times, the oil ministry’s technical arm, Directorate General of Hydrocarbons (DGH), has notified the government that it cannot stop the oil and gas major RIL from recovering costs incurred in the D6 block because it does not have the power to initiate the enabling resolution in the management committee (MC) for the block. As per publicly available information, the MC, chaired by the DGH, can take a decision only if it is backed by parties representing at least 70 per cent stake in the block, along with the support of one government nominee in the committee. In D6, neither the government nor any state-run firm has a stake. 

Coporate Action