Indian markets may open sideways

MORNING UPDATE JAN 18, 2012

Opening Bias

The Indian markets are likely to open sideways. The SGX Nifty is trading marginally down by 7 points at 4,958, indicating a flattish gap down opening to the markets today.

Overnight, the US markets, after flagging off their week on a strong note, gave up the initial gains after its banking and financial shares fell into the red zone. Investors turned cautious on the financial sector earnings in the wake of mixed results from Citigroup Inc. and Wells Fargo & Co. While Citigroup shares slid by 8.2 per cent after the bank reported a fourth-quarter profit decline, Wells Fargo gained 0.7 per cent after it reported a fourth-quarter rise in income. The stocks rose in Europe for a second session on Tuesday as better-than-expected growth data from China and positive economic news from Germany inspired an asset rally. The Asian shares have started off their trading day on a flat and mostly subdued note.

Back home, India’s largest and fourth-largest IT firms, TCS and HCL Tech, had announced their Q3 earnings yesterday. After being somewhat disappointed with the Infosys’ results, investors on Dalal Street were given some respite from the positive management commentary by the top IT bigwigs. The management of TCS and HCL sounded optimistic and helped to reinstate a promising scenario notwithstanding the macro economic woes in the US and Europe. 

While HCL Tech was upbeat, saying it was looking forward to competing for and winning replacement orders worth USD 15 billion in 2012, TCS said the trend towards offshore outsourcing will only accelerate because customers are looking to do more with tighter budgets.

In other developments, the rupee has slowly but steadily managed to gain some ground over the US dollar, as it is believed that foreign investors have begun to show faith in India and returned to buy into debt funds, bonds and equities here. The Indian rupee rose to a two-month high of Rs 50.7 per dollar and shares climbed on the revival of US dollar flows. The outlook for inflows has also brightened up with China’s 8.9 per cent economic growth in the fourth quarter. The rupee is expected to gain further since the demand for dollars may subside after the duty on precious metals’ imports was nearly doubled yesterday. At present the rupee is up by 6 per cent this year and 6.6 per cent from its life low of Rs 54.30 per dollar touched on December 15.

In conclusion, we expect the markets to remain volatile with a positive bias. 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

Aviation stocks like Jet Airways, KFA and Spice Jet could witness some positive action as according to a news report in Economic Times, a group of ministers have agreed to allow foreign airlines to buy up to 49 per cent in domestic carriers, setting the stage for international airlines to come to the rescue of the cash-strapped Indian aviation sector.

According to a BSE press release, Chambal Fertilisers reported a net loss of Rs 1.24 crore for Q3FY12 as against a net profit of Rs 107.42 crore in the year-ago period. The net sales of the company, however, rose by 32 per cent to Rs 1,783.71 crore from Rs 1,352.70 crore.

According to a BSE press release, HCL Tech reported strong Q2 numbers that surpassed expectations. Its consolidated revenues during the quarter have grown by 35 per cent on a YoY basis and by 12.8 per cent QoQ to Rs 5245 crore. The net profits have grown by 43 per cent YoY to Rs 573 crore, with the margins improving by 60 bps to 10.9 per cent YoY.

According to a BSE press release, software services’ exporter Tata Consultancy Services (TCS) today reported an 18.26 per cent jump in consolidated net profit to Rs 2,802.77 crore for Q3FY12 as against Rs 2,301 crore. The company’s total income stood at Rs 13,203.99 crore as against Rs 9,663.35 crore, translating into YoY growth of 36.63 per cent.

According to Economic Times, Essar Oil would have to quickly deposit sales tax of Rs 6,300 crore with the Gujarat government as the Supreme Court has rejected the company’s contention that it was entitled to make deferred payment of tax on sales from its Vadinar refinery in the state. This development sent the stocks of Essar Oil plummeting downhill by nearly 8 per cent to Rs 58.10 yesterday. We expect some more negative action in the stocks today.

Corporate Action