Indian markets may open positive ahead of RIL December quarter results

Morning Update 20thJan 2012

Opening Bias

The Indian markets are likely to open positive in line with the strong global cues. The SGX Nifty is trading up by 26 points at 5,046, indicating a gap up opening to the markets today.

However, the highlight of the day would be dictated by the expectations and conclusion from the Q3 earnings of oil & gas major RIL, FMCG bellwether ITC and the banking bigwig Axis Bank.

RIL’s December quarter earnings are likely to be weak as a result of poor refining margins, subdued demand for petrochemicals and the ongoing KG-D6 volumes woes. The street expects the GRMs for Q3 between USD 7-8 per barrel as against a robust USD 10.2 per barrel seen in H1FY12. As a result of sluggish economic growth, RIL’s petrochemical business will face demand pressures, but a weak rupee in the October-December quarter seems to have provided some cushion to its margins. The output from KG-D6 continues to lag behind targets and is expected to average at 39-41 mmscmd for the December quarter. All the above mentioned will have a bearish effect on RIL’s bottomline. The street estimates PAT de-growth of 21 per cent on a YoY basis and 13 per cent on QoQ basis. The only respite for the counter would be from the board’s decision on the buy-back offer.

As for FMCG major ITC, robust cigarette volumes will yet again fillip its growth this quarter. Apart from cigarettes, its other FMCG businesses are also expected to do well and maybe bring down the losses at the EBIT level. The outlook for its paper and agri-business also looks decent while the hotel business could prove to be a downside. The things to watch out during the results’ announcement would be the cigarette volume growth and the effect of the price hike undertaken during the year along with the loss in its FMCG business and most importantly, the macro outlook for 2012-13. 

In other developments, the markets would also be buoyed by the fact that inflation has remained in the negative zone for a third week running. As per the latest government data for the week ended January 7, 2011, food inflation grew at negative 0.42 per cent as against negative 2.9 per cent in the previous week. Though inflation has been showing some amount of a rising trend in the past three weeks, the overall expectations aren’t very alarming. In others, the fuel group inflation remained unchanged at 14.45 per cent and the primary articles’ index was at 2.47 per cent for the week ended January 7, 2012. 

On the global front, the US stocks rose last night, extending their 2012 advance, as investors snapped up bank and internet-related stocks following results from the Bank of America Corp and ahead of a quartet of tech bellwether results. The Asian markets have also moved higher in early trade, with exporters and banks advancing as gains for the US stocks and rising optimism over Europe buoyed investor sentiment.

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

According to a BSE press release, Godrej Properties posted an 84 per cent (YoY) increase in consolidated net profit to Rs 28.60 crore for the quarter ended December 31, 2011 as against Rs 15.5 crore for the corresponding quarter last fiscal. The company’s net sales stood at Rs 149 crore, a nearly three-fold jump from Rs 48.2 crore in the year-ago period.

According to Business Standard, a panel of the Ministry of Environment and Forests (MOEF) has denied approval for forest land diversion for developing Sasan UMPP’s Chhatarsal coal block, owned by Reliance Power (RPower), in Madhya Pradesh. The Forest Advisory Committee (FAC) of the MoEF has rejected approval citing that over 965 hectares of forest land that is to be diverted has good quality forests. This spells negative news for the Reliance Power counter and we expect some negative action today.

Expect some negative action in GAIL, Petronet LNG and Indraprastha Gas, etc as the petroleum ministry has asked the oil regulator to look into the marketing margins on the sale of domestic gas and imported LNG. While RIL has already been questioned over its marketing charges, it’s now upon the state-owned utilities to answer the regulators.

According to a BSE press release, Bajaj Auto posted 19.19 per cent rise in net profit to Rs 795.19 crore for the third quarter ended December 31, 2011 as compared with Rs 667.11 crore for the same period the last financial year. The net sales of the company rose to Rs 4,839.95 crore for the third quarter ended December 31, 2011 from Rs 3,980.15 crore in the same period of the previous financial year. These good set of numbers were on the back of robust sales by bike models like Pulsar and Discover. The Pulsar has been clocking about 85,000 units a month and the Discover over a lakh units per month. During the period under review, the company sold a total of 10,75,441 units of two and three-wheelers as against 9,46,850 in the year-ago period, up by 14 per cent.

According to a BSE press release, SKS Microfinance, India’s only publicly listed microfinance company, reported a net loss of Rs 428 crore for its fiscal third quarter ended December 31 compared with a small profit of Rs 34 crore last year. The firm had also posted a net loss of Rs 384 crore in the September quarter of this fiscal.

According to a BSE press release, Hero MotoCorp’s net profit for the third quarter surged by 43 per cent YoY to Rs 613 crore, helped by strong sales of its two-wheelers. The revenue rose by 17 per cent YoY to Rs 6,031.45 crore. However, the management has cautioned that the overall environment remained challenging and will depend on the demand for two-wheelers going ahead. Hero MotoCorp’s two-wheeler sales in the period of October to December were also highest ever at 15.89 lakh units, up by 11.3 per cent.

Corporate Action