Indian markets may extend gains, open positive

Morning Update 25th Jan12

Opening Bias

The Indian markets are likely to extend yesterday’s strong rally and open positive today. The SGX Nifty is trading up by a healthy 41 points at 5,150, indicating a gap up opening to the markets today.

Yesterday, investors on Dalal Street cheered the RBI’s decision to slash its CRR rate by 50 bps in a move which is expected to infuse Rs 32,000 crore worth of liquidity into the system. The central bank also guided that it may consider a reversal in the key policy rates (repo and reverse repo) during its next monetary policy review in the month of March, but such a decision would crucially depend on the government’s ability to improve supply constraints and keep inflation under check.

However, the mood on the global front doesn’t seem cheerful. According to the International Monetary Fund the euro debt crisis is escalating and showing signs of dragging down the world economy. Consequently, it has sharply cut its global growth rate forecast for 2012 from 4 per cent to 3.3 per cent. The projected growth rate for the year 2013 is now 3.9 per cent. IMF warned that global growth would come in about two percentage points below its already soft forecast if the European leaders allowed the crisis to fester. For the first time since the debt turmoil erupted two years ago, the IMF said that the 17-nation euro zone is likely to slip into a mild recessionary phase in 2012, with output contracting by about 0.5 per cent. In other developments, S&P’s is most likely to downgrade Greece’s ratings to ‘selective default’ when the country concludes its debt restructuring.

As for the global stock markets, the US stocks weren’t impacted much by IMF’s latest forebodings. The stocks there closed on a marginally negative note as investors mulled a European stand-off over Greece’s debt and the latest slew of earnings. The European stock markets ended lower on Tuesday as the European finance ministers pressurized Greece’s private creditors to accept lower interest rates on the restructured Greek government debt. The Asian stocks are seen trading on a very positive note as results from Apple Inc. in the US, which were announced after the closing bell, have come in higher than expected and cheered investor sentiments. 

In conclusion, we expect the markets to continue its positive rally buoyed by strong sentiments laid down by 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

According to a BSE press release, tyre maker Ceat reported 52.30 per cent decline in net profit for the quarter ended December 31 at Rs 2.39 crore due to labour unrest at its Nashik facility. The company had posted a net profit of Rs 5.01 crore in the corresponding period last financial year. The total income during the quarter, however, increased by 19.04 per cent to Rs 1,065.44 crore from Rs 895.01 crore in the year-ago period.

According to a BSE press release, Yes Bank’s net profit for the quarter ended December 31, 2011 expanded by 33 per cent to Rs 254 crore from Rs 191 crore a year ago. Higher interest income from advances, growth in non-interest income and lower provisions aided the bank’s earnings’ growth. Its net interest income grew by 32 per cent year-on-year to Rs 428 crore during the quarter but its net interest margin narrowed by 10 basis points sequentially to 2.8 per cent as the cost of deposits increased, driven by a hike in the lender’s savings deposit and non-resident deposit rates. The share of CASA in total deposits improved to 12.6 per cent as of December-end from 11 per cent a quarter ago. The total deposits expanded by 19 per cent year-on-year to Rs 46,929 crore. The advances were up by 15 per cent from a year ago at Rs 35,868 crore. The asset quality improved with both gross and net bad loan ratios declining marginally from a year earlier. The bank closed the quarter with a capital adequacy ratio of 16.1 per cent.

Expect some positive action in the OMC scrips of IOC, BPCL and HPCL as the RBI has nudged the government to consider de-regulating the retail diesel prices in order to limit the soaring subsidy bill. While petrol prices are market-linked, the government decides the rates of LPG, kerosene and diesel, which usually results in a large budgetary expenditure on subsidies. The central bank further said that the current levels of the domestic prices of petroleum products do not reflect the international prices.

According to a BSE press release, Cairn India reported a 12 per cent rise in net profit for the quarter ended December 31, 2011 on the back of higher crude oil price. The net profit in the October-December quarter was up by 12 per cent at Rs 2,261.9 crore from Rs 2,010.1 crore in the same period a year ago. The revenue was almost flat at Rs 3,096.8 crore in the third quarter of the current fiscal. Meanwhile, higher forex gains helped the company to post a robust bottomline. We expect positive movement in the scrip of Cairn India today as the cabinet committee headed by Prime Minister Manmohan Singh has given the final approval to London-based mining group Vedanta Resources Plc’s acquisition of a majority stake in Cairn India for USD 8.48 billion. Fresh approval was necessitated in view of the home ministry pointing to alleged global and domestic ‘transgressions’ by the Vedanta Group.

According to Economic Times, US drug maker Eli Lilly & Company and Noida-based Jubilant Life Sciences have called off their equal drug discovery partnership to develop molecules across several therapeutic areas. The 50:50 JV, formed in late 2008 between Jubilant Life Sciences’ wholly-owned subsidiary Jubilant Biosys and Lilly, was to develop molecules from the pre-clinical to phase II stage across oncology, diabetes and cardiovascular segments. The firm is called Vanthys Pharmaceuticals and based in Bangalore. It is believed that the JV was terminated a few weeks ago and Jubilant may buy back Lilly’s shareholding in the venture. No further details have been shared on this development yet and the reason for the termination of the partnership is said to be part of a normal “strategic review”. Jubilant Biosys is expected to absorb the two dozen or so employees, mostly scientists working at the centre. 

Corporate Action