Indian markets may recoup losses and open positive.

Morning Update 31stJan 2012

Opening Bias

The Indian markets are likely to cut back yesterday’s losses and open on a positive note. The SGX Nifty is trading up by 37 points at 5,142, indicating a gap up opening to the markets today.

The benchmark Nifty and Sensex lost more than 2 per cent during yesterday’s trading session. After witnessing a stellar rally of nearly 15 per cent during the first four weeks of January, the markets were bound to take this beating on the back of profit booking by investors and traders. Here we would like to assure our readers that the fundamentals of our economy are very much on the path to recovery and that this fall is a mere correction. Going forward, we believe that the markets would slowly but steadily inch their way back up to reach new highs.

In other domestic developments, after posting a strong 6.8 per cent growth in November 2011, the eight core industries have recorded a poor performance for December, having grown by just 3.1 per cent. When compared to that of December 2010, the growth in the eight core industries stood at 6.3 per cent. Going forward we expect the IIP data for the month of December 2011 to come below the 5.1 per cent growth seen in November as the eight core industries which contribute 38 per cent to the IIP have fallen. Having said this, the December IIP data would be a more realistic measure of economic growth, which will provide the RBI with crucial cues en-route to its monetary policy stance.

On the global front, some fresh concerns were flagged off from the estranged euro zone after Portuguese bonds sank amid concerns of failure over a meeting of the region’s leaders to draw a line under the sovereign debt crisis. Consequently, the stocks in Europe fell sharply by around 1 per cent as investor sentiments turned jittery. However, the latest reports suggest that the meeting went on well and the EU leaders unanimously endorsed a treaty aimed at strengthening accountability and keeping a closer eye on member nations’ efforts to rein in overspending and resolve the region’s debt crisis.

As a result of this positive development the Asian markets are seen trading on a strong and positive note this morning with manufacturing and export firms amongst the top gainers. The US stocks closed with some minor losses as telecommunications and technology stocks advanced, offsetting the concern that came with Portugal’s soaring borrowing costs.

In conclusion, we expect the markets to remain positive for the day, but do not rule out the bouts of volatility. We advise our readers to book some profits on the counters that have yielded significant returns.

Stocks In Action

According to a BSE press release, Tata Coffee Ltd has finally entered into separate agreement with Starbucks Coffee International, Inc. USA (Starbucks) and Tata Starbucks Limited, a 50:50 joint venture between Tata Global Beverages Limited and Starbucks, for roasting coffee produced on the company’s estates using Starbucks’ technology and packaging as also sale and distribution thereof to Starbucks’ cafes to be set up by Tata Starbucks Limited in India and Starbucks’ business operations overseas. Media reports further add that the two companies will initially invest Rs 200 crore each in the JV and its first cafe to be called ‘Starbucks Coff - A Tata Alliance’ is expected to become functional by August-September this year. The plan is to open 50 outlets in the initial phase. The company will first focus on launching outlets in Mumbai and Delhi and then expand rapidly to the other cities. Whatever the future plans would be, for now we expect the company to witness some positive action on the bourses today.

According to a BSE press release, the country’s largest lender SBI has received government approval for capital infusion of Rs 7,900 crore in the bank, a development that will help the lender to increase its business activities. With the capital infusion, the government stake would go up to about 65 per cent. At present the Government of India holds a stake of 59.4 per cent stake in the SBI. As desired by the government, its capital infusion will raise the Tier I capital of the bank to about 8 per cent. This is a very positive development for the counter and we expect some positive movement on the bourses today.

According to a BSE press release, Glenmark Pharmaceuticals’ consolidated net profit declined by 46.70 per cent to Rs 46.11 crore for the quarter ended December 31, 2011 over the same period last fiscal due to forex losses. The net profit for the quarter ended December 31, 2010 was at Rs 86.52 crore. The results were far below the street estimates, according to which the net profit was supposed to dip by 3-5 per cent on a yearly basis to come in at Rs 106 crore. The company said it took a hit of Rs 102 crore on dollar-denominated loans due to rupee depreciation. During the quarter its net sales stood at Rs 1,031.08 crore as against Rs 748.64 crore in the corresponding period in the previous fiscal.

According to a BSE press release, Hindustan Sanitaryware & Industries’ (HSIL) net profit declined by 6.27 per cent to Rs 25.85 crore for the third quarter ended December 31, 2011 due to high input costs and rupee depreciation. The company had posted net profit of Rs 27.58 crore for the corresponding period of the previous fiscal. The net sales of the company, however, rose to Rs 337.41 crore for the third quarter, compared to Rs 276.88 crore in the same period in the previous fiscal. For the nine months ended December 31, 2011, the company posted net profit of Rs 77.37 crore, compared to Rs 55.04 crore in the same period the previous fiscal. Post the results’ announcement the counter tanked by 6 per cent to close at Rs 129.6 a piece on the bourses.

According to a BSE press release, Punjab & Sind Bank (PSB) today reported a 33 per cent dip in net profit at Rs 91.63 crore for the third quarter ended December 31, 2011 due to an increase in bad loans as against Rs 135.30 crore for the corresponding quarter last fiscal. The bank’s gross NPAs increased to 1.28 per cent at the end of the third quarter from 0.91 per cent in December 2010. Its net NPAs also went up to 0.88 per cent during the three-month period from 0.44 per cent during the first quarter of 2010-11. However, the total income of the lender rose to Rs 1,754.44 crore during the October to December period from Rs 1,352.48 crore in the same period a year ago. The interest earned of the bank rose to Rs 1,660.87 crore during the reporting quarter from Rs 1,260.88 crore in the third quarter of the previous fiscal and the total business of the bank rose by 12.52 per cent to Rs 1,01,855 crore at the end of December 2011.

According to a BSE press release, drug firm Lupin has received approval from the US health regulator for its metformin hydrochloride extended release tablets, used in treating diabetes. The company’s US-based subsidiary, Lupin Pharmaceuticals Inc., has received tentative approval from the US Food and Drug Administration (USFDA) for the metformin tablets in strengths of 500 mg and 1,000 mg. Lupin’s metformin HCl ER tablets are the AB-rated generic equivalent of Santarus Inc’s glumetza HCl ER tablets. According to IMS’ health data, the glumetza HCl ER tablets in strengths of 500 mg and 1,000 mg had annual US sales of nearly USD 58 million for the 12 months to September 2011.

We expect some positive action in the scrip of M&M today as according to a report in The Economic Times, the company is said to be interested in acquiring Sweden-based car manufacturer Saab after the latter filed for bankruptcy. The report also states that there are five other global car manufacturers who are interested in buying Saab.

We expect negative action in the scrip of Siemens India as Bank of America Merrill Lynch (BoA ML) has initiated coverage on the company with an ‘underperform’ target and set the price target as Rs 606 a share. The key arguments for underperformance include a decline in orders from traditional sectors as the lack of large orders reduce revenue visibility, new products realise lower margins in FY12-14 and higher overheads and forex variation negate the impact of lower input costs. The stock is currently trading at Rs 740 a piece - a 22 per cent premium to BoA ML’s fair value.

Corporate Action