Indian Markets May Open Positive In Line With Global Cues

Morning Update 06th Feb 2012

Opening Bias

Indian markets witness a positive opening, mirroring the gains seen last Friday in the other global stock markets. The SGX Nifty is trading up by 51 points at 5390 indicating a strong gap up opening to the markets today.

Last Friday, major stock indices in US and Europe propelled higher as Wall Street embraced US jobless rate dropping to a three-year low. Stocks took off after the US Labor Department reported the addition of 243,000 jobs in January, the largest jump in nine months. The unemployment rate fell to 8.3%, the lowest since February 2009. This week the attention is expected to shift toward the ongoing euro-zone crisis and earnings reports from bellwethers Cisco Systems Inc. and Walt Disney Co., among others. Investors will keenly watch the discussions between Greece and its private lenders. Other Euro nations have reprimanded Greece to speed up its reforms processes in order to be able to receive any external aid.

Back on the domestic front, markets are likely to cheer the fact that Union Home Minister P. Chidambaram was given relief by a Delhi court which ruled last week on Saturday the his role in the 2G spectrum allocation scam would not be investigated. Dismissing the petition filed by Janata Party President Subramanian Swamy, Special Central Bureau of Investigation (CBI) Judge OP Saini said that no case can be made against Chidambaram in the 2G scam. This order has come after the Supreme Court last week cancelled all 122 2G licenses allotted after 2008 and referred the matter of whether Chidambaram's role should be investigated back to the trial court. This relief is expected to be very short lived as Subramanian Swamy is now expected to file the petition in higher courts.

In other major developments, FMCG major Hindustan Unilever (HUL) is expected to announce its Q3 earnings today. The company is expected to post a robust set of numbers, boosted by prices hikes across its categories. The FMCG sector results have been a mixed bag so far. While ITC reported a muted volume growth in its flagship cigarette business, HUL’s smaller competitor Marico reported strong earnings growth which sent the stock zooming on the bourses. As per street estimates, the company is expected to post a 15-18 per cent rise in the topline as well as bottomline. We advise investors to keep a close watch on the company’s volume growth, EBIDTA margins and the outlook of the management going forward.

We also expect the aviation stocks to be in action throughout the week as an empowered group of minsters (EGoM) are slated to meet later this week to decide on the cap limit to allow FDI into the aviation sector and also to consider proposal to let the aircraft carriers directly import ATF in order to help them reduce some losses. The EGoM is also expected to decide the fate of cash strapped Air India turnaround-cum-restructuring plan in the meeting.

In conclusion, the coming week is expected to be action packed with top companies like ONGC, Bharti Airtel and Tata Steel among others expected to announce their respective Q3 earnings. Also the announcement of the Dec IIP data to be released on Friday will be keenly watched. Market consensus reckons the IIP for Dec to moderate at 3.1 per cent as against 5.9 per cent in Nov.

As for today, or today we expect the markets to largely positive on the back of positive triggers in the global markets. However, we advise our reader’s to continue to book profits on counters that have yielded significant returns.

Stocks In Action

According to The Economic Times, Tata Power has said that its 4000 MW Mundra UMPP would become a Non Performing Asset (NPA) if no decision on tariff hikes is taken soon. The company has been struggling with this project ever since a change in the coal pricing policy in Indonesia disturbed the cost structure of this and other projects that are dependent on imported coal. The Indonesian government's new law requires benchmarking of coal sales to an index-based price linked to global rates. This move has pushed prices of the dry fuel very high. On the other hand Tata Power has committed to supply power at the lowest tariff bid of Rs 2.26 per unit. As a result of this recent development, we expect some negative action in the counter today.

According to The Economic Times, RIL has proposed a charge of USD 0.15 levy in lieu of marketing costs on the sale of gas produced from coal seams (CBM). This decision is at a time when the govt. has sent RIL's USD 0.135 marketing margin on the sale of KG-D6 gas to the oil regulator for approval. In newspaper advertisements issued on Friday calling for bids to purchase 3.5 million cubic meters a day of coal-bed methane (CBM) gas it plans to produce from its Sohagpur block in Madhya Pradesh by 2014-end, RIL said it will charge USD 0.15 per million British thermal units as a marketing margin over-and-above the gas sale price.     

According to press release on the BSE, Tata Teleservices net loss has widened further to Rs 144.6 crore in Q3FY12 as against Rs 79.58 crore in Q3FY11. The total revenues of the company rose by 9 per cent to Rs 630.55 crore from Rs 577.44 crore last year.During the quarter under review, its value added services and data revenues accounted for 32 per cent of the total wireless revenues. Tata Docomo, the unified brand of the company, has extended its network strength to over 9,000 towers. We expect negative action in the counter today.

According to press release on the BSE, Srei Infrastructure Finance posted 52 per cent lower net profit in the quarter ended December 31, at Rs 19 crore against Rs 40 crore during the corresponding period last year. The decline in profits was on account of a notional foreign exchange loss of Rs 71 crore due to currency devaluation. Last Friday the counter closed up by 2 per cent at Rs 32.2 a piece, but today we expect the counter to witness some negative action on the back of profit taking.

We expect some positive action in the scrip’s of Gujarat Gas Company as according to reports in the Economic Times, European gas and electricity major GDF Suez is keen to join the race for UK-based energy major BG's 65% stake in the Gujarat Gas Co, revving up competition for a significant chunk of the India's high-growth energy market that continues to lure big international firms.

Corporate Action