Indian markets may recoup losses, open positive

Opening Bias

The Indian markets may recoup yesterday’s losses and open positive today. The SGX Nifty is trading up by 15 points at 5,373, indicating a gap up opening to the markets today.

Overnight, most of the US and European indices ended their day on a subdued yet positive note as Greece reportedly neared an accord on budget cuts, job openings rose in America and the Federal Reserve kept to its low-rate stance. With the pressure mounting, Greek party leaders were reportedly close to finalising an agreement for a second rescue package needed to avert a chaotic default that could propel Greece out of the euro crisis.

Back home the tone of the market would be set by Sensex heavyweights ONGC and Bharti Airtel who are expected to announce their respective numbers for the December quarter of 2011. Upstream major ONGC is expected to feel the heat of a higher subsidy burden in its earnings for this quarter. The company has been directed by the central government to share 38 per cent of the subsidy bill given on under-recoveries reported by the oil marketing companies. While a high crude oil price and weak rupee scenario in the October-December period will help ONGC to report good gross realisation, the subsidy burden will impact its net realisations heavily. The volumes are also expected to witness flattish growth.

Telecom major Bharti Airtel’s revenues are expected to rise by 7.5-8.0 per cent on a QoQ basis. Its EBIDTA margins are expected to remain more or less stable and profit is expected to be around 20-25 per cent. The bullishness on the counter can be estimated from the robustness seen in Idea Cellular’s Q3 earnings. In a nutshell, the numbers for Bharti Airtel are forecasted to be impressive as the Q3 is a relatively strong quarter. The street also expects most of the companies’ operating parameters to show reasonable improvement.

In other developments, an Empowered Group of Ministers (EGoM) yesterday cleared a proposal to allow Indian carriers to import aviation turbine fuel (ATF) directly. According to certain market estimates, importing the fuel directly would help the airlines save at least Rs 2,500 crore annually, a fourth of their total ATF bill of Rs 10,000 crore. Fuel cost is around half an airline’s total operating cost and is one of the reasons for the losses incurred by them. The aviation stocks witnessed strong positive action on the bourses as a result of this development.

However, as such a move to allow imports of ATF directly would require a change in the Foreign Trade Policy (FTP), it would be too premature to jump to any conclusions yet. The DGFT which has such powers to relax norms may have to adopt some stringent measures in order to make this happen. We also expect this to spell some negative action for the domestic refiners as they may end up losing their source of revenue through ATF.

In conclusion, for today we expect the markets to remain positive with bouts of volatility. Our advice to readers is to use this opportunity to book profits on counters that have yielded significant returns.

Stocks In Action

According to sources, the oil ministry has rejected RIL’s plan to hike the cost of gas produced from the KG-D6 oil wells for a period of at least five years. While rejecting the plan, the government maintained that the USD 4.2 per MMBTU rate for five years (2009 to 2014) was not only agreed to by the Mukesh Ambani-run firm but also upheld by the Supreme Court.

According to a BSE press release, Phillips Carbon Black, the country’s largest carbon black maker, has reported net profit during the third quarter ended December 31, 2011 which stood at Rs 19.64 crore, down by 31 per cent, compared to the year-ago period. Sales, however, rose to Rs 514.34 crore from Rs 431.61 crore. The performance was affected due to lower off-take by tyre companies and higher imports of carbon black in the country from China at dumping prices, resulting in lower capacity utilisation after the commissioning of the Mundra line in April 2011.

According to a BSE press release, low base and better price helped J K Lakshmi Cement to clock an over ten-fold jump in its net profit at Rs 49.24 crore in the third quarter of the current fiscal over Rs 4.6 crore in the corresponding quarter last fiscal. The management, while announcing the results, said that the company plans to launch a Rs 97.5 crore share buy-back programme by next month in an effort to restore the shareholders’ faith in the company. The net sales of the company, which mainly markets in the northern region of the country, went up by 39 per cent to Rs 438 crore as against Rs 315 crore in the corresponding quarter last fiscal. We expect good positive action in the scrip today.

According to a BSE press release, Mahindra & Mahindra has reported a net profit of Rs 662 crore for the quarter ended December 31, a fall of nearly 10 per cent from Rs 735 crore in the same period last year. The company has said that the previous year’s net profit includes a one-time gain of Rs 117.5 crore from the sale of its stake in Owens Corning India. Its sales and other income were up by 37 per cent to Rs 8,387 crore (Rs 6,121 crore). The M&M scrip was down by 2.81 per cent to Rs 689.95 on Tuesday. The company sold 51,702 utility vehicles in the quarter, up by 22.9 per cent over last year.

According to a BSE press release, Reliance Power has said that its gas-based 2,400 MW Samalkot power plant is ready for commissioning. The company is awaiting the allocation of natural gas from the KG basin. The plant, with an investment outlay of about Rs 10,000 crore, has come up on the East Godavari district in Andhra Pradesh and is a prime example of multinational collaboration. The company said that the Samalkot plant would add over 15 per cent to the generation capacity of Andhra Pradesh and about 6 per cent to the southern grid. Apart from being financed through the US Exim Bank, the project drew participation by vendors from diverse countries such as GE (US), Hamon (Belgium), Hyundai (Korea) and Xian Electric (China), the company statement said.

According to Economic Times, the DoT will seek the law ministry’s opinion to decide the fate of 19 permits that were granted under a different set of rules to Tata Teleservices on the same date as the now quashed 122 licenses. In October 2007, Tata Teleservices applied to the government to convert its CDMA permits into a dual-technology license that would allow it to offer GSM services. The government awarded additional 19 GSM licenses to Tata Teleservices through the same release that it used to award the contentious 122 licenses on January 10, 2008. We expect some volatility in the scrip today as a result of this.

Corporate Action