Markets May Snap Back On Last Week Gains, Open Sideways

Opening Bias

Indian markets may cut back on last week’s positive gains and open sideways with a negative tone. The SGX Nifty is trading down by 6 points at 5588 indicating a flattish gap down opening to markets today.

For the coming weeks, with Dec earnings season coming to an end, markets would no shift all its focus to the Union Budget 2012-13. All eyes would be on the govt. and its ability to successfully implement some key policy changes to place India back on the path to recovery. 

On the global front, US stocks were closed for the day on account President’s Day celebrations. The European stocks rose for a fourth day, extending a six-month high, as euro-area finance ministers met in Brussels to discuss a Greek bailout and China cut banks’ reserve requirements to boost growth. Asian shares are seen trading on a positive note in early trades tracking cues for European counterparts.

Back home, as the budget day inches closer, we at DSIJ would like to bring to notice of our readers the various expectations of India Inc. from the government. Today we have covered the cement sector, where major players have requested the govt. to put an end to its anomaly, where duty on import of inputs is higher than on finished products. As per industry sources, pet-coke and gypsum attract 2.5% import duty and coal attracts 5% duty, while there is no duty on cement import. As raw materials constitute a large part of the total cement manufacturing cost, a good part of their bottomline gets eroded with the surge in the raw material costs.

In conclusion, we expect the markets to remain volatile. Nevertheless, we shall keep updating our readers regularly on the directions of the market.

Stocks In Action

According to Economic Times, The Petroleum and Natural Gas Regulatory Board (PNGRB) has started the process of fixing marketing margins for gas sold by companies such as GAIL India, Reliance Industries (RIL) and GSPC and asked them to submit details of their cost and sale price by March 5. Domestic gas marketers have opposed the government’s move to control marketing margins. Marketing margins are charged to cover costs of various activities such as supply management, contract negotiations, market tie-ups and dispute resolution, customer facilities etc. Any cap on the marketing margins charged by these companies would have a crippling effect on their individual businesses. We expect negative action.

According to Business Standard, the on-going sanctions imposed by the US and some European countries against Iran due to its nuclear programme may put some of the ONGC Videsh's (OVL) plans in that country on the backburner. OVL, the overseas arm of ONGC, is currently engaged in the Exploration Service Contract (ESC) for Farsi Offshore Exploration Block in Iran involving the Master Development Plan for the Farzad -B’ Gas Field in the Persian Gulf at an estimated investment of over $5 billion. The company fears this plan to fall back if any disruptions persist.

According to sources, Oil Minister S Jaipal Reddy has said that the government will issue notice to Reliance Industries (RIL) on the fall in gas output from its D-6 fields in KG-Basin. The Oil Ministry and its technical arm - the Directorate General of Hydrocarbons (DGH) - blame the fall in output from KG-D6 fields to 34.5 mmscmd instead of 70.39 mmcmd planned for now, and 80 mmcmd by April, due to RIL drilling fewer wells than it had committed. The ministry is consulting with legal experts on sending the notice to RIL and will go through the normal legal process. Or sources add that, DGH wants USD1.235 billion, out of the $5.7 billion expenditure already made in KG-D6, to be disallowed as RIL has drilled and completed only 18 wells as against the agreed upon 31 wells in the block, resulting in lower gas output. 

According to press release on the BSE, Essar Oil reported a Rs 3,986 crore net loss in the Dec quarter after a one-time reversal of sales tax revenue and said it will raise Rs 3,000 crore in fresh equity capital to shore up the net worth. Net loss in October-December quarter was "on account of an exceptional debit of Rs 4,015 crore towards reversal of sales tax deferral income accounted during May 2008 to December 2011. Gupta said the profit was also down because of 25 per cent less processing of crude oil at 2.81 million tons after the Vadinar refinery in Gujarat was shut-down for 35-days to ramp up capacity. The expanded refinery capacity of 18 million tons from current 14 million tons would be operational by March. Gross refining margin slips at USD 6.07/barrel versus USD 7.21/bbl.

Expect some negative action in the scrip’s of Petronet LNG as according to an article in The Economic Times, oil minister S Jaipal Reddy has ordered a probe into changes made in a multibillion dollar contract for import of liquefied natural gas from Qatar, following allegations of foul play. Reddy has asked oil secretary GC Chaturvedi, who is also the chairman of Petronet LNG, to probe allegations that the company quietly switched to buying lean gas, which can only be used as fuel, instead of rich gas that can also produce petrochemicals and cooking gas (LPG). Petronet however, said the allegations were not true as the company was getting about 6.5 million tonnes out of the contracted volume of 7.5 million tonnes a year as rich gas from RasGas of Qatar.

Expect negative movement in the scrip’s of Kingfisher Airlines as it is faced with the combined wrath of passengers and the government into the fifth day of flight cancellations which prompted travel firms to shut their doors on the airline, snapping a key lifeline and dimming prospects of an early revival. Consequently we expect positive action in scrip’s of Jet Airways and Spice Jet as the two airliners would benefit from this situation.

Corporate Action