Indian Markets May Snap Back Gains, Open Sideways

The Indian markets may snap gains and open sideways with a negative tone as investors and traders on D-Street book profits off the table. The SGX Nifty is trading down by 12 points at 5,608 indicating a gap down opening to the markets today.

Among major domestic developments, the MCX IPO is open for subscription as of today and will close on February 24, 2012. While the fundamental prowess of India’s premier exchange house is indisputable, we at DSIJ would like to advise our investors to be cautious while applying for the offer. The MCX business model is a novel idea for the domestic markets but compared to matured international peers, its valuations seem higher. Our suggestion to investors and readers is to subscribe to the IPO of MCX for listing day gains but tread cautiously thereafter as clarity is awaited about the long-term sustainability of its business model.

Further, Subir Gokarn, Deputy Governor, Reserve Bank of India, yesterday said that the RBI would consider a further cut in the cash reserve ratio (CRR) if the systemic liquidity conditions continue to be tight. However, he went on to clarify that if another round of CRR reduction were to happen, it can happen in the policy statement itself and not midway. The RBI has maintained that a reduction in CRR is a much broader decision which is addressed in the policy rather than the bond buy-backs (OMOs) that it has been announcing and carrying out almost on a weekly basis to inject liquidity into the system. 

Key Global Indicators
	Gold (Rs/10gm)	Crude ($/bbl)
Spot	27308	122.3
% change	-	-0.24
Future	28399	105.84
% change	0.86	-0.39

Moving on, the government yesterday announced its first nationwide retail inflation data based on the Consumer Price Index (CPI) which stood at 7.65 per cent for month of January 2012. While food & beverages reported a moderate price rise of 4.11 per cent year-on-year in January, the inflation numbers for fuel & light and clothing, bedding & footwear segments were in double digits. Overall the retail inflation rate in the rural and urban areas stood at 7.38 per cent and 8.25 per cent in January respectively. The CPI has come in higher by 110 bps when compared to WPI for the month of January 2012 which stood at 6.55 per cent. Now all eyes will be focused on the RBI and the stance that it is likely to adopt during the next monetary policy review.

With the RBI maintaining its WPI comfort zone at or below 7 per cent, one may have nurtured hopes of a cut in the key policy rates by the next policy review on March 15. But now, with the CPI being touted as a more concrete measure of inflation, one will have to wait and see at what level the RBI would be comfortable to think of any rate cuts. Our stance is that while we may see another round of CRR cuts in the next policy review, it may still be a while before the RBI cuts key policy rates.

Currency Rates
	Rs/$	Rs/Euro	Rs/GBP	Rs100/JYP
RBI Rate	49.0835	65.1705	77.7973	61.5200
Future	49.3900	65.2900	78.0300	61.9100

On the global front, the US stocks finished mostly higher after European officials agreed to another round of aid for Greece, pushing the Dow industrials briefly above 13,000 for the first time since 2008. However, the positive turn of events in Greece has failed to spur the Asian markets as they are seen trading on a weak note in early trades.

In conclusion, we expect the markets to remain volatile and negative. However, mid-noon they may track cues from the European markets, as they began to digest the outcome of a Greek bail-out.

According to a filing to the exchanges, Reliance Industries (RIL) has finalised a joint venture with Sibur, Russia’s largest petrochemical company, to set up a butyl rubber plant in India. The joint venture will invest USD 450 million to construct the facility in Jamnagar in western India, which is expected to be commissioned in the second half of 2014. Reliance will hold a stake of 74.9 per cent in the JV and Sibur will own the rest. Reliance, India’s biggest company by market value, is currently in the midst of doubling its petrochemicals business, spurred by the rising demand from consumer goods, automobiles, construction and organised retail sectors in Asia’s third-largest economy.

According to sources, Vedanta Group may merge iron ore firm Sesa Goa with copper and aluminum maker Sterlite Industries as it tries to simplify a complex corporate structure and deal with challenges to its main businesses. The exercise, which is still on the drawing board, will create a giant metals and mining firm with the third-biggest profit in the private sector after ONGC and Reliance Industries. It will have a combined market cap of Rs 66,000 crore, or about USD 14 billion, more than double that of Sterlite’s nearest rival, Hindalco Industries. The merged entity would straddle across all major resources, including oil, iron ore, aluminum, copper, zinc and lead, and will make Sterlite’s parent, Vedanta Resources, owner of the entire shareholding of the recently acquired Cairn India. 

Beleaguered Kingfisher Airlines got some relief yesterday after banks gave some guarantees and working capital loans and the Income Tax Department indicated that it may defreeze the airline’s bank accounts. The State Bank of India threw in a lifeline of around Rs 1,200 crore to the troubled airline, including working capital of Rs 400 crore, a bank guarantee of Rs 500 crore and loan repayment extension worth Rs 250-300 crore. Also, either SBI or Punjab National Bank will issue another guarantee of Rs 160-200 crore on Wednesday to the Income Tax Department to defreeze Kingfisher’s account.

According to Economic Times, GTL Infra may get about Rs 1,000 crore from Aircel since the telco will not be able to deliver on its promise to rent 20,000 additional towers by mid-2013.  GTL Infra had acquired 17,500 towers from Aircel for Rs 8,062. However, around Rs 1,200 crore was for the right of first refusal to host 20,000 more airwave transmission sites for Aircel over the next three years. Since January 2010, when the deal was struck, Aircel added only about 3,500 sites. After accumulating debt for airwaves for 3G technology and other capital expenses, Aircel is hardly in a position for a major expansion or a large payout. GTL Infra has bank guarantees that may be enforced if Aircel is unable to deliver by next year. Yet, an enforcement of bank guarantees would breach trust between GTL Infra and its 50 per cent revenue generator, Aircel.