Indian Markets May Cut Back On Gains, Open Negative

Opening Bias

The Indian markets may cut back on the gains and open negative. The SGX Nifty is trading up by 13.5 points at 5,388, indicating a gap down opening to the markets today.

Back home, the government’s last offering for the current financial year, the NBCC’s IPO has opened for subscription today and shall go on till March 27, 2012. Our recommendation to investors is to subscribe for the IPO. To read further on our analysis, we advice you to refer to our article titled ‘NBCC IPO – Building Gains’ dated March 21, 2012.

In conclusion, for today we expect the markets to remain volatile due to the lack of any triggers to support a rally. Our advice to readers is to adopt a ‘wait and watch’ strategy and rather park funds in the upcoming NBCC IPO for significant listing day gains.

Stocks In Action

Expect negative action in the scrip of Muthoot Finance and Manappuram Finance on opening today as according to a notification issued by the RBI, all non-banking finance companies engaged in the gold loan business would have to maintain a loan to value (LTV) ratio of 60 per cent. This means that a borrower has to pledge gold jewellery worth Rs 100 to get a loan of Rs 60. The existing LTV ratio for gold loans, according to industry players, is in the range of 65-75 per cent. On an average the ticket size of such a loan is around Rs 32,000-35,000 with 4-6 months’ tenure. Companies charge 12.50-20 per cent rate of interest depending on the loan value and tenure. According to the RBI notification, given the rapid pace of their business growth and the nature of their (gold loan companies) business model, which has inherent concentration risk and is exposed to adverse movement of gold prices, this move has been taken as a prudential measure.

Delivering yet another blow to Mukesh Ambani-led RIL, oil ministry sources have suggested that there is no legal and financial justification to hike RIL’s KGD6 gas price from the current levels. It is learnt that the oil ministry has strongly recommended that the gas price should not be revised at this moment since they believe there is no financial or legal justification for doing so. Its main argument is that if the gas price is hiked, the subsidy burden will also be increased.

According to Reuters, GVK Power & Infrastructure Ltd is looking to sell its stakes in the Alpha coal project and related port and rail assets in Australia to help fund the USD 10 billion cost of the projects. GVK bought a 79 per cent stake in the Alpha and Alpha West thermal coal projects in Queensland’s Galilee Basin and 100 per cent of the Kevin’s Corner coal project next to Alpha and the rail and port project linking to the Abbot Point terminal for USD 1.26 billion last year. The process is said to be underway, with Macquarie advising on the sale of the infrastructure stake while Citi is advising on the sale of the mine stake.

In a separate news item, Business Standard reckons that GVK’s two gas-based power plants in Andhra Pradesh are reaching ‘critical’ stage in terms of the Plant Load Factor (PLF) due of shortage of gas and their expansion has been put on hold. The GVK plants, Gautami and Jegurupadu, are running at around 50 per cent PLF and any further dip may force the company to shut them down to protect the performance of the units in the long run. The development has come amid the government trying to resolve the issue of gas supplies to power plants and the KG-D6 block hitting an all-time low production of about 28 million standard cubic meters per day as the firm shut six wells due to water and sand ingress.

According to Economic Times, the Aditya Birla Group firm, UltraTech Cement, is said to be in talks with the north-eastern cement maker Adhunik MSP Cement for buying its 1.5 million tonne Meghalaya plant for over Rs 700 crore. The idea behind this acquisition is to bolster its presence in the fast-growing but largely untapped market in the north-eastern sector. Due diligence for the unit located at the limestone-rich Jaintia Hills has been completed and the fate of the deal hinges on the availability of some statutory no-objection certificates as mining leases and environmental clearances are prerequisites for any large manufacturing transactions in North-East India.

Corporate Action