Markets May Open Negative Amidst Q4 Fears

Opening Bias

The Indian equity markets may open negative as investors look forward to an action-packed week which would see the kick-off for the March 2012 quarter earnings’ season. The SGX Nifty is trading down by 54 points at 5,267, thus indicating a gap down opening to the markets today.

Last week, the markets operated for only three days as the week was cut short by holidays for Mahavir Jayanti on Thursday and Good Friday on Friday. However, despite the three-day week the Sensex and Nifty managed to close the first week of FY13 on a positive note. Both the benchmark indices ended the week up by 0.5 per cent each. Among the major developments was the release of the HSBC’s manufacturers and services PMI data for March 2012, which fell by 190 bps to 54.7 and 420 bps to 52.3 respectively as against the data for February 2012.

The week also saw the government initiating a presidential directive to force Coal India (CIL) to sign fuel supply agreements (FSAs) with power companies to assure 80 per cent fuel supply. This move will benefit the power companies but on the other hand, it will pose a challenge for CIL to meet the increasing demand from the power sector. Another twist during last week was that the government left the petrol and diesel prices unchanged despite crude surging to USD 120 per barrel levels (dated Brent crude oil).

On the global front, the poor response given to the Spanish and Italian bond auctions resulted into the bond yields moving higher, thereby raising fresh concerns over the sovereign debt crisis. The US economy also continued to be in the negative zone after investors considered the reality of no new monetary stimulus from the Federal Reserve.

Going forward, over the coming week the Indian stock markets are likely to see volatile trades and remain range-bound with the trading sentiment being dictated by the fourth quarter corporate earnings’ season, which kicks off with IT bellwether Infosys declaring results on April 13, 2012. The release of the industrial index of production (IIP) numbers for February 2012 expected on 12th April and the WPI inflation for March 2012 expected next week on 16th April may also have some impact on the trading sentiment this week. While the IIP numbers have somewhat lost their relevance in the policy decision-making process in recent times, the WPI numbers which are expected to come on the higher side may prompt the RBI to maintain status quo on the interest rates in its policy review scheduled next week.

In conclusion, for today we see the markets remaining volatile with a negative bias. We reiterate our stance that with the March quarter results’ season approaching soon it is better to stick to individual stocks rather than go bullish on any particular.

Stocks In Action

According to Business Standard, state-owned Hindustan Copper is planning to raise USD 250 million (Rs 1,250 crore) in the current quarter through overseas borrowings to part-finance its expansion activities. The company, which has projected a production of 3.45 million tonnes of copper in 2011-12, has set an ambitious target of producing 12.41 million tonnes of red metal by 2016-17. The company is currently sitting on cash reserves of about Rs 550 crore and is also on the disinvestment radar of the government in the current fiscal. As per its expansion plan, Hindustan Copper will be investing over Rs 3,000 crore on eight projects across the country to increase its production. The plan envisages expansion of Hindustan Copper’s largest mine, the Malanjkhand open cast mine in Madhya Pradesh, to 5 million tonnes from its current production of about 2 million tonnes. Besides, the company also has plans to expand its Khetri, Kolihan and Surda mines, re-open Rakha and Kendadih mines and develop new mines, Banwas and Chapri-Sidheswar.

According to a press filing on the BSE, FMCG player Marico’s board has approved raising up to Rs 500 crore through issue of shares to two foreign investors. The company’s board, which met on Saturday, has decided to allot 2,94,11,764 equity shares of Rs 1 each on a preferential basis at an issue price of Rs 170 per share aggregating to an issue size of Rs 500 crore to Indivest Pte Ltd and Baring India Private Equity Fund III Listed Investments Ltd. Indivest would be allotted 22,058,823 shares at a proposed issue size of Rs 375 crore, while Baring India will be allotted 73,52,941 shares at a proposed issue size of Rs 125 crore.  While Indivest is an affiliate of the Government of Singapore Investment Corporation Pte Ltd, Baring India Private Equity Fund III Listed Investments Ltd is a Mauritius-based firm.

Shares of Coal India would be quite in action today as well as for the major part of the week as its board will finalise the fuel supply agreements (FSAs) with power producers. The CIL board is trying to expedite the signing of FSAs following a presidential directive to Coal India to sign them with power producers, assuring them of at least 80 per cent of the committed coal delivery. CIL’s top management has approved the draft of the fuel supply agreement and is awaiting legal clearance. The presidential directive has been given to the PSU as it did not meet the deadline of March 31, set by the Prime Minister’s Office for CIL. Penalty is a major issue for the board for not meeting this deadline. Coal Minister Sriprakash Jaiswal has said that the crucial clause of penalty on CIL in the case of failure to meet 80 per cent fuel supply commitment has been left to the PSU board.

Expect some action in the shares of Suzlon Energy as the company, according to a report in Economic Times, is said to be studying options for its German REpower Systems subsidiary, including a sale or listing a stake, and is seeking at least USD 1.96 billion from a sale. The wind turbine makers have been facing narrowing margins after reducing prices to compete for orders as the US and European governments cut clean-energy incentives to curb budget deficits. Suzlon is struggling to meet its debt repayments and losses at the company grew to Rs 286 crore (USD 56 million) in the three months through December - the highest in five quarters. That prompted the company’s auditors to examine its ability to raise funds to make debt repayments due this year.

According to a press release on the BSE, Gammon Infrastructure Projects has received a Letter of Award (LOA) for the four-laning of the Sidhi - Singrauli stretch of 102.6 kms of NH 75E from km 83.4 to km 195.8 in the state of Madhya Pradesh from the Madhya Pradesh Road Development Corporation (MPRDC) on a BOT basis. The project cost, as estimated by the MPRDC, is Rs. 871.15 crore. The company will receive a total grant of Rs. 339.69 crore from MPRDC during the construction period of the project. The concession period of the project is 30 years, including a construction period of two years.

According to The Economic Times, Mumbai-based Swan Energy (SEL) has pulled out of the 700 MW gas-based power project in Gujarat after being caught in a political firestorm over the alleged largesse bestowed on it by the state government firms. SEL signed a deal in 2010 with Gujarat State Petroleum Corporation and Gujarat Power Corporation for a 49 per cent stake in GSPC Pipavav Power Company (GPPC) and agreed to pay Rs 381 crore for 70 per cent of the carbon credits assigned to the project. But a few months later the deal faced hardships as public interest litigation (PIL) was filed in the Gujarat High Court challenging the legality of offering 49 per cent to SEL. The opposition parties in Gujarat accused the ruling government of “unprecedented corruption and nepotism”. The opposition leaders were heard saying that the Swan deal was a massive Rs 14,296 crore scam and asked for an explanation about the allotment of the project’s 70 per cent carbon emission rights for someone with a 49 per cent stake. Owing to this entire fiasco, Swan voluntarily chose to withdraw from the project saying that the delay was affecting its plans.

Corporate Action