Negative Global Cues May Drag Indian Markets Southwards

Opening Bias

Indian equity markets may snap back its gains and open negative on the back of weak global cues. The SGX Nifty is trading down by 42 points at 5213 indicating a gap down opening to markets today.

Yesterday, the Indian equity markets notched up some handsome gains buoyed by the optimistic reports on early monsoons and an uptick in crucial farm output this year. However, overnight the global situation has turned murky as US and European markets tanked heavily as government bond yields for Spain and Italy surged, giving rise to the sovereign default fears. This negative sentiments has trickled down to other Asian markets too as they have opened negative this morning.

Among major developments on the global front, Alcoa Inc. reported an unexpected quarterly profit, spurring a climb in the aluminum producer’s shares. Alcoa shares bounced up 5.9% to USD 9.87 apiece in heavy volume as the company’s first-quarter net earnings were USD 94 million, or 9 cents a share. Earnings excluding the impact of certain items were 10 cents a share and revenue rose slightly to USD 6 billion from the year-ago quarter. The management guided that it continues to project global aluminum demand will grow 7% this year. The release of Alcoa’s results is widely considered to mark the kickoff of a new earnings season.

Back home, just a couple of days from now the March quarter results season would be kicked off by Infosys announcing its results on 13th April 2012. Soon after IT majors HCL and TCS would also follow suit as they announce their respective numbers in the month of April itself. Over the past couple of months, there has been a lot of uncertainty and speculation over the actual business environment for outsourcing companies, as rupee behaved in a volatile manner, Cognizant Technologies gave a weak guidance and Accenture reported strong order bookings.

Readers must note that January-March is typically a soft quarter for software service providers. Most analysts expect sequential growth in US dollar revenue will be just about 1-3.3% across tier I companies in the quarter. Now the uncertainties in the macro environment led by the Eurozone debt crisis still weigh high on Indian IT companies. In fact Infosys had warned about this in its Dec quarter management guidance. Analysts say deal momentum is likely to be slower in the first quarter (April-June) of fiscal 2013 too. However, brighter days could be ahead.

In conclusion, for today we see markets to remain volatile with a positive 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 particulars sector.

Stocks In Action

Expect some positive action in the shares of Kingfisher Airlines (KFA), Jet Airways (JA) and Spice Jet (SJ) as sources say that the government is likely to decide on a proposal to allow foreign carriers to invest in local airlines which could provide a lifeline to cash-starved and debt-laden aviation industry. Indian aviation industry has been battered by rising fuel costs, high taxes and fierce competition in a market where five of the six main operators are losing money.

According to press release on the BSE, Software services provider Patni Computer Systems' first quarter standalone net profit declined near 14% year-on-year to Rs 153 crore as expenses rose. Sales for the January-March quarter were up 4.5% at Rs 535.14 crore. On a sequential basis, Patni's net profit was up 2%, while sales fell 12%.

According to press release on the BSE, Ind Swift Laboratories has received approval from the US Food and Drug Administration (USFDA) for five APIs being produced at its Derabassi plant in Punjab. The company has received USFDA nod to sell Naratriptan Hydrochloride, Ropinirole Hydrochloride, Donepezil Hydrochloride, Acamprosate Calcium and Clarithromycin. The five products are indicated for treating various ailments including migraine and Alzheimer’s disease. Now, the company is already supplying three products commercially to the US markets, which currently contributes 3% of the company's sales. With USFDA approving five products, the company expects this figure to reach to 7-8% in next three years. The worldwide market for the five products, which have been approved by the USFDA, is estimated to be around $5 billion.

After announcing its plans to be the first in India to launch the 4G telecom services, Bharti Airtel is said to be in advanced stage of talks with US chipmaker Qualcomm to buy its fourth-generation licenses for about Rs 6,000 crore, an acquisition that will allow the country's largest telecom firm to quickly launch 4G services in the key markets of Delhi and Mumbai, says an article in The Economic Times. Expect positive action in shares of Bharti Airtel.

Corporate Action