Indian Markets May Open Positive Ahead Of Infosys Q4 Results

Opening Bias

Indian equity markets may open positive ahead of the Infosys March Quarter results announcement. The SGX Nifty is trading up by 61 points at 5346 indicating a gap up opening to markets today.

Overnight, U.S. stocks rallied as investors entertained thoughts of further stimulus from global central banks, embraced lower borrowing costs in Europe and the assumption that China’s economy is headed for a soft landing. Markets were also buoyed by the excellent results posted by Google Inc. The company reported a 61% jump in first-quarter profit on slightly higher-than-expected sales, and announced a surprise special dividend that would act as a stock split for company shareholders.

Back home, the order of the day for the Indian equity markets would largely depend on the outcome of the Infosys results, which is usually expected to be announced minutes before the opening bell. The WPI inflation data for month of March would also be a major event, which would be closely watched by traders and investors on the street as it would provide very vital clues into the RBI’s policy action expected next week.

As mentioned in our earlier updates, the Jan-March quarter is typically a muted quarter for software service providers and Infosys had guided for near-zero growth in dollar revenue for the three-month period. The street expects Infosys to beat its 0-0.2 per cent guidance and report a 1 per cent USD revenue uptick in the fourth quarter. However, in rupee terms revenue could decline 1-2 per cent as rupee averaged at around Rs 50 per US dollar, compared with Infosys' earlier forecast of Rs 52. The rupee appreciation coupled with a dip in realization could impact margins.

Moving on, Infosys' net profit is expected to rise over 20% year-on-year in Jan-March, but is seen down around 3-5% sequentially. But more than that is the management guidance that's key, as uncertainties in the global economy, led by the Euro zone debt crisis weigh on IT companies. While announcing the Dec quarter results the Infy management had warned of slower growth driven by weak markets in Europe and US. Finally, with decision making delays by clients delaying ramp-ups, the street will watch out for any commentary on the overall growth picture in US and Europe.

In conclusion, for today we see markets to remain volatile. 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

According to Business Standard, Pharma giant Glaxosmithkline (GSK) and generic player Teva Pharma, are in separate discussions to acquire the domestic business of Bangalore-based Micro Labs. Micro Labs’ domestic sales are about Rs 1,100 crore. According to sources, though both players are interested, a valuation mismatch may play spoilsport. While Micro Labs is seeking valuations of seven-eight times its sales, translating to about Rs 8,800 crore, the potential buyers are unwilling to pay such a premium. According to experts, Micro Labs is a good buyout target due to its strong domestic presence across speciality segments. It has a strong presence in cardiology, neurology, neuro psychiatry, orthopaedics, gynaecology and diabetics. The privately held company has revenue of about Rs 2,800 crore. With strong focus in India, the company has presence in more than 30 countries and has 3,300 product registrations in various stages, according to the company website. The company has a team of 3,500 medical representatives. It is ranked among the top 20 in India, with a market share of 1.8 per cent, according to IMS December 2011.

According to a press release on the BSE, Mangalore Refinery and Petrochemicals (MRPL) have planned to shut down two-third of its 15 million tonne refinery in Karnataka due to shortage of water on an emergency basis. The company said that operations at Mangalore refinery would be impacted till arrival of monsoon rains makes up for stoppage of water supply to the plant from the nearby Nethravathi River. MRPL has three crude units -- Phase I of 4.68 million tonne, Phase II of 7.14 million tonne and Phase III of 3 million tonne -- and supplies oil products in southern states. The shutdown would lead to shortage of supply of products to MRPL fed locations. Further, MRPL may have to incur additional demurrage on account of delay in unloading crudes because of ullage problem and loading of products.

Credit rating agency Moody's has downgraded the local currency ratings of state-owned Oil and Natural Gas Corporation (ONGC) and GAIL, as a reflection of the risks that these two entities share with the Indian government. Moody's Investors Service has downgraded the local currency rating of ONGC to Baa1 from A2 and that of GAIL to Baa2 from A3. The outlook for both the ratings is stable. According to a press statement, the rating actions reflect Moody's view that both ONGC and GAIL ultimately cannot be completely de-linked from the credit quality of the Indian government [Baa3, stable], and thus their ratings need to more closely reflect the risk that they share with the sovereign.

According to a regulatory filing on the stock exchanges, 3i Infotech’s CDR lenders have agreed in-principle to provide additional loans to the Company of up to Rs 583,700,000 with respect to the decisions taken by the CDR empowered group and the master restructuring agreement entered into with the CDR lenders (the “MRA”). Therefore, the amount of additional term loans to be provided to the Company under the MRA stands updated from Rs 750,000,000 to up to Rs 583,700,000.

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