Indian Markets May Open Sideways With Positive Bias

The Indian markets may open sideways with positive bias today. Yesterday’s refreshed debate over the rate cut has many experts deferring in their opinions. Meanwhile, the RBI’s governor, D Subbarao, has said that the bank cannot control inflation without sacrificing growth. These fresh comments will have its impact on the market today. The comments are against the general perception on the street which was expecting strong action in the form of a rate cut of a high quantum. Meanwhile, research house CLSA has also said that there is no room for a rate cut but has, however, not ruled out the possibility of a small rate cut.

All the Asian indices are seen trading in positives. SGX Nifty is also trading up by 24 points. The Indian markets yesterday were very volatile due to higher inflation numbers. The higher-than-expected inflation numbers has sparked off yet another round of discussion about whether there will a rate cut on June 18. Since the start of the day the markets were seen waiting for the inflation data and remained very much range-bound with no direction on either ends. After the release of the May inflation data, which came in at 7.55 per cent as against 7.23 per cent in April, the markets went down sharply. By the closing hour the markets were in the red with over 1 per cent decline.

The rate-sensitive sectors such as auto, realty and bankex were all down. Overall the market breadth was weak. Major stocks ICICI Bank, L&T, Tata Motors, BHEL, etc were down too. The shares of HDFC were under pressure as research house Macquarie downgraded HDFC. Meanwhile, overnight, the U.S. markets shot up due to the news that all the major central banks will take positive action if the election results in Greek lead to any chaos. The Dow Jones and S&P 500 gained by 1 per cent each. Nasdaq was also up by 0.6 per cent at the time of closing. The European markets were mixed with the FTSE and DAX making marginal losses and the CAC remaining flat.

In conclusion, we expect the markets to remain volatile today.

According to media reports, yesterday Macquarie has downgraded the housing finance leader Housing Development Finance Corporation (HDFC) to ‘underperform’ from the previous rating of ‘outperform’ with a target price of Rs 550 per share. This is on the back of reports which said that the housing major had inflated earnings and ROE over the past two years. “We believe that the FY11 and FY12 earnings are overstated by 38 per cent and 24 per cent respectively and the reported ROE would have been 600 and 400 bps lower at 16 per cent and 18 per cent respectively if the adjustments had been made through the P&L account. In other words, the earnings’ growth has been managed.” Yesterday the stock closed lower by 1.63 per cent. We believe that the stock could take a further beating in today’s trading session.

According to media reports, Jindal Steel is all set to buy European steel maker, SMS Meer, for Rs 1,500-2,000 crore. The deal is expected to be in the final stage and an official announcement of the deal is expected in 10 days. SMS Meer is part of the European SMS Group which largely produces copper, aluminum and steel. Jindal Steel is actively looking to expand in the European region. On the back of this news one may see volatility in the share price movement in today’s trading session.

According to media reports, Reliance Industries’ gas output from KG-D6 in the week ended June 3 dropped to 31.57 mmcmd from 32.66 mmcmd in May, according to a status report filed by the company with the oil ministry. High water and sand ingress led to shutting of eight wells, resulting in a fall in output. One should note that the KG-D6 output has fallen since hitting a peak of 61.5 mmcmd in March 2010 as the company had to shut wells after water and sand ingress. On the back of this move one may see volatility in its share price in today’s trading session.

According to media reports, the government yesterday deferred the fertilizer ministry’s proposal to hike retail prices of urea by 10 per cent to Rs 5,841 per tonne for FY13. Urea is the only fertilizer that remains under full price control. Its current retail price is Rs 5,310 per tonne. The proposal to hike urea prices was made to redress the imbalanced use of soil nutrients and reduce the subsidy burden of the government. On the back of this news one may see some movement in the share price of the fertilizer stocks.

According to media reports, India’s largest software player, Infosys, has signed a MoU with Israel to establish and enhance cooperation in industrial research and development. Infosys Labs, the research and innovation arm of Infosys, strengthens its existing innovation ecosystem of clients, partners and industry consortia through this MoU. One may see volatility in the share price of Infosys on the back of this news.

According to Economic Times, Coal India could lose Rs 6,000 crore per year on lower spot sales as it cuts spot sales to accommodate power producers. We expect the shares to show some negative indication today.