Markets To Open On Flat Negative Note

The Indian markets witnessed a lacklustre trading session yesterday as the broader indices closed flat higher by 0.22 per cent. Nifty closed at just above the 5,100 level mark while the Sensex closed near to the 16,896 level. However, in the later trading sessions there was some buying in the capital goods’ space on the back of reports that the government will once again discuss the issue of levying import duty on power equipment to protect the domestic equipment companies from cheap Chinese imports.  

The Asian markets yesterday closed on a mixed note ahead of the US Federal Reserve meeting which is expected to announce some stimulus measures to boost growth in the economy. The markets across the globe are expecting the ECB and the European leaders to announce measures to bring back the ailing European economies on track. Meanwhile, Greece, late Tuesday, was found on the verge of forming a three-party coalition government that would help the country’s European-led bailout program.

Overnight, the U.S. stock markets too looked pretty range-bound and closed on a mixed note on account of the Federal reserve announcement that the country’s GDP growth for this year is down to the range of 1.9 to 2.4 per cent, having slid from 2.4 to 2.9 per cent in April and its April 2011 forecast that growth for 2012 would range between 3.5 and 4.2 per cent. This was in conjunction with Fed’s chairman, Ben Bernanke, saying that the labour market had lost some steam and that he was leaving the door open to more stimuli if the situation deteriorates.

Further, the European markets in a muted performance yesterday ended on a positive note on the back of the expectation that the Fed will announce some stimulus measures to support the economy. Also, the markets are expecting that the European Central Bank may undertake similar measures to tackle the region’s sovereign debt crisis that have propped up Europe’s stock markets in recent weeks.

On the Indian turf the rupee has eased a little and is currently hovering around Rs 55.85 per USD level, which continues to worry us over the increasing fiscal deficit since this will increase the import cost of the oil companies. However, the London Brent crude oil price is at a lower level and continues to decline, which fell by 0.50 per cent on Wednesday to USD 92.08 per barrel. The lower crude oil prices are providing some relief to the Indian oil companies but the high dollar is negating much of the benefits.

For the rest of the week the market will remain volatile and negative on the back of the weakening economic conditions, though we will see some short-term rally on the back of some positive global news. The RBI’s stance to keep the rates unchanged will keep the market sentiments very weak. On the global front, especially from the U.S. region, there have been some positive indicators about the housing data numbers. Investors are also expecting the U.S. Federal Reserve and European leaders and ECB to pitch for some stimulus measures. If this happens we may see positive sentiments across the globe.  

In conclusion, for today we expect the markets to operate in a volatile mood with a negative bias on the back of global cues. Also, the Asian markets have opened today on a negative note based on the growing speculation that the U.S. Federal Reserve will constraint itself from any major stimulus measures. The market is looking forward to possible stimulus measures in the U.S. and European economies which will decide the direction that it can take.

Stocks In Action

GVK Power & Infrastructure has clarified that it will not sell its stake in the Singapore subsidiary GVK Coal Developers (Singapore) Pte Ltd. The stock which had shown some gains may slip into negative territory today. Overall, in the last two days the stock has gained 8 per cent.

High volumes and volatility can be expected further in the cement stocks on the back of the CCI probe over alleged price cartelization.

According to Business Standard, Mahindra & Mahindra is aiming for a 10 per cent market share in the scooter segment. The company has planned five new launches for this year, which includes two scooters and three motorcycles.

On the news that import duty will be levied on foreign power equipment, the shares of the capital goods companies, mainly BHEL and L&T, may show some gains today as well.

Fitch Ratings yesterday revised the outlook on India’s financial institutions to ‘negative’ from ‘stable’. This includes State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Export-Import Bank of India, ICICI Bank and Axis Bank. We expect high volatility in the shares of the listed banks in this list.

CMI FPE has informed that it has doubled its production capacities by opening its new Center of Excellence for cold rolling mills’ manufacturing at Taloja. Yesterday its shares were up by 5 per cent and we expect some rise in the price today as well.

After signing the National Coal Wage Agreement, state-owned coal miner, Coal India, is witnessing 7 per cent rise in its wage cost. This will put some strain on its operating margins. Yesterday its shares collapsed by 1.5 per cent and we may see further decline today.