Market May Open Negative Amid Growth Concern Across The Globe

The Indian markets may open on a negative note ahead in line with the global cues. The SGX Nifty is down by 60.50 points at 5,115, indicating a negative gap down opening to the markets today.

The Indian markets witnessed a lackluster trading session yesterday. However, during the late hours of the session the broader indices closed with decent gains of nearly 0.80 per cent. Nifty closed at the 5,165 level mark while the Sensex closed near to the 17,000 mark level. There was strong buying in the capital goods’ space on the back of reports that the government will levy import duty of overall 21 per cent on the purchase of power equipments to protect the domestic equipment companies from cheap Chinese imports.

The Asian markets yesterday closed almost in the negative territory due to growth concerns across the globe. Even China’s industrial growth has slowed down as per the data released yesterday by HSBC, according to which the PMI Index of China’s manufacturing fell to 48.1 in June compared with a final reading of 48.4 in May. This makes it the eighth straight month of a reading below 50, thus reflecting contraction. This has also raised hopes that China may use more stimulus measures to spur growth. The Fed move of restricting itself from any major stimulus measure continues to hurt the investor’s sentiments across the global markets.

Overnight, the U.S. stock markets closed sharply in the negative zone as investors looked worried about the poor economic data which was later added to by Goldman Sachs’ research call suggesting shorting of the S&P 500. Late Wednesday the Federal Reserve announced that the country’s GDP growth for this year would slow down to a range of 1.9 to 2.4 per cent, down from 2.4 to 2.9 per cent in April and its April 2011 forecast that growth in 2012 would range between 3.5 and 4.2 per cent.

Further, the European markets, after having witnessed a choppy performance yesterday, ended on a negative note. Weak data from China, Europe and the United States raised fresh concerns about a global slowdown, although expectations of more central bank action to stimulate growth helped limit losses. There are high hopes that the Bank of England will re-launch its quantitative easing program in early July and the European Central Bank may cut the interest rate.

On the Indian turf the rupee, after once again hitting an all-time low, has eased a little and is currently hovering around Rs 56.32 per USD, which continues to worry us about 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 on Thursday to USD 89.92 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 next 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 such as the announcement of some stimulus measures and rate cut. However, 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 negative indicators about the housing data numbers. And 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 open on a strong negative note on the back of weak global cues. Also, the Asian markets have opened today on a negative note amidst concerns over growth slowdown across the globe. Investors are also concerned that the European debt crisis is having a broader ripple effect and various macro-economic figures have reinforced the same. The markets are looking forward to possible stimulus measures in the US and European economies which will decide the direction of the markets

Stocks In Action

The Competition Commission of India (CCI) has levied a penalty of Rs 6,300 on 11 cement companies for forming a cartel. Companies like ACC, Ambuja Cements, India Cements and UltraTech, etc have been charged for this. There were a total of 39 companies under the CCI scanner.

Capital goods’ major, Larsen and Toubro, has entered into a defense deal in a joint venture with other companies like Tata Power and HCL. L&T holds 57 per cent share in this Rs 10,000 crore arrangement. The deal is of a prolonged nature and will take years to materialise. The stocks of these companies may show some volatility.

State-run company DVC has said that it may stop power supply to Delhi as the two distribution companies, BSES Rajdhani Power and BSES Yamuna Power, have not yet cleared their outstanding payments to the company. The amount due to be paid by BSES Rajdhani stands at about Rs 169 crore while that of BSES Yamuna Power is about Rs 162 crore. The two subsidiaries of Reliance Infra have been in trouble and the stock of Reliance Infra may show some negativity.

The shares of Reliance Industries may shed a few more points over reports by its junior partner Niko Resources of Canada. Niko Resources has said that the KG-D6 gas block holds 80 per cent less reserves than previously estimated.

Private power company, Tata Power, may decline in value as the global credit rating company Moody’s has put the company under review for a downgrade.

Drug making company, Natco Pharma, has promoted its COO Rajeev Nannapaneni as CEO of the company. Rajeev played a significant role in obtaining the first ever compulsory license in India for the generic version Nexavar. We see this as positive news and the stock may show some gains today.

The shares of Mastek which surged by 5 per cent yesterday may also show some rise as one of its subsidiaries has roped in a multi-year deal with one of the Fortune 100 insurance and financial services companies. The deal is worth USD 30 million.