Markets To Open Positive, On GAAR Guidelines

The Indian markets may open positive in line with the global cues. The SGX Nifty is trading up by 33 points at 5,172, indicating a gap up opening to the markets today.

On the back of the June expiry, the Indian markets yesterday remained volatile for the entire trading day. However, both the broader indices were able to close in the green with marginal gains. Post market closure, one of the major news that came in was that the government has issued draft guidelines on General Anti-Avoidance Rules (GAAR). As per a media report, the government has clarified that income accrued on or after April 1, 2013 would come under the GAAR’s provisions. This essentially indicates that GAAR would not be applicable with retrospective effect which will be of relief to some of the corporates and investors. The GAAR issue, which was announced in the Union Budget, had kept the foreign investors away from the market. Yesterday’s guidelines would lead to positive sentiments among the investors and the FIIs may again come back in a big way. On the back of this development the SGX Nifty is trading higher despite the other world indices being in the red, and we also may see a good start in today’s trade.

The world markets are keenly watching the two-day European summit which will provide direction for the market going ahead. As per media reports, on the first day (yesterday) of the summit, euro region leaders agreed in principle on a “compact for growth and jobs” which means that they would provide some stimulus in the region and would create jobs to boost the euro area. Today’s discussions will impact the Indian and other Asian markets on Monday in their early trades.

Overnight, the U.S. markets closed lower with major indices like Dow Jones, Nasdaq and S&P 500 closing down in the range of 0.2 to 0.9 per cent. For most part of the trades the U.S. markets were trading much lower - down by more than 1 per cent. However, investors in the last hour of trading recouped most of the losses on the back of speculation that the euro leaders would probably take steps for providing a stimulus package for the region.

The European markets also closed lower with FTSE, CAC and DAX closing lower in the range of 0.3 to 1.3 per cent. One of the other reasons was that the bond yields of Italy (Europe’s third-largest economy) and Spain moved northwards, further raising the cost of borrowing for the country. Investors hope that the two-day summit would bring in some clarity about where the euro region is headed towards. 

Reacting to the U.S. and European markets’ cues overnight, the Asian markets are providing a mixed scenario with Hang Seng trading higher while Nikkei and Shanghai are trading in the red zone. As per media reports, Nikkei is down after Japan’s Industrial production dropped to 3.1 per cent in May which was more than the streets’ expectation of around 2.9 per cent.

The depreciating rupee continues to be a major headwind above our economy. It is currently trading at Rs 56.9195 against the USD. The RBI’s measures have not been effective to help the rupee regain strength against the dollar and hence one needs some bold moves to stop the rupee from depreciating any further. Brent crude has come down from USD 125 in the past couple of months to USD 94 per barrel, which is good for our economy. Further, Nymex Crude has gone below the USD 80 per barrel level but the depreciating rupee has offset some of these benefits.

In conclusion, we expect the markets to remain volatile as the guidelines of the GAAR would be positive. However, investors and traders would also watch the outcome of the European summit which could further turn the market in either direction. We advise investors to play with caution.

Stocks In Action

According to Business Standard, for the second time in a month, a complaint of infringement of patent has been filed against Zydus Pharmaceuticals (USA), a wholly-owned subsidiary of Ahmedabad-based pharma major Cadila Healthcare (Zydus Cadila) in a U.S. district court. Pfizer has filed a lawsuit against Zydus’ abbreviated new drug application (ANDA) that has sought approval to market a generic version of Pfizer’s pharmaceutical product Pristiq (an anti-depressant drug) before the expiration of the U.S. patent. On the back of this one may see volatility with a negative bias for Cadila Healthcare’s share price in today’s trading session.

According to media reports, oil companies have cut petrol prices by Rs 2.46 a litre (excluding taxes) from midnight. This is the second price reduction this month. In early June it had cut petrol price by about Rs 2.02 a litre and now a cut of Rs 2.46 per litre would further make the fuel cheaper by around Rs 4.5 per litre. This move would be a big relief for the consumers. The OMCs took this step on account of the decline in Brent crude prices which have now come down to the level of USD 93 per barrel. On the back of this news one may see volatility in the share prices of oil marketing companies and volatility with a positive bias in auto stocks in today’s trade.

According to Business Standard, with the ban on limestone mining at its Chanderia unit in Rajasthan since August last year still affecting Birla Corporation’s cement business, the flagship firm of the M P Birla Group is now exploring the possibility of foreign ventures. The Kolkata-based cement-to-jute manufacturer may come up with its first plant abroad in Ethiopia, where it has formed a wholly-owned subsidiary called Birla Corp Cement Manufacturing Plc. It has already got a license for limestone mining and has applied for a coal mining permit in the east African country. On the back of this one may see volatility in Birla Corp’s share price in today’s trading session.

The shares of the tyre companies will also be down over the news that a probe against tyre companies is underway. The Competition Commission of India will have its verdict on the tyre companies soon. In the last week cement companies were fined about Rs 6,000 crore over the cartelization of cement prices.

The shares of state-owned power generator NTPC may show some negative bias while Coal India may show some positive gains today. According to a news report, Coal India has got NTPC’s de-allocated coal mines of NTPC, as directed by the PMO.The shares of hydro power major NHPC may show some gains as it commissions 77 MW of capacity from June 30, 2012.The trial has been successful and the units are ready for power generation.

Crompton Greaves, an electrical solutions provider, has said that it has commenced operations from its switchgear manufacturing facility in Brazil. It is now expecting revenues of USD 50 million (about Rs 280 crore) in the first year of operation. The shares of the company will show some positive trades today.

The shares of DLF will also create some buzz as the company has said that it will invest Rs 550 crore in partnership with Haryana Urban Development Authority (HUDA) in a road development project.