Markets Taking Cues From Reforms & Results

The week started with hopes of a better performance of India Inc. in the Dec quarter of 2012 and after the US lawmakers saw the economy safely through the ‘fiscal cliff’. The domestic markets ended the week lower, with the Sensex lower by 0.6% and Nifty down 1%.

On the domestic front, the positive news flow continued during the week. The government has said that it would infuse Rs 12200 crore in 9-10 public sector banks by March 2013, which would help their Capital Adequacy Ratio (CAR) to improve. Media report suggested that of the Rs 12200 crore committed, an approximate of Rs 3000 crore would be injected in State Bank of India. Also the disinvestment of Engineers India and NTPC is on the cards, in the government’s bid to meet its divestment target of Rs 30000 crore for FY13.

Further, we could see an increase of Rs 100 per cylinder in LPG prices, as well as a Rs 1 per litre hike in diesel prices every month for the next 10 months. With regard to kerosene, the government is planning to hike Rs 10 per litre in phases over the next two years. The move would definitely result in lesser government spending in terms of subsidies, but may ultimately prove costlier as inflation would be fuelled.

The Railway Minister, Pawan Kumar Bansal, announced a fare price hike, which is effective from January 21, 2013 and is the first in 10 years. The report further stated that the second class ordinary segment has seen the highest proportional rise of around 25% on the average distance traveled by a commuter. The railways expect to mop up an additional of Rs 6,600 crore in revenues in 2013-14 from the higher fares and incremental traffic, while Rs 1,200 crore would be added to the government’s kitty this financial year.

Among the macro-economic indicators, the Index of Industrial Production (IIP) data for Nov 2012 came in at a negative 0.1%, which was in line with the street’s expectations. The cumulative growth for the Apr-Nov 2012-13 period stands at 1.0% as against 3.8% registered in the similar period last year.

The Society of Indian Automobile Manufacturers (SIAM) also revised the overall Auto industry’s growth guidance to 3%-5% for FY13. Of this, the growth in commercial vehicles is expected to be a meagre 0%-2%.

On the company-specific front, GMR Infrastructure has terminated its contract with National Highways Authority of India (NHAI) for the six-laning of the ambitious Kishangarh-Udaipur-Ahmedabad highway after the project did not receive environment clearance.

The Q3FY13 numbers of Indian corporate have also started flowing in. On Friday, Jan 11, IT bellwether Infosys surprised the streets with a good report card for the Dec 2012 quarter. The numbers exceeded expectations, with revenue growth of 6.3% on a sequential basis. The company also revised its growth guidance on the higher end, which saw its stock close higher by a whopping 17% on the day of the results announcement.

In the banking space, IndusInd Bank also reported robust Q3FY13 numbers, with the topline and bottomline growing by 34% and 30% respectively on a YoY basis. The major highlight of the result was the bank’s margins, which increased by 21 basis points to 3.46%.

On the global front, the US markets closed higher, with major indices like Dow Jones, S&P and Nasdaq closed higher in the range of 0.6%-0.9% respectively. The US unemployment rate stayed firm at 7.8%.

Alcoa, the largest aluminum producer in the US, came out with its Dec 2012 quarter numbers that were higher than the street’s expectations. The company’s management was also cautiously optimistic about the demand for the metal in 2013, which infused some sense of confidence on W-Street.

The major European indices showed mixed signals. The FTSE closed the week higher by almost 1%, while CAC ended marginally in the green. On the other hand, German Index DAX dropped 0.37%. According to media reports, Bank of England has left its base rate unchanged at 0.5% and also continued its monetary stimulus program. The European Central Bank (ECB) president Mario Draghi also kept the interest rates on hold at 0.75%. Despite signs of stabilisation in the Euro zone’s economy, the ECB president warned against declaring an end to the financial crisis.

The Asian market also closed in a mixed bag, with Hang Seng and Shanghai Composite down by 0.29% and 1.62% respectively. According to Bloomberg reports, China’s inflation accelerated more than the forecasts to a 7-month high. The nation’s coldest winter in 28 years saw the vegetable prices going up, which may limit room for easing. The Japanese market, though, ended the week higher by 1% at the levels of 10801. The Japanese government will spend 10.3 trillion yen (USD 116 billion) to drive a recovery from a recession in Prime Minister Shinzo Abe’s first major policy initiative to end deflation and boost growth, a Bloomberg report stated.

Among the sectoral indices, IT and TECk were the major leading indices, closing the week higher 8% and 6% respectively. The Auto index closed marginally higher by 0.36%. Consumer Durables, Capital Goods, Metals were among the indices which closed lower, down by 3%-5%.

Going stock specific, IT stocks were the leading gainers. As out of the Top 10 ‘A’ group stocks, 6 are from the IT space. Infosys is the leader, with gains of around 17%. Other bigwigs in the sector like Wipro, TCS, Tech Mahindra, Mahindra Satyam and Hexaware also closed higher in the green zone. Other gainer includes Gitanjali Gems, Zee Telefilms and Emami.

United Spirits was the worst performer, closing down around 5%. Suzlon also lost 5% after the company was asked by its lenders to either infuse Rs 5000 crore in the company or sell its German subsidiary, REPower. Other stocks ending trades lower were Pantaloon Retail, JP Associates and Madras Cements.

The monetary inflows from FIIs stayed strong, as they pumped in Rs 5451 crore in equities during the week. DIIs ended in the red, selling off equities worth Rs 1397 crore.

Overall, we believe the market may remain volatile in next week as on Monday (Jan 14, 2013), we should see the Wholesale Price Index (WPI) and Consumer Price Index (CPI) inflation numbers for Dec 2012. We believe that any moderation in inflation numbers, coupled with the lower IIP data, would strongly signal a rate cut in the RBI’s next meet scheduled on Jan 29, 2013. Further, the markets would take indications from the results season. TCS, DCB Bank, Axis Bank, Bajaj Auto, YES Bank, Hero MotoCorp, HCL Tech, HDFC Bank and ITC are among the major companies that are going to announce their Q3FY13 numbers in the next week.