Markets may open flat ahead of RBI’s policy review

Morning Update 16th Dec 2011

Opening Bias

The markets may open flat ahead of the RBI’s Q3 monetary policy announcement today. The SGX Nifty is trading down by 5 points at 4,760, indicating a flattish gap down opening to the markets today.

Benchmark Indices
Index	Closing	% Change
SENSEX	15836.47	-0.28
NIFTY	4746.35	-0.35
Dow Jones	11868.8	0.38
S&P 500	1215.75	0.32
NASDAQ	2541.01	0.07
Bovespa	56331.1	-0.56
FTSE	5400.85	0.63
DAX	5730.62	0.98
CAC	2998.73	0.76
LIVE
Hang Seng	18087.4	0.34
Nikkei	8408.3	0.37
Shanghai	2183.88	0.14

Overnight, the US stocks gained after investors took heart from stronger US economic data, snapping a three-day losing streak, but finished off the session highs after a weak set of industrial output data and another warning about Europe’s sovereign debt crisis. The initial jobless claims filed in the US last week were the lowest since May 2008 - the latest indication of strength in the weak jobs market according to the labour department. The initial claims for state unemployment benefits dropped by 19,000 to a seasonally adjustable 3,66,000. However, the US industrial production fell for the first time in seven months during November - an unexpected drop caused by the declining output of cars, electronics, clothing, and other products. This pretty much capped the day’s gains. The Asian markets are seen trading on a very flat but positive note in the early market hours, tracking the US economic data.

The Indian companies’ ADRs traded in the American markets have closed on a mixed note, indicating a choppy day ahead for them in the Indian markets. In the IT space, while Wipro and Infosys were up by 0.1 and 0.5 per cent, Patni was down by 0.49 per cent. In the telecom space, MTNL was up by 2.22 per cent and Tata Communications was up 4.21 per cent. In the banking space, HDFC Bank was up by 0.53 per cent and ICICI Bank was up by 0.39 per cent. In the other space, Tata Motors was up by 0.69 per cent, Sterlite was down by 1.8 per cent and Dr Reddy’s Laboratories was up by 1.5 per cent.

Currency Rates
	Rs/$	Rs/Euro	Rs/GBP	Rs100/JYP
RBI Rate	54.2355	70.4602	83.7667	69.4900
Future	53.6400	69.8700	83.3500	69.0800

Back home, the markets will keenly await the announcement of the RBI Q3 Monetary Policy Review, which is expected to be released by noon today. Looking at the moderation and sluggishness in economic growth and coupled with a cooling off in inflation we at DSIJ expect the RBI to take a pause in its monetary stance on December 16, 2011 and adopt a dovish approach thereon.

Moving on, yesterday the food articles’ inflation for the week ended December 3, 2011 dropped to its lowest level in four years to touch 4.35 per cent as against 6.6 per cent last week. The inflation in primary articles fell to 5.48 per cent from 6.92 per cent in the previous week and the inflation in fuel and power declined marginally to 15.24 per cent from 15.53 per cent in the previous week. These are some positive signs for the economy, with inflation showing clear signs of abatement on a consistent basis over the last month.

The advance taxes for the third quarter from corporate headquarters in Mumbai rose by a mere 10 per cent in Q3, suggesting that the slowdown is impacting their bottomlines. This also rendered the targeted tax collection set by the government for March 31, 2012 a difficult target to achieve. Advance tax payment is a reflection of the health of a company and the economy, and a lower payout indicates lower profitability. With this latest set of advance tax data, one can conclude that the December quarter is going to be more or less a continuation of the weak performance we saw in the previous quarter, if not worse.

Key Global Indicators
	Gold (Rs/10gm)	Crude ($/bbl)
Spot	27335	104.45
% change	-	0.59
Future	27600	93.92
% change	2.07	0.05

In other developments, gold recorded its steepest fall yesterday in over two months and lost Rs 800 to Rs 28,140 per 10 grams on frantic selling by stockists on a weak global trend and sluggish domestic demand. According to the traders, the selling pressure gathered momentum as the metal in the overseas markets dipped below USD 1,600 an ounce on the deepening Euro zone debt crisis and a boosting of the dollar. In addition to that, a reduced off-take on the domestic front due to the end of the marriage season also weighed on the yellow metal’s prices here. On similar lines, silver tumbled by Rs 3,200 to Rs 52,600 per kg on fall in demand from industrial units and silver coin manufacturers.

In conclusion, we expect the markets to remain volatile today. A pause in the monetary stance, though a positive move, would not bring about much of a rally in the market as its pretty much expected all over the street. A positive fact is that the rupee notched up some gains yesterday to close at Rs 53.64 per dollar as the RBI intervened and introduced some stringent measures to curb speculative trading in the currency market. We advise our readers to stay cautious and apply the ‘wait and watch’ approach as the markets turn volatile ahead of the build-up to the RBI’s Monetary Policy Review.

Stocks in Action

As reported in Business Standard, Coal India’s (CIL) board of directors has approved a proposal for the mining firm to acquire stakes in unlisted overseas firms, provided the “offers were valid”. The development comes in the wake of the finance ministry’s approval last month for the public sector firm to go ahead with a buy-out of overseas firms that are unlisted. The PSU has put together a war chest of Rs 6,000 crore for the acquisition of mines. This paves the way for CIL to zero in on three unlisted overseas’ coal assets for acquisition in Australia, Indonesia and USA respectively. With its domestic production lagging as a result of various environmental pressures and labour constraints, strategic acquisitions abroad will power the company to meet its shortfalls. Expect positive movement today.

According to Business Standard, RIL’s gas output from its eastern offshore KG-D6 gas fields has dropped to a fresh all-time low of 39.80 million standard cubic metres per day. The output comprised 32.94 mmscmd from the D1 and D3 gas fields and 6.86 mmscmd from the MA oilfield. The KG-D6 production is lower than the 61.5 mmscmd rate achieved in March 2010 as a drop in pressure in the wells and increased water ingress has led to a lower per-well gas output. The output from KG-D6 is short of the 70.39 mmscmd level (61.88 mmscmd from D1 and D3 and 8.5 mmscmd from the MA field) envisaged by now as per the field development plan approved in 2006. The company has been facing stiff trouble on all fronts, right from its battle with the ministry over the cost recovery issue to having made no breakthrough in its other proposed business ventures. With the gas output continuing to lag behind the robust demand, RIL will face more pressure going forward.

Auto major Mahindra & Mahindra has decided to raise the prices of its entire range of vehicles by up to 3 per cent from January 1 due to rising input costs. Similarly, other auto makers like Renault, Nissan Motor, Hyundai Motor, Ford, General Motors and Toyota Kirloskar have also announced hikes in the prices of their vehicles by up to 3 per cent from January 1. It is believed that Maruti Suzuki is also mulling the option of a price hike. While it is a positive development to see car makers hike their prices in order to increase realisations and pass on the higher input cost, we believe that with the falling demand scenario for cars in the domestic market such a move will only hurt the sales further. Also the recent recommendations of the Planning Commission to levy certain extra taxes on vehicle purchases and petrol will further impact the demand.

According to sources, after three consecutive price hikes, state-owned oil companies have decided to cut jet fuel rates by 1.3 per cent effective today. ATF in Mumbai will cost Rs 64,730 per kl from tomorrow as against the current rate of Rs 65,650.27 per kl, a decrease of Rs 920 per kl. The reduction comes on back of a steep 3.7 per cent hike in rates effected from December 1. Prior to that, ATF rates had been increased by Rs 1,195 per kl from November 16 and by 3.8 per cent or Rs 2,845 per kl from November 1. As per industry sources, the reduction was possible because a fall in international jet fuel prices has offset the weakening of the rupee against the US dollar. Yesterday, OMC shares had performed well on the bourses over the possibility of a hike in petrol prices soon. We expect the OMCs to shed some of their gains today as a cut-back in ATF prices will have a negative effect on their earnings.

Two UBS bankers here unsuccessfully tried to create an offshore investment entity allegedly to enable industrialist Anil Ambani route his funds back into the Indian stock market, said a media report, quoting proceedings at a financial market tribunal. In a statement issued from New Delhi, Anil Ambani-led Reliance Group, however, said that no charges have been levelled against them by the UK regulators in these proceedings. The group also said that the five year old matter relates to a regulatory action in the UK against a foreign bank’s former employees for misuse of client accounts and unauthorised trades made by them. The ADAG stocks had faced a sell-off yesterday as a result of this development and one may expect a bounce-back of sorts today with the company coming out and clarifying on the issue.

According to a press release filed with the BSE, Onco Therapies Ltd, a wholly-owned subsidiary of Strides Arcolab, has received approval for three abbreviated new drug applications of cytarabine injections from the US Food and Drug Administration (USFDA). According to IMS data, the US market for cytarabine is worth nearly USD 12.3 million. Cytarabine is part of Strides’ oncology portfolio licensed to Pfizer in January 2010 for the US market and is expected to be launched shortly. Cytarabine is used to treat different forms of leukaemia, including acute and chronic myelogenous and acute lymphocytic leukaemia. It is also used to treat cancer found in the lining of the brain and spinal cord. However, shares of Strides Arcolab were trading at Rs 399 on the the BSE in the late afternoon today, down by 3.68 per cent from their previous close.

According to Reuters India, Reliance Mediaworks, controlled by billionaire Anil Ambani, plans to launch a previously announced rights issue by around March to raise Rs 5 billion to help reduce debt. The film and entertainment services company, which has a debt of Rs 15 billion, is also in talks with global private equity firms and other investors to raise Rs 4-5 billion. The company, with market capitalisation of about USD 70 million, hopes that the two fund-raising exercises will cut its debt equity ratio by a third to 1.2 to 1 by next year. One may expect some action in the stock today.

Corporate Action

Stocks Paying Dividend (Ex-Date)
Scrip Name	Action	Rs
Financial Eyes	Dividend	0.25
Garware Poly	Final Dividend	1.5
Garware Poly	Special Dividend	7
Gujarat Fluo	1st Interim Dividend	2
SB&T Intl	Final Dividend	0.1
United Brew-$	Dividend	0.6

BSE Institutional Turnover
	FII			DII
Trade Date	Buy	Sales	Net	Buy	Sales	Net
15-Dec-11	2,991.84	3,315.12	-323.28	986.71	938.62	48.09
14-Dec-11	2,246.43	2,386.56	-140.13	1,022.94	573.35	449.59
13-Dec-11	1,597.52	2,158.32	-560.80	1,251.49	769.56	481.93
Dec , 11	21,601.85	21,710.97	-109.12	9,516.46	9,425.91	90.55

FII DERIVATIVES STATISTICS FOR 15-Dec-2011
	Buy	Sell	OI (End of day)		Net Position
	Rs (crore)	Rs (crore)	No. of contracts	Rs (crore)	Rs (crore)
Index Futures	1532.48	2230.45	549992	12829.16	-697.98
Index Options	22741.94	22364.27	2066372	49004.97	377.67
Stock Futures	1855.77	1862.25	1158442	25228.50	-6.48
Stock Options	535.44	515.17	43492	942.62	20.27
Total	26665.62	26972.14	3818298	88005.26	-306.52