Market Outlook
July 6, 2012
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Market Outlook
July 6, 2012
Dealer’s Diary
The Indian markets are expected to open flat tracing SGX Nifty which is trading flatin early trade. Most of the Asian shares are trading lower in the opening trade.US markets posted a weak performance on Thursday, despite a rate cutsannounced by European Central Bank (ECB), People’s Bank of China as the newswas largely expected. Markets also didn’t react positively to a report from ADPshowing stronger than expected private sector job growth, and a Labor Departmentreport showing an unexpected drop in weekly jobless claims. During the day, theEuropean Central Bank cut interest rates to a record low of 0.75%, while thePeople's Bank of China also lowered rates for the second time in two months.However, the Bank of England left interest rates unchanged but decided to raisethe size of its asset purchase plan by GBP 50bn. The performance of Europeanmarkets was mixed.Meanwhile, Indian markets rose modestly on Thursday on expectations ofmonetary stimulus by central banks across the globe. Further, expectations ofmeasures from the government for revival of the slowing economy aided gains onthe domestic bourses.
Markets Today
The trend deciding level for the day is 17,508 / 5,317 levels. If NIFTY trades abovethis level during the first half-an-hour of trade then we may witness a further rally up to 17,593 – 17,648 / 5,344 – 5,361 levels. However, if NIFTY trades below17,508 / 5,317 levels for the first half-an-hour of trade then it may correct up to17,454 – 17,369 / 5,300 – 5,272 levels.
Indices S2 S1 PIVOT R1 R2
SENSEX 17,369 17,454 17,508 17,593 17,648NIFTY 5,272 5,300 5,317 5,344 5,361
News Analysis
ECB cuts benchmark rate to record low of 0.75%, Deposit rates to zero
China cuts interest rates again
Coal India reports robust growth in production
Bajaj Auto cuts product prices in Sri Lanka to revive sales
Refer detailed news analysis on the following page
Net Inflows (July 4, 2012)
`
cr Purch Sales Net MTD YTD
FII 2,185 1,884 301 861 46,855MFs 399 584 (185) (406) (6,252)
FII Derivatives (July 5, 2012)
`
cr Purch Sales Net Open Interest
Index Futures
938 814 124 13,929
Stock Futures
963 1,318 (355) 24,940
Gainers / Losers
Gainers LosersCompany Price (
`
)
chg (%)
Company Price (
`
)
chg (%)
Shree Renuka Sug 35
5.0
Bajaj Holdings 796
(3.4)
Apollo Tyres 81
4.6
Asian Paints 3,781
(2.5)
MMTC 780
4.3
ONGC 279
(2.0)
GMR Infra 27
3.9
IFCI 40
(1.8)
Manappuram Finance 31
3.6
Bajaj Finserv 685
(1.8)
Domestic Indices Chg (%) (Pts) (Close)
BSE Sensex
0.4
75.9 17,539
Nifty
0.5
24.8 5,327
MID CAP
0.9
56.4 6,349
SMALL CAP
1.6
110.0 6,837
BSE HC
0.5
31.6 6,942
BSE PSU
0.1
9.0 7,402
BANKEX
1.0
122.7 12,244
AUTO
0.6
58.1 9,531
METAL
(0.4)
(43.9) 11,123
OIL & GAS
(0.1)
(11.7) 8,089
BSE IT
0.0
1.3 5,700
Global Indices
Chg (%)
(Pts) (Close)
Dow Jones
(0.4)
(47.2) 12,897
NASDAQ
0.0
0.0 2,976
FTSE
0.1
8.2 5,693
Nikkei
(0.3)
(24.4) 9,080
Hang Seng
0.5
99.4 19,809
Straits Times
0.8
22.7 2,971
Shanghai Com
(1.2)
(26.0) 2,201
Indian ADRs
Chg (%)
(Pts) (Close)
INFY
(3.2)
(1.5) $44.6 WIT
(4.7)
(0.4) $8.9IBN
0.6
0.2 $33.5HDB
(1.0)
(0.4) $33.6
Advances / Declines BSE NSE
Advances
1,921 1077
Declines
988 403
Unchanged
105 55
Volumes (
`
cr)
BSE 2,926NSE 10,009
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Market Outlook
July 6, 2012
ECB cuts benchmark rate to record low of 0.75%, Deposit ratesto zero
In its policy meeting today, ECB lowered the main refinancing rates by 25bp torecord low of 0.75% and also cut its deposit rate to zero from 0.25% and itsmarginal lending rate to 1.5% from 1.75%. The ECB was under pressure to easemonetary conditions as Europe’s debt crisis was curbing growth across thecontinent (in fact According to European commission, Euro economy is expected toshrink 0.3% in current year) and damping the global outlook. ECB decision ofcutting the deposits rate (which was partly responsible for higher market borrowingcosts) along with the benchmark rates will lower the cost of borrowing and couldbuild on the confidence boost euro-area governments delivered last week whenthey took steps toward a deeper economic union.
China cuts interest rates again
China’s central bank has cut its benchmark interest rate by 31bp to 6% andlowered its deposit rate by 25bp to 3%. In addition to cutting lending and depositrates, the central bank also reduced the floor for interest rates to 70% ofbenchmark rates, from 80% previously. China is due to release second quarterdata next week which is expected to show weakest economic performance sincethe 2008-09 financial crisis. Hence, the interest rate cut is to bolster the slowingeconomy. The lending rate cut is to prevent a further slump in manufacturing anda collapse in property prices.
Coal India reports robust growth in production
Coal India reported that it achieved its production target for 1QFY2013. Itsproduction grew by 6.4% yoy to 102mn tonnes. Its offtake also grew by 6.5% yoy to 113mn tonnes. Supplies to power companies grew by 7.6% yoy to 80mntonnes. Given the constraints of infrastructural bottlenecks, we believe it will bechallenging for Coal India to meet its offtake target of 477mn tonnes for FY2013.Separately, media reports suggest that Coal India has offered power producersadditional 70mn tonnes inventory of coal (lying at its pitheads). However, powerproducers would be responsible for lifting coal from its pitheads. Thus far, SterliteIndustries, Adani Power and China Light and Power have responded to CoalIndia’s offers. The inventory build up at Coal India’s mines is on account of lack oflogistical infrastructure. Hence, even power producers are likely to face logisticalchallenges to lift the inventory from Coal India’s mines in our view.
Until furtherupdate on this matter, we maintain our Neutral rating on the stock.
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Market Outlook
July 6, 2012
Bajaj Auto cuts product prices in Sri Lanka to revive sales
According to media reports, Bajaj Auto (BJAUT) has cut the prices of two-wheelers(2W) and three-wheelers (3W) in Sri Lanka to revive declining sales post the importduty hike by the government. While the 2W prices have been cut by 5-14%depending on the model; 3W prices have been slashed by 10%. This follows asteep hike in product prices (2W and 3W prices were increased by ~29% and~32%, respectively) carried out by the company in April 2012 post the increase inimport duty. The burden of the price cut will be shared by BJAUT and its dealers;however the ratio is not yet known.Post the hike in import duty since April 2012, the company has witnessed almostzero sales to Sri Lanka (against average monthly run-rate of ~10,000 units eachof 2W and 3W) which has considerably impacted the exports performance of thecompany. As a result, export sales which grew by a robust 31% in FY2012witnessed a decline of 3% during 1QFY2013. While, we expect the 2W and 3W sales of the company to witness gradual revival post the recent price cutsannounced by the company, it will negatively impact the net average realization ofthe company and hence the operating margins. We expect the company’soperating margins to decline ~50bp in FY2013 led by competitive pressures in thedomestic markets and disruption in exports. At
`
1,555, the stock is trading at13.9x and 12.6x its FY2013E and FY2014E earnings respectively.
Currently wehave an Accumulate rating on the stock with target price of
`
1,725 valuing thestock at 14x FY2014E earnings.
Economic and Political News
Assocham chief meets Montek, wants GAAR put in cold storage
India has scope to cut government borrowing: Finmin official
SEBI opposes Government's plan to bring back entry load
Inter-ministerial panel to review steel projects on July 25
Corporate News
R-com unit files prelim prospectus for Singapore IPO
Grasim acquires Canada's Terrace Bay Pulp for $300 million
India Cement promoters hike stake to 28.2%
KFA offers to sale pledged assets
Source: Economic Times, Business Standard, Business Line, Financial Express, Mint
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