Market Outlook 16th December 2011

8/3/2019 Market Outlook 16th December 2011

http://slidepdf.com/reader/full/market-outlook-16th-december-2011 1/6

Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539 1

Market OutlookIndia Research

December 16, 2011

Dealer’s Diary

Indian markets are expected to open flat to marginally positive taking cues from

flat opening in most of the Asian markets today and positive closing in the globalmarkets yesterday. The Indian markets edged lower yesterday as data showing

selling by FIIs weighed on sentiment. However, there was a strong intraday

recovery after the latest data that showed that annual food inflation fell to a

nearly four-year low of 4.35% for the week ended December 3.

Globally, US and European markets closed in green yesterday on the heels of the

release of a batch of largely upbeat U.S. economic data, snapping a three-day

losing streak, but finished off session highs after another warning about Europe’s

sovereign-debt crisis. In US, a report from the Labor Department showed that

initial jobless claims filed last week were the lowest since May 2008. Meanwhile,

industrial production data of US for November 2011 unexpectedly fell to -0.2%

due to a pullback in factory output.

The markets today would be closely watching out RBI’s monetary policy review in

which RBI is expected to take a pause after 13 consecutive rate hikes over the last

18 months. Also, CPI index for November 2011 (estimate – 0.1%) of US

economy will be on radar.

Markets Today The trend deciding level for the day is 15,957/4,784 levels. If NIFTY trades

above this level during the first half-an-hour of trade then we may witness a

further rally up to 16,058–16,235/4,818– 4,874 levels. However, if NIFTY trades

below 15,957/4,784 levels for the first half-an-hour of trade then it may correct

up to 15,780–15,678/4,729–4,695 levels.

Indices S2 S1 R1 R2

SENSEX 15,678 15,780 16,058 16,235

NIFTY 4,695 4,729 4,818 4,874

News Analysis RBI Monetary Policy Preview – Pause in rate hikes expected

Eurozone update

Tata Motors global sales: November 2011

Refer detailed news analysis on the following page

Net Inflows (December 14, 2011)

` cr Purch Sales Net MTD YTD

FII 2,303 2,358 (56) 947 (3,077)

MFs 510 307 203 (241) 5,704

FII Derivatives (December 15, 2011)

` cr Purch Sales Net Open Interest

Index Futures 1,532 2,230 (698) 12,829

Stock Futures 1,856 1,862 (6) 25,229

Gainers / Losers

Gainers Losers

Company Price (`) chg (%) Company Price (`) chg (%)

Lupin 435 5.3 Apollo Hosp 477(14.3)

Jubilant Food 777 4.6 Manappuram Fin 46 (9.9)Chambal Fert 83 4.5 Sintex Inds 69 (7.8)

Tata Power 90 4.1 Havells India 401 (6.6)

Apollo Tyres 633.9 Mcleod Russel 189 (6.6)

Domestic Indices Chg (%) (Pts) (Close)

BSE Sensex (0.3) (44.7) 15,836

Nifty (0.4) (16.9) 4,746MID CAP (1.1) (60.4) 5,370

SMALL CAP (1.5) (88.9) 5,781

BSE HC 0.1 2.9 5,894

BSE PSU 0.1 3.6 6,579

BANKEX (1.0) (96.3) 9,728

AUTO (1.2) (102.1) 8,168

METAL (0.3) (28.8) 9,941

OIL & GAS 0.5 35.9 7,854

BSE IT (0.6) (32.9) 5,770

Global Indices Chg (%) (Pts) (Close)

Dow Jones 0.4 45.3 11,869

NASDAQ 0.1 1.7 2,541

FTSE 0.6 34.1 5,401

Nikkei (1.7) (141.8) 8,377

Hang Seng (1.8) (327.6) 18,027

Straits Times (1.4) (37.1) 2,635

Shanghai Com (2.1) (47.6) 2,181

Indian ADRs Chg (%) (Pts) (Close)

Infosys 0.5 0.3 $50.1

Wipro 0.1 0.0 $10.0

ICICI Bank 0.4 0.1 $25.6

HDFC Bank 0.5 0.1 $26.4

Advances / Declines BSE NSE

Advances 824

Declines 1,905 1,075

Unchanged 121 53

Volumes (` cr)

BSE 2,042

NSE 10,931



Market Outlook | India Research

December 16, 2011 2

RBI Monetary Policy Preview – Pause in rate hikes expected

The Reserve Bank of India (RBI) will be conducting the 3QFY2012 mid-quarter

review of the monetary policy today. Almost the entire street is expecting the RBI to

take a pause after 13 consecutive rate hikes over the last 18 months. The RBI had

already hinted at a rate pause for the current monetary policy during the policy

review on October 25, 2011, and considering the slowing economic growth

trends, as highlighted by the lowest GDP growth in the past nine quarters (6.9% for

2QFY2012) and industrial output growth slipping into the negative territory for the

first time since June 2009 (contraction of 5.1% in October), a hike in policy rates

seems highly unlikely.

While there has been a buzz on the street relating to a cut in Cash Reserve Ratio

(CRR) lately, we feel the RBI will continue resorting to open market operations

(OMO) for easing liquidity in the system rather than going ahead with a CRR cut.

So, while there is a possibility of a CRR cut, we would attribute a low probability to

the same in this policy. The RBI with its OMO has headroom to infuse

` 60,000cr-70,000cr over the next few months in our view (QTD average LAF

borrowings at ~ ` 75,000cr), which we believe should be sufficient in managing

near-term liquidity concerns.

Wholesale price-based inflation (WPI) for November 2011 eased to 9.11%, falling

significantly from the 9.73% level registered in October 2011; however, it was still

above the psychological mark of 9%. Numbers were also higher than Bloomberg

estimate of 9.02%. Core (non-food manufacturing) inflation – which the RBI tracks

closely for its monetary policy decisions – continued to be high at 7.8% (average of

5.8% over the last two years). Hence, we do not expect any immediate cut in policy

rates by the RBI. With the RBI already having clearly indicated that it would like to

see a definite downward trend in inflation figures before resorting to a rate cut and

inflation expected to moderate to 8-9% only post CY2012, we expect the RBI to

remain in the pause mode for a few more months, before starting the rate cut

cycle. Rate cuts earlier than that are likely only if the next reading on quarterly GDP

growth comes in alarmingly low at below 6-6.5%.

To summarize, for the upcoming policy, we expect the RBI to maintain status quo

on repo rate and CRR, while indicating infusion of adequate liquidity through

OMO – this outcome is already factored in by the markets and any cut in rates

would be taken positively.




December 16, 2011 3

Eurozone update

The much awaited EU summit ended on a relatively positive note, where a major

step was taken towards building a fiscal pact. The proposed reforms were not as a

result of popular demand by Europeans, but rather due to the belief that the

Eurozone needs to recover and austerity measure was the only rescue ship.

However, unless these measures are accompanied by ECB enhancing its role

significantly, it will not materially alter the debt crisis situation in the near term.

Major events of the week include:

Spanish bonds gather unexpectedly strong demand

Aided by strong demand, Spain sold nearly twice as many bonds yesterday than

planned at its final auction this year. The Spanish Treasury sold €6.03bn

(US$7.83bn) bonds, against a target range of€

2.5bn-€

3.5bn. It received totalbids worth €11.2bn, implying a comfortable coverage of the amount sold and

enabling the treasury raise more cash than planned. As per traders, higher-than-

estimated response to the sale was driven by banks that sought collateral ahead of

the ECB’s three-year liquidity tender next week. However, the strong auction does

not alter the challenging economic conditions for the government.

Borrowing cost, however, remained at elevated levels, even though Spanish debt

has been outperforming its Eurozone peer, Italy, since the end of November. Spain

paid an average yield of 4.02% on the January 2016 bond compared to 5.28% at

its previous auction on December 1, 2011. Average yield on the April 2020 bond

was 5.20%, up from 5.0% at the previous sale on September 15, 2011.

EU summit ends on a positive note, however fails to calm markets

The much awaited EU summit ended last Friday last week, with a silver lining for

Eurozone. The new treaty, referred to as ‘fiscal compact’ proposed to implement

stricter economic governance received almost cent percent unanimity – 26 out of

27 EU member states backed for the tax and budget pact to tackle the Eurozone

debt crisis. Only UK refused to go along, as the provisions pertaining to tougher

regulation of the financial transactions were perceived detrimental to the country’s

interest.

However, the agreements and finalizations did little to restore confidence amongthe investor community. On Monday, stocks slid and borrowing costs for Italy and

Spain rose as worried sentiments weighed on the outcome of the summit that split

the European Union, with UK blocking the treaty change and forcing Eurozone

countries to negotiate a fiscal accord outside the Union.

ECB stepped to rescue; it bought short-term Italian bonds after yields on Italian

and Spanish debt spiked. But ECB sources clarified that purchases would remain

limited with a maximum ceiling of €20bn per week.

European banks downgraded; pressure mounts

Moody's downgraded France's three main listed banks last week amiddeteriorating funding conditions and their exposure to sovereign debt. It slashed

BNP Paribas SA and Credit Agricole SA long-term debt ratings to Aa3 and Societe

Generale SA to A1, and affirmed the negative outlook of these banks. In addition,




December 16, 2011 4

European banks are under pressure from regulators to shore up their capital base.

To make up for this, banks are in the run to dispose some of their fastest growing

businesses outside their domestic territories to competitors at the cost of future

profit and growth.

Spain’s Banco Santander SA, Belgium’s KBC Groep NV and Germany’s Deutsche

Bank AG are readying plans to exit profitable operations outside their home

markets. Banco Santander, who required to bridge €5.2bn capital gap, sold its

Colombian unit last week to Chile’s Corpbanca for US$1.16bn (€0.9bn). Likewise,

Deutsche Bank is too weighing options, including sale of most of its asset-

management unit, while KBC may dispose of businesses in Poland.

Economists are of the view that a second credit crunch is about to grip the

European banking system and repeat the problems that triggered the 2008

financial crisis.

IMF seeks funds from the world – UK limits pocket, US refrains to participate

European leaders also agreed during the summit to provide €200bn to the IMF to

help augment the reservoir of bailout funds distressed nations, although no

breakdown was specified on member countries’ contribution. In preparatory talks

ahead of the summit, Eurozone ministers reportedly had expected around €30bn

from UK. However, UK’s PM David Cameron clearly ruled out injecting extra

€30bn into IMF, thereby sending negative signals to the Eurozone. David

Cameron clarified that UK did not expect to stretch beyond the £10bn (€11.8bn)

permissible limit allowed under a parliamentary vote to increase Britain’s

commitments to the IMF – on top of the £29bn (€

34bn) already committed. Any increase above £10bn would necessitate another ‘Commons vote’, which could be

problematic given the resistance of Labour and MPs.

On the other hand, US chose to be a bystander to IMF’s needs. This was contrary

to its move in 2009, where it fronted a global drive to augment the IMF’s ability to

help pull the world out of recession by pitching in US$100bn. US is of the view that

crisis in the Eurozone should be tackled by European nations – IMF should only

play a supportive role and avoid taking a center stage, thereby pointing out

greater commitment from European countries.

Tata Motors global sales: November 2011

Tata Motors reported better-than-expected global volumes for November 2011,

driven by robust growth across its product segments. Total global volumes

registered strong growth of 35.1% yoy (12.8% mom) to 108,028 units. Global

commercial vehicle volumes jumped strongly by 23.6% yoy (15.1% mom), driven

mainly by domestic sales; while global passenger volumes grew by an impressive

46.8% yoy (10.8% mom) on the back of robust domestic and Jaguar and Land

Rover (JLR) performance. Wholesale volumes of JLR posted better-than-expected

27.1% yoy (11.6% mom) growth in volumes to 29,183 units, primarily led by

37.7% yoy (robust 14.1% mom) growth in Land Rover volumes. Jaguar volumes,

on the other hand, posted a 5.4% yoy decline; however, volumes improved by

1.6% on mom basis. JLR sales continue to defy global slowdown as they continue

to be benefitted by strong demand momentum in China and Russia. We




December 16, 2011 5

expect JLR to sustain its volume performance, backed by the positive response to its

recently introduced models. At the CMP of ` 173, the stock is trading at 5.9x and

3.9x FY2013E earnings and EV/EBITDA, respectively. Owing to the recent

correction in the stock price, we recommend Accumulate on the stock with anSOTP target price of `187.

Economic and Political News

Confident of tabling Lok Pal Bill in the winter session: Government

Credit offtake up 17.8% as of early December

Services exports up 2% in October, imports rise 0.3%

Weekly food inflation at 4.35%, lowest in four years

Corporate News

M&M to hike prices by up to 3% from January 2012

NTPC to set up 50MW solar plant in Madhya Pradesh

Reliance Capital in talks to buy majority stake in Bloomberg UTV

RIL's D6 block gas output falls to all-time low

Strides Arcolab gets USFDA nod for cancer drug

Source: Economic Times, Business Standard, Business Line, Financial Express, Mint




December 16, 2011 6

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .

Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Market Outlook 16th December 2011

Documents

Transcript of Market Outlook 16th December 2011