Market may slide on weak Asia

The key benchmark indices may extend Tuesday (20 October 2009)'s losses on weak Asia. Glut in share sales by Indian firms may suck liquidity from the secondary market may also prompt investors to take some profits off the table after a recent sharp surge in share prices triggered by huge foreign fund inflows.

Index heavyweight Reliance Industries will be in action. The legal battle between Reliance Industries (RIL) and Reliance Natural Resources (RNRL), owned by estranged brothers Mukesh and Anil Ambani, entered its final phase on Tuesday with the counsel for RIL commencing his arguments. The hearing will continue on Wednesday.

RIL's lawyer Harish Salve argued that the memorandum of understanding (MoU) signed between the members of the Ambani family on 18 June 2005, was not binding on the company, as it had never been shown to its board of directors. But even if it was, RIL would be unable to supply 28 million standard cubic metres per day (mmscmd) of gas to RNRL at $2.34 per million British thermal unit (mmBtu) as it contradicted the government's gas pricing and utilisation policy, Mr Salve said. The proceedings, which lasted for over two hours, were marked by interjections from the three-judge bench.

The apex court will have to rule on a number of issues. Apart from the main dispute, as to whether a valid contract exists and what is the correct price, it will have to decide if the government can intervene in the case.

India's largest motor bike maker by sales Hero Honda Motors will announce their Q2 September 2009 result today. Hero Honda is seen reporting robust Q2 results on the back of higher volumes and surge in profit margins due to fall in input costs. A total of nine brokerages expect a between 59.1% to 83.1% growth in Hero Honda's net profit at between Rs 487.20 crore to Rs 560.70 crore in Q2 September 2009 over Q2 September 2008.

Jaiprakash Associates will announce their Q2 September 2009 result today. Strong order book and higher cement realization are seen driving growth at construction and cement firm Jaiprakash Associates (JAL) in Q2 September 2009. A total of 6 brokerages expect a between a 4.7% fall to a 21.7% growth in JAL's net profit at between Rs 193.50 crore to Rs 247.20 crore in Q2 September 2009 over Q2 September 2008. Their expectations peg a between 64.4% to 83.6% growth in revenue at between 1944.80 crore to Rs 2170.80 crore in Q2 September 2009 over Q2 September 2008

Chambal Fertisers & Chemicals, Yes Bank, Adhunik Metaliks, Agro Tech Foods, Everonn Education, Indraprastha Medical, Lanco Industries, MM Forgings, OCL India, Omnitech Info, Pidilite, Sakthi Sugars, Wabco-TVS, Xpro India, Zuari Industries among others will announce their Q2 September 2009 result today.

Prime Minister Manmohan Singh said on Tuesday the Indian economy will expand at 6-6.5 % in the year to March 2010, despite uncertainty whether signs of a global recovery will lead to a return to a sustained growth path. Singh also said the drought in the country, the worst in decades, had further hit the poorest sections of its people.

The finance secretary Ashok Chawla said on Tuesday the Reserve Bank of India (RBI) would hopefully continue its current easy monetary stance when it reviews policy later this month as it was justified for the present economic scenario. The governor is scheduled to meet the prime minister and finance ministry officials on 23 October 2009 to review the economic situation ahead of the policy.

Meanwhile, oil Minister Murli Deora said to TV media channel on Tuesday he will review petrol and diesel prices in the next 15-20 days. India unexpectedly raised gasoline and diesel prices by as much as 10 % on 1 July 2009 its first increase this year.

Faster industrial output growth and rising inflationary pressures have strengthened case for an end to the RBI's accommodative monetary stance next year. Industrial output grew at its fastest pace in 22 months in August at 10.4 %.

The RBI pumped in massive liquidity in the banking system in the past one year or so to help revive the domestic economy in the aftermath of the global financial crisis. While as exit from the loose monetary policy is imminent, speculation on the bourses is the timing of the exit policy. The RBI is expected to keep its benchmark lending and borrowing rates on hold at a quarterly monetary policy review on 27 October 2009.

Stock and sector-specific activity may dominate trade in the coming days based on expectations on Q2 September 2009 results. Auto firms are seen reporting strong Q2 results on strong volume growth and on lower input costs. Lower interest rates and pay hike for government employees has boosted auto sales this year after last year's slowdown in demand. Government employees have started receiving the balance 60% of their wage arrears as per the recommendations of the VIth Pay Commission.

Cement firms, too, are seen reporting good Q2 numbers on the back of volume growth, higher realisation and decline in costs like imported coal. Metal firms are seen reporting fall in net profit due to a sharp fall in metal prices on year-on-year basis.

Fall in volumes in the commercial property segment and lower realisations in both commercial and residential property segments, will pull earnings of realty firms lower.

Banks are seen reporting a sedate growth in core lending amid sluggish credit offtake. On the flip side, PSU banks will benefit from treasury gains amid volatility in prices of government securities during the quarter.

Strong growth in new subscriber additions will aid topline growth of telecom firms. But falling average revenue per user (ARPU) and revenue per minute due to intense competition will cap bottom line growth.

The aggregate net profit of 210 companies which have announced results so far, rose 19.1% to Rs 8544 crore on 5.8% rise in sales to Rs 54001 crore in Q2 September 2009 over Q2 September 2008.

Asian stocks declined today led by materials and technology companies, on declines in commodity prices and worse-than-forecast U.S. housing starts. The key benchmark indices in China, Hong Kong, Japan, South Korea, Singapore and Taiwan fell by between 0.31% to 0.78%.

US markets retreated on Tuesday on poor economic data even though several earnings reports beat expectations. The Dow Jones fell 50.71 points, or 0.5%, to 10,041.48. The S&P 500 index fell 6.85 points, or 0.6%, to 1,091.06. The Nasdaq Composite index was down 12.85 points, or 0.6%, to 2,163.47.

In day's economic news, readings on both producer price index (PPI) and housing starts missed expectations. Producer prices dropped by 0.6% in September, more than the 0.3% drop economists had expected. Housing starts were the bigger disappointment gaining 0.5% last month, less than the 2.8% increase expected.

In earnings from the US, Yahoo reported a profit that was higher than last year and went past expectations.

Closer home, Key benchmark indices edged lower on Tuesday as a glut in share sales by Indian firms may suck liquidity from the secondary market. Investors took some profits off the table after a recent sharp surge in share prices triggered by huge foreign fund inflows. The BSE 30-share Sensex lost 103 points or 0.59% to 17,223.01 on that day.

As per provisional data, foreign funds on Tuesday, 20 October 2009, bought equities worth a net Rs 275.89 crore. Domestic funds offloaded stocks worth a net Rs 140.80 crore

The supply of paper by Indian firms appear limitless, raising concerns that additional share sales will suck liquidity from the secondary market. As per reports, Indian firms have garnered about $9 billion (Rs 32,400 crore at the current exchange rates) through sale of shares and convertible bonds to institutional buyers since April 2009. Indian companies are taking advantage of a surge in liquidity to recapitalize and fund capital expenditure after being starved of cash last year.

Most of these companies - from industries ranging from liquor and spirits to infotech - issued equity shares to a select group of investors by way of qualified institutional placement or QIP. If the enabling resolutions passed by the companies are any indication, Indian firms are gearing up to raise $15 billion (Rs 69,427 crore) in the next six months. The list includes Hindalco (Rs 2,900 crore), JSW Steel ($1 billion), India Cements ($100 million), Essar Oil ($2 billion), Tata Steel (Rs 5,000 crore), Jet Airways ($ 400 million) and Bharat Forge ($150 million),

Unlisted Reliance Infratel announced on 22 September 2009 its intention to raise Rs 5,000 crore from the primary market. Divestment of state-run firms by the government may also increase the supply of paper in the market.

The government on Monday approved stake sales in state-run power producer NTPC and another unlisted power firm Satluj Jal Vidyut Nigam which reflects the country's resolve to speed up reforms and raise more resources for social schemes. On Monday, Trade Minister Anand Sharma said the Union Cabinet had approved a 5% stake sale in NTPC, and 10% in, an unlisted power producer. On Friday, 16 October 2009, Prime Minister Manmohan Singh said many state-run firms are eager to list their shares in the stock market as it would help unlock their value.