Market may open marginally lower; Sterlite Industries Q2 result eyed

The market may open slightly lower if trading of S&P CNX Nifty futures on the Singapore stock exchange is of any indication. It indicates that the Nifty could fall 9 points at the opening bell. Jindal Steel & Power, NTPC and Sterlite Industries are due to report Q2 results today, 26 October 2010.



Volatility may remain in the near term as traders roll over positions in the derivatives segment from the near-month October 2010 series to November 2010 series ahead of the expiry of the October 2010 contracts on Thursday, 28 October 2010.

Asian stocks were mixed in early trading Tuesday with Japan's Nikkei index under pressure as the yen hovered near a 15-year high against the dollar. The Nikkei Average was down 0.19%. The key benchmark indices in Singapore and Hong Kong fell by between 0.11% to 0.19%. The key benchmark indices in South Korea, Taiwan, Indonesia and China rose by between 0.05% to 0.29%.

US markets closed higher on Monday, 25 October 2010, on growing expectations that the Federal Reserve will take steps to boost the US economy. In macro news, September existing-home sales rose more than expected

Back home, in a bid to check companies from abusing preferential share warrant allotment norms to favour promoters, the Securities and Exchange Board of India (Sebi) has put in place stringent conditions for such allocations. The Sebi board on Monday also doubled the investment limit for retail investors in an initial public offer (IPO) to Rs 2 lakh from Rs 1 lakh and approved the IPO norms for insurance companies. However, it has deferred a decision on overhauling the corporate takeover norms as it needs more time to study the proposals of a panel.

If any promoter or any promoter group entity has previously subscribed to the warrants of the company but failed to exercise the warrants, these promoters won't be eligible for issue of equity shares or convertible securities or warrants for a period of one year from the date of expiry of the currency/cancellation of the warrants. The board further decided that if any member of the promoters have sold shares in the previous six months, then the promoters/ promoter group would not be ineligible for allotment on preferential basis it said.

The focus of the market is currently on the second quarter September 2010 results. The results announced so far have been encouraging. The combined net profit of a total of 485 firms surged 86.9% to Rs 38,293 crore on 19.6% growth in sales to Rs 1,97,624 crore in Q2 September 2010 over Q2 September 2009.

Higher volumes and price hike will aid earnings growth of most auto firms in Q2 September 2010 though analysts will closely eye operating profit margins and outlook on margins in the face of rising metal prices. Banks are seen reporting decent-to-strong earnings growth on the back of pick-up in credit offtake. Manufacturers of base metals are also seen reporting strong Q2 results on the back of higher metal prices. Increase in product prices will offset higher input costs for consumer staples firms in Q2 September 2010. But, cement firms will report dismal results due to a sharp fall in cement prices during the monsoon season.

While global liquidity remains ample, a section of the market is worried that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 80000 crore from equity and debt issue over the next three to six months. State-run Power Grid Corp, Steel Authority of India and Indian Oil Corp are some of the companies that are planning large share sales in coming months.

Inflows into secondary equity markets could be hit in the immediate short term due to diversion of funds to the mega Rs 15000-crore Coal India initial public offer (IPO), which was concluded on 21 October 2010. A large sum of money is blocked in the IPO, which was subscribed more than 15 times. Pressure on fund outflows will ease in late October 2010 or early November 2010 as Coal India begins to refund excess subscriptions received towards its initial public offering.

Foreign funds have made heavy purchases of Indian equities this year. Net equity inflow in 2010 now stands at a record $24.48 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India (Sebi). The Sebi data includes FII inflow through primary and secondary market route.

A sizable chuck of FII inflow this year is from India-focused exchange traded funds as well as long-only funds.

Global emerging-market equity funds drew record inflows in the third week of October 2010 as investors sought growth in developing nations and the dollar weakened, according to global fund tracker EPFR Global. The funds took in $3.8 billion in the week ending 20 October 2010. Year-to-date inflows to global emerging-market equity funds exceed the record $44.2 billion for the whole of 2009.

Asia ex-Japan, Latin America and EMEA equity funds posted inflows ranging from $327 million to $981 million in the week ending 20 October 2010. Dedicated BRIC (Brazil, Russia, India and China) equity funds had their best week since February 2010, but were again eclipsed by Frontier equity funds, which pulled in $150 million, a 145-week high. Turkey equity funds saw inflows for the eighth week.