Dead Presidents! - India Equity Research: Aug 22, 2013

Thursday, August 22, 2013

NALCO plans to raise its alumina exports by 40% to 1.4mn tons this financial year. (BS)

Tech Mahindra, which merged Mahindra Satyam with itself a few months ago, is in the process of transferring three special economic zones that were allotted to the latter before merger. (BS)

ICICI Bank has raised fixed deposit rates by up to 0.75% across select maturities. The bank has raised interest rate on term deposits with 46- 60 day maturity by 0.75% to 7%. (BS)

Indian Oil Corp will invest about Rs80bn to expand capacity at its Koyali oil refinery in Gujarat to 18mtpa by 2016-17. (ET)

ONGC’s decision to use the surplus infrastructure of Reliance Industries’ KG-D6 block will help the state firm cut costs by 40% and significantly speed up development of gas fields to produce up to 9 mmscmd. (ET)

Tata Steel Thailand said it foresaw a high demand for its products due to the country’s planned US$70bn investment in infrastructure projects. (BS)

Reliance Industries finalised terms with a consortium of leading banks to raise US$1.75bn by way of overseas borrowings. While US$1.2bn will be used to refinance a five-year, multi-currency facility, US$550mn of new money will be repayable after seven years. (ET)

Forward Markets Commission has sent a strongly-worded letter to the NSEL board asking it to take action against the defaulters. The FMC wants all the commodities that were offered as collateral by the defaulters to be auctioned. (BL)

Welspun Energy Ltd unveiled a 55-MW solar plant in Rajasthan. (BL)

Shareholding in GMR Holdings, the apex decision-making body for the GMR group, including GMR Infra, has been divided equally among four key trusts — one each owned by Group Chairman GM Rao, his two sons and son-in-law. (BS)

Federal Bank has increased interest rates on domestic and non-resident deposits. The bank has raised domestic term deposit rate by 150 basis points and will now pay 8.50% on these deposits maturing in 60 days to 119 days. (BS)

HDFC Bank Ltd announced the launch of 11 mini branches in rural locations across Andhra Pradesh. Each mini branch, comprising two persons, will complement the banks existing traditional branch set up in the state, allowing it to reach out to more people in rural geographies. (BS)

Economy Snippets
The members of the RBI’ s technical advisory committee on monetary policy has raised concerns on the government’s ambitious Food Security Bill, on the ground that it would exert pressure on food inflation. (BS)

A panel comprising representatives of department of space, defence ministry, telecom department and telecom sector regulator is considering a proposal to free up 80 MHz or "units" of airwaves in the S-band for fourth generation wireless broadband services. (ET)

Foreign direct investment flows into the country increased by about 16% to US$1.4bn in June. In June 2012, the country had received FDI worth US$1.24bn. (ET)

Wicked Wednesday! Nifty ends 200 points off day’s high

Bulls were once again at the receiving end on Wednesday as the Nifty ended at its lowest level since September 6, 2012 while the Sensex plummeted to its September 11, 2012 lows. In the last four trading sessions, the Nifty and Bank Nifty has fallen almost 450 and 800 points, respectively.

With the rupee appreciating post Reserve Bank's steps to assuage liquidity concerns, the Sensex and Nifty opened gap up. The measures included an Rs. 80bn bond buyback on August 23 to ensure adequate credit flow to the productive sectors of the economy. The measures were aimed at easing liquidity conditions in the market which worsened after RBI’s money tightening steps, including raising short-term rates, to curb volatility in the exchange rate.

But bears smelt blood with the spot rupee touching a new all-time low of 63.18 to the dollar. This triggered a massive sell-off on the Indian bourses. From there on, there was no end to the blood-letting, with the Nifty slipping almost 200 points while the Sensex shedding nearly 650 points from the day’s high.

The Sensex finally closed Wednesday at 17,905, down 340 points, while the Nifty shut shop at 5,302, down 99 points over Tuesday's close.

Commenting on trade today, Amar Ambani, Head of Research at IIFL, said that after Friday’s carnage, there has been a downward shift in the Nifty's range and Wednesday’s fall seems to be confirming this view. "If Nifty ends August below the 5,450 mark, it is likely to enter into a new medium-term trading band of 4,900-5,500."

Metals led the losers pack on Tuesday with oil and gas, realty, FMCG and healthcare following suit. Midcap and smallcap stocks continued to bear the brunt.

The only pockets of respite were consumer durables and select banking stocks.

Ranbaxy, Sesa Sterlite, ACC, JP Associates, Bharti Airtel, Reliance Infrastructure, Reliance Industries, Ambuja Cement and BPCL lagged while IndusInd Bank, BHEL, HDFC, HDFC Bank, ICICI Bank, Bank of Baroda and PowerGrid gained.

The advance-decline ratio favoured the bears. On the Bombay Stock Exchange, 1,350 stocks declined against 915 advances, while 137 scrips remained unchanged.

Volatility, as measured by India VIX, ended at its highest level since March 5, 2012. It closed 3.1% up at 28.09 after hitting a day’s high of 29.96 and low of 24.25.

Fed up of weakness! Same story again

Occasions do not make a person either strong or weak but shows what the person is.- Thomas a Kempis

You have to probably be out of this world to be strong in a market like this. Asset classes are being butchered in rotation but equity appears the favourite for getting crushed day in and day out. Today is no different and the trigger, just in case anyone wanted one, is the minutes of the Fed meeting.

The outlook is a weak start as markets world over are weak as Fed minutes point towards near-term tapering of its US$85 billion bond purchase program. Parliament is back probably to adjournments. The Reserve Bank of India is to release its Annual Report this evening. That aside, the Indian currency will remain in focus. Oil companies dollar demands are also setting in which could add pressure on the Indian currency.

The Union Cabinet, a report states, might pave the way for imposition of a higher tax rate of 35 per cent on the ‘super rich’ — those with income of more than Rs 10 crore a year — as it takes up the amendments to the Direct Taxes Code (DTC) Bill, 2010, today. If the Cabinet gives its go-ahead, the much-awaited amendments could be tabled in the ongoing session of Parliament, reports added.

The minutes of the Fed's July 30-31 meeting, released on Wednesday, showed that almost all of the 12 members of the policy- agreed that changing the stimulus was not yet appropriate.

Open to interpretation, the Fed made no formal policy change after its July meeting when it stated that the US economy continues to need support. The economy is not growing as fast as some board members had hoped. The data received since the forecast was prepared for the previous meeting suggested that real GDP growth was weaker, on net, in the first half of the year than had been anticipated, the minutes stated.

Meanwhile, the central bank heads of the US, the UK and the EU are all set to miss the annual Jackson Hole Symposium. But guess what? Ben Bernanke or rather his successor may be the hot topic of discussion.

A Chinese manufacturing index rose in August from an 11-month low.The preliminary reading of 50.1 for a Purchasing Managers’ Index (EC11FLAS) released by HSBC Holdings Plc and Markit Economics compares with a final figure of 47.7 in July.

What is in store today is the Union Cabinet meeting followed by a meeting of the Cabinet Committee on Economic Affairs. The Cabinet may take up amendments to Direct Taxes Code bill and the Cabinet panel may discuss additional allocation of 5 mln tonnes food grain for those below poverty line.

Results watch: Bombay Rayon, Eastern Sugar, Eastern Sugar

Trends in FII flows: The FIIs were net sellers of Rs7.92bn in the cash segment on Wednesday, while the domestic institutional investors (DIIs) were net buyers of Rs7.75bn, as per the provisional figures released by the NSE.

The foreign funds were net sellers of Rs18.50bn in the cash segment on Tuesday, according to the SEBI figures.

Global Data Watch: CB Leading Indicator (Jun) AUD, Jackson Hole Symposium USD, HSBC Manufacturing PMI (Aug)Preliminar CNY, Trade Balance (Jul) CHF, Exports (MoM) (Jul) CHF, Imports (MoM) (Jul) CHF, Markit Manufacturing PMI (Aug)Preliminar EUR, Markit Services PMI (Aug)Preliminar EUR, Markit Manufacturing PMI (Aug)Preliminar EUR, Markit Services PMI (Aug)Preliminar EUR, Markit Manufacturing PMI (Aug)Preliminar EUR, Markit PMI Composite (Aug)Preliminar EUR, Markit Services PMI (Aug)Preliminar EUR, Retail Sales s.a. (MoM) (Jun) EUR, Retail Sales (MoM) (Jun) CAD, Retail Sales ex Autos (MoM) (Jun) CAD, Initial Jobless Claims USD, Continuing Jobless Claims USD, Markit Manufacturing PMI (Aug)Preliminar USD, Housing Price Index (MoM) (Jul) USD, American Petroleum Institute Monthly Report (Jul) USD, CB Leading Indicator (MoM) (Jul) USD, EIA Natural Gas Storage change (Aug 16) USD, Current Account Balance (Jun) EUR, Kansas Fed manufacturing activity (Aug) USD, Treasury Sec Lew Speech USD.

Corporate snippets

NALCO plans to raise its alumina exports by 40% to 1.4mn tons this financial year. (BS)

Tech Mahindra, which merged Mahindra Satyam with itself a few months ago, is in the process of transferring three special economic zones that were allotted to the latter before merger. (BS)

ICICI Bank has raised fixed deposit rates by up to 0.75% across select maturities. The bank has raised interest rate on term deposits with 46- 60 day maturity by 0.75% to 7%. (BS)

Indian Oil Corp will invest about Rs80bn to expand capacity at its Koyali oil refinery in Gujarat to 18mtpa by 2016-17. (ET)

ONGC’s decision to use the surplus infrastructure of Reliance Industries’ KG-D6 block will help the state firm cut costs by 40% and significantly speed up development of gas fields to produce up to 9 mmscmd. (ET)

Tata Steel Thailand said it foresaw a high demand for its products due to the country’s planned US$70bn investment in infrastructure projects. (BS)

Reliance Industries finalised terms with a consortium of leading banks to raise US$1.75bn by way of overseas borrowings. While US$1.2bn will be used to refinance a five-year, multi-currency facility, US$550mn of new money will be repayable after seven years. (ET)

Forward Markets Commission has sent a strongly-worded letter to the NSEL board asking it to take action against the defaulters. The FMC wants all the commodities that were offered as collateral by the defaulters to be auctioned. (BL)

Welspun Energy Ltd unveiled a 55-MW solar plant in Rajasthan. (BL)

Shareholding in GMR Holdings, the apex decision-making body for the GMR group, including GMR Infra, has been divided equally among four key trusts — one each owned by Group Chairman GM Rao, his two sons and son-in-law. (BS)

Federal Bank has increased interest rates on domestic and non-resident deposits. The bank has raised domestic term deposit rate by 150 basis points and will now pay 8.50% on these deposits maturing in 60 days to 119 days. (BS)

HDFC Bank Ltd announced the launch of 11 mini branches in rural locations across Andhra Pradesh. Each mini branch, comprising two persons, will complement the banks existing traditional branch set up in the state, allowing it to reach out to more people in rural geographies. (BS)

The members of the RBI’ s technical advisory committee on monetary policy has raised concerns on the government’s ambitious Food Security Bill, on the ground that it would exert pressure on food inflation. (BS)

A panel comprising representatives of department of space, defence ministry, telecom department and telecom sector regulator is considering a proposal to free up 80 MHz or "units" of airwaves in the S-band for fourth generation wireless broadband services. (ET)

Foreign direct investment flows into the country increased by about 16% to US$1.4bn in June. In June 2012, the country had received FDI worth US$1.24bn. (ET)

Sharp drop for crude

A lower dollar index kept the losses under control

Crude Oil futures dropped sharply on Tuesday at Nymex, 21 August 2013 with the September contract closing at a nearly two-week low under $105 a barrel, with the contract's expiration adding to volatility. A lower dollar index kept the losses under control.

Crude oil for September delivery sank by $2.14, or 2%, to settle at $104.96 a barrel on New York Mercantile Exchange.

Key data points this week will be the Federal Reserve's FOMC minutes that are released on Wednesday and some Chinese economic data on Thursday. Traders will be looking at the minutes for some clarity on the near future path of U.S. monetary policy.

Traders and investors are still watching the Egypt unrest, which continues to see violence between citizens and government militia.

There was no economic data reported today, but tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET and July existing home sales will be reported at 10:00 ET. Lastly, the Federal Open Market Committee will release the minutes from its July meeting at 14:00 ET.

September natural gas closed at $3.44 per million British thermal units, down almost 2 cents, or 0.6%, after a 2.8% rally Monday.

Among other energy products, September gasoline shed less than a penny to $2.93 a gallon. September heating oil edged up by less than a cent to $3.08 a gallon.

Market may extend recent losses

The market may extend recent steep losses on weak Asian stocks. Trading of CNX Nifty futures on the Singapore stock exchange indicates that the Nifty could fall 51.50 points at the opening bell. Asian stocks dropped after minutes of the Federal Reserve's last meeting signaled the central bank was on course to pare bond purchases this year.

Asian Paints said after market hours on Wednesday, 21 August 2013, that Asian Paints (International) (APIL), a wholly owned subsidiary of the company has on 21 August 2013 acquired additional 25.72% stake in Berger International, Singapore (BIL), an indirect subsidiary of Asian Paints, through an off-market transaction. As a result, the shareholding of APIL has increased to 75.82% in BIL. Further, APIL has also announced its intention to come out with a voluntary unconditional cash offer to acquire the balance 24.18% shares of BIL with an intention to make BIL a wholly owned subsidiary of APIL and delist from Singapore Exchange Securities Trading (SGX-ST).

NMDC after market hours on Wednesday, 21 August 2013, said a wholly owned subsidiary of NMDC namely NMDC Power (NPL) has signed a Memorandum of Understanding (MoU) with IL&FS Energy Development Company (IEDCL), a subsidiary of IL&FS to set up a 500 megawatts (2x250 MW) thermal power plant under joint venture at Gonda in Uttar Pradesh. The project is estimated to be completed within three years at an approximate cost of around Rs 3000 crore.

Metal stocks may gain after a report showed China's manufacturing unexpectedly expanded in August. China is the world's largest consumer of copper and aluminum.

IT stocks will be in focus as rupee closed at a record low against the dollar on Wednesday, 21 August 2013. A weak rupee boosts revenue of IT firms in rupee terms as the sector derives a lion's share of revenue from exports.

Key benchmark indices erased sharp initial gains and ended sharply lower in choppy trade on Wednesday, 21 August 2013, as the rupee hit record low below 64 against the dollar on rising expectations that the US Federal Reserve will soon start withdrawing its monetary stimulus to the US economy. The S&P BSE Sensex lost 340.13 points or 1.86% to 17,905.91 on that day, its lowest closing level since 11 September 2012.

Foreign institutional investors (FIIs) sold shares worth a net Rs 792.11 crore on Wednesday, 21 August 2013, as per provisional data from the stock exchanges.

Asian stocks dropped on Thursday, 22 August 2013, after minutes of the Federal Reserve's last meeting signaled the central bank was on course to pare bond purchases this year. Key benchmark indices in Singapore, Hong Kong, Japan, Taiwan, Indonesia and South Korea were down by 0.29% to 0.99%.

China's Shanghai Composite rose 0.16% after a report showed China's manufacturing unexpectedly expanded this month. A Chinese manufacturing index rose in August from the lowest level in 11 months, adding to signs the world's second-biggest economy is strengthening after a two-quarter slowdown. The preliminary reading of 50.1 for a Purchasing Managers' Index released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 47.7 in July.

US stocks dropped on Wednesday, 21 August 2013, as investors weighed the Federal Reserve's signaling that it remained on course to curb its monthly bond purchases by the end of the year.

Federal Reserve policy makers were broadly comfortable with Chairman Ben S. Bernanke's plan to start reducing bond buying later this year if the economy improves, with a few saying tapering might be needed soon, minutes of their last meeting showed on Wednesday. Almost all committee members agreed that a change in the purchase program was not yet appropriate, and a few said it might soon be time to slow somewhat the pace of purchases as outlined in that plan, according to the record of the Federal Open Market Committee's July 30-31 gathering released Wednesday in Washington. A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases, the minutes show. Almost all participants confirmed that they were broadly comfortable with the committee moderating the pace of its securities purchases later this year.

The US central bank currently buys $85 billion a month in US debt and mortgage-backed securities in a bid to hold interest rates low and encourage economic growth. Federal Reserve Chairman Ben Bernanke has on several occasions stressed that the tapering process is dependent on an improvement in data. Fed's bond-buying program has kept global markets flush with liquidity in recent years.

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