India Morning Note - Keynote Capitals (January-27-'11)

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Views on markets today

·      Indian markets closed negative on Tuesday after Reserve Bank of India raised repo rate and reverse repo rate by 25 basis points to 6.25% and to 5.5% respectively while the CRR was left unchanged. The possibility of more interest rate hikes by the RBI to tame inflation led further negative sentiments amongst investors. The GDP growth forecast by RBI has been retained at 8.5% with upward bias while WPI inflation forecast has been raised to 7% for FY11. Interest rate sensitive stocks like banking, real estate and auto were major loser while some gain in consumer durable, capital goods and power stocks hold the markets from major lose. Hindustan Unilever dropped 5.5% to its lowest close in more than four months after it said its quarterly net profit slipped as mounting costs weighed on margins.

·      Market breadth was weak at ~0.73x as investors sold large cap stocks. FIIs bought equities worth `2.73bn while domestic institutions sold equities of `1.69bn.

·      Asian markets opened higher today following the cues from the US markets overnight and encouraging Japanese exports data. The rally was led by the exporter stocks. The markets saw some pressure after the positive opening.

·      We expect a positive opening for the Indian markets today as the Asian markets are positive. However, weak cues from the domestic economy may restrict it to remain higher.

Key events today

·      Announcement of food and fuel price inflation data

·      Closing of IPO of Omkar Speciality Chemicals Ltd. (subscribed 1.16x as of January 25, 5PM)

Economic and Corporate Developments

·      RBI raised policy rates 25 basis points, meeting market expectations, and raised inflation forecast for the fiscal by 150 basis points to 7%.

·      IMF has pegged its growth forecast for the global economy higher at 4.4% while retaining the projection for India at 8.4% for 2011.