India Morning Note - Keynote Capitals (January-28-'11)

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Views on markets today

·      Indian markets continued downward trends and closed four-and-a-half months low yesterday as rising borrowing costs dampened the outlook for companies. With the food price index remained at elevated levels, mounting fears the RBI will continue to hike further interest rates. Markets were also volatile as traders rolled over positions in F&O segment ahead of the expiry of the near-month January 2011 contracts. All the sectoral indices closed negative with real estate, pharma, metals and banks were major loser. M&M dropped 4.9%, its biggest single-day fall in more than eight months, after Goldman Sachs downgraded the stock to “sell” from “buys", saying it has historically moved in line with the demand cycle and looks likely to correct with moderation in demand growth. JSW Steel slid 5% as its December quarter’s net profit fell by 32%.

·      Asian markets are weak today in spite of strong US markets overnight. Japanese stocks declined after a positive opening weighed by lackluster tech earnings and a drop banks after Standard & Poor's downgraded Japan's sovereign debt late Thursday. Hong Kong shares dropped early morning, with commodity producers such as Cnooc Ltd. pacing the fall after crude-oil and metal prices retreated overnight.

·      We expect a weak opening for the Indian markets as the cues from the Asian markets are not encouraging. Burgeoning inflation is the major concern that can weigh on the markets in the short-term. With food prices remain on the higher levels, investors may become more and more risk averse which can affect the Indian equity markets.

Economic and Corporate Developments

·      Food inflation rose to 15.57% for the week ended January 15.

·      The Government has revived a proposal that seeks to give Indian companies easier access to the US equity markets through ADRs.

·      The Central Government is likely to give its nod to nine IT-related projects of the Andhra Pradesh Government, involving a total investment of Rs25bn,