India Morning Note - Keynote Capitals (February-1-'11)

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Views on markets today

·      Indian markets fell for the fourth straight session yesterday to five-month low on sustained selling by investors concerned over turmoil in Egypt could spread to other Middle East countries, high input costs and rising interest rate would dent corporate earnings. However, the markets open in deep red on concerns over anti-government protests in Egypt and tracking global markets but smartly recover to end with moderate fall. Heavy buying in capital goods, power, consumer durables and oil & gas stocks led the markets to recover while selling pressure in real estate, FMCG and IT stocks restrict the markets to close positive.

·      Market breadth was weak at ~0.71x as investors sold small and mid cap stocks. FIIs sold equities worth `9.20bn while domestic institutions bought equities of `10.08bn.

·      Asian markets are flat to positive today as the concerns over Egyptian turmoil fade and the US markets showed strong close overnight. Both the Nikkei and the Hang Seng are up moderately.

·      We expect the Indian markets to open up today following the Asian markets. However, global and domestic concerns are still exists we may not see a strong recovery. Markets may take a sigh of relief for a while as India’s infrastructure output registered a smart recovery in December, raising expectations of a revival in industrial production growth. Output at the six core industries accelerated to 6.6% from a year earlier, faster than a revised growth of 3% in the previous month. The six industries include crude oil, petroleum refining, coal, electricity, cement and finished steel, and they have a combined weight of 26.7% in the IIP. However, investors will remain more watchful towards inflation rather than growth as few more rounds of increase in interest rates may take place if inflation situation remains.

Economic and Corporate Developments

·      India’s economy grew at a faster pace of 8% yoy in fiscal 2009-10 than estimated earlier at 7.4%.

·      The government approved `80bn subsidy to 3 public sector oil marketing companies to compensate half the revenues they lost on selling diesel, domestic LPG and kerosene below cost for the quarter ending December 31.