India Morning Note - Keynote Capitals (February-7-'11)

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Views on markets today

·      Indian markets fall sharply in the last one hour of trade and closed at 6-month closing low on Friday on concerns of political instability over the 2G scandal. FII outflows from emerging markets like India and factors like inflation, unrest in Middle East and rising crude oil prices also weighed sentiments. All sectoral indices closed negative with real estate, FMCG, IT and banks stocks were major loser. Reliance Industries dropped ~2.5% on concerns it may get sucked into a bidding war for a US asset. Cement stocks like, Ambuja Cements and ACC fell as much as 3.5% and 0.9%, respectively, after they said oversupply and rising input costs would keep margins under pressure in the short term.

·      Market breadth was weak at ~0.44x as investors sold large cap stocks. Both FIIs and domestic institutions bought equities worth `1.44bn and `2.37bn, respectively.

·      Asian markets are mixed today as the Nikkei was up and the Hang Seng was down. Japanese shares were up as the mergers and acquisition activity and a weaker yen underpinned gains in the market. The Hang Seng was down with a fall in resource stocks countering gains in Europe-exposed companies such as HSBC Holdings PLC and Esprit Holdings Ltd.

·      We expect a flat but positive biased opening for the Indian markets as Asian markets are moderate while improving US economic data indicates positive global economic development.

Economic and Corporate Developments

·      As per RBI’s deputy governor, events in Egypt will have an impact on Indian monetary policy.

·      The rupee notched up its biggest weekly gain this year despite persistent weakness in the stock market and concerns about inflation, as trade gap shrank and the Government revised GDP data for FY10.