India Morning Note - Keynote Capitals (February-9-'11)

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Views on markets today

·      Indian markets underperformed the global markets and closed at seven-month lows yesterday as sentiment was hit by media reports of a possible probe into two new cases involving the allocation of telecoms spectrum. Mounting concerns about slowing corporate profits and fears of further monetary tightening to tame high inflation, also kept investors away. Rising borrowing costs and high inflation also drove foreign investors to cut their exposure. All sectoral indices closed negative with consumer durables, real estate, auto and banks stocks were major loser. The banking sector index shed 2.3% as the deputy governor of the RBI said that the monetary policy stance remained anti-inflationary, as headline inflation at 8.43% continues to be high. Punj Lloyd tumbled 10.8% after it posted a net loss for the December quarter.

·      Market breadth was weak at ~0.24x as investors sold large cap stocks. FIIs sold equities worth `7.26bn while domestic institutions bought equities of `4.48bn.

·      Asian markets are mixed today in spite of the rally in the US markets overnight. Japanese shares advanced in early Wednesday trading, with an profit-outlook upgrade from Toyota Motor Corp. Hong Kong shares declined after a positive start, with property shares leading the market down.

·      We expect a flat opening for the Indian markets in the absence of clear indications from the Asian markets. FII selling has been putting pressure on the Indian markets over last few days. We may see risk averseness from the investors until the domestic issues such as inflation gets resolved.

Economic and Corporate Developments

·      TRAI recommends new prices for 2G Spectrum. Excess 2G spectrum to cost 7 companies `16,235Cr.

·      Cash conditions in the Indian banking system may improve substantially by the end of March as the government is unlikely to hold back on budgeted spending as the fiscal year nears its end.