India Morning Note - Keynote Capitals (May-5-'11)

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Views on markets today

·      Indian markets extended losses for eighth straight session yesterday as jittery investors continued to book profits on concerns that the central bank may continue to hike interest rates to curb inflation. The RBI raised interest rates by 50 basis points and said fighting inflation was its top priority. The expectations of more rate hikes going forward to tame inflation could slow growth of consumption driven economy as rise in interest rates could affect consumption. Weak global markets also dampened market sentiments. The downward movement was mainly led by selling pressure in auto, IT, metal and pharma stocks while oil & gas, consumer durable, FMCG and capital goods stocks witnessed some buying activities which gave some support to the markets. Auto stocks suffered a double whammy as they digested the interest rate increase, while already grappling with slowing sales growth. ONGC gained 5.3% after the report that the company is in talks to acquire oil sands reserves in Canada and may increase its investments in Kazakhstan to help offset declining production.

·      Market breadth was weak at ~0.65x as investors sold large cap stocks. FIIs sold equities worth `9.92bn while domestic institutions bought equities of `9.14bn.

·      Asian markets are down today as commodity prices continued to fall and weak cues from the US markets. Hong Kong shares opened negative with increasing worries regarding Chinese inflation and monetary tightening. Japanese markets are closed today.

·      We expect a weak opening for the Indian markets today as the Asian markets show negative directions. High inflation globally as well as in India hurt investor sentiments. We may see caution from the global investors towards the rising worries about the inflation. We may see some volatility today ahead of the inflation data to be announced today.

Key events today

·      Announcement of food and fuel price inflation data

Economic and Corporate Developments

·      The government plans to hike diesel prices by up to `3 a litre soon after the Assembly elections in five states are over next week, while an equivalent steep increase in petrol rates is also on card.