(May-18-'11) India Morning Note - Keynote Capitals

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Views on markets today

·      Indian markets extended its downward trend to close on negative note yesterday as poor quarterly results from State Bank of India, higher subsidy sharing reports on ONGC and reports suggesting drilling of new wells will be delayed by Reliance Industries in KG-DG basin led to sharp selling in index heavy-weights. The SBI results have dampened overall sentiment in the market, especially in the banking stocks. The downward movement was mainly led by selling pressure in oil & gas, banks, auto and capital goods stocks while consumer durables, FMCG, and IT stocks witnessed some buying activities which gave some support to the markets. State Bank of India dropped as much as 7.7% after its March quarter profit slumped to `209mn from `18.67bn a year ago on higher provisions for bad loans. The provisions for bad loans in the fiscal fourth quarter rose 49% from a year ago, while operating costs increased 12.5%. State-run explorer ONGC was another big loser on media reports that its share of the fuel subsidy has been increased.

·      Market breadth was weak at ~0.61x as investors sold large cap stocks. Both the FIIs and domestic institutions sold equities worth `4.87bn and `5.70bn respectively.

·      Asian markets are positive today on a short recovery and ignoring the weak cues from the US markets overnight. Hong Kong shares advanced early morning on as energy and property stocks saw the recovery after the market declined in 12 of the last 14 sessions. Japanese shares rose led by banks and oil shares.

·      We expect a recovery in the Indian markets early morning on account of positive Asian markets. However, the sustainability of the rally is questioned due to high inflation. Consistent selling pressure from the FIIs in the cash markets in May is a major worry. FIIs sold Rs45bn worth of equities till date in May 2011.

Economic and Corporate Developments

·      Govt to consider a radical proposal to shore up electronic manufacturing capabilities in the country plan to mandate 30% of all electronic equipment procured should be Indian products.