India Morning Note -(June-21-'11) Keynote Capitals

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Views on markets today

·      Indian markets ended sharply lower yesterday to their lowest close in more than four months as reports of renewed treaty between India and Mauritius on taxations issue spooked sentiments and triggered profit booking across the board. The reports rattled the markets given that a big chunk of India's foreign direct investment (FDI) and FII money comes from Mauritius. Talk of the treaty review further hurt sentiment in the markets that was already jittery due to stubborn inflation and slowing growth. Weak cues from European markets due to uncertainty over a long-term fix for Greece's debt issues also put pressure on the markets. All sectoral indices closed on negative tone with real estate, oil & gas, IT and auto stocks were major losers. Software firms led the decline, after CLSA downgraded the Indian IT sector to "underweight" from "neutral," saying their quarterly revenue growth on an annual basis has peaked and a downtrend was likely. It also downgraded TCS and Infosys to "underperform", sending their stocks down 3.6% and 2.2%, respectively. Bharti Airtel gained 2.4% after data from an industry body showed the company has signed up 2.45 million mobile subscribers in May, taking its total to 167.1 million.

·      Market breadth was weak at ~0.24x as investors sold large cap stocks. FIIs sold equities worth `5.12bn while domestic institutions bought equities of `8.63bn.

·      Asian markets are positive today showing a mixed trend after the positive close of the US markets. While the Nikkei is strong, Chinese stocks on the Hong Kong and Shanghai markets shown declining trend after a positive opening.

·      We expect a positive opening for the Indian markets following the cues from the Asian markets. However, speculations regarding the review of the Mauritius tax treaty may keep investors away from the markets and we may see a limited upside.

Economic and Corporate Developments

·      Govt likely to permit FDI in multi brand retailing only in the six big metros keeping other cities out.

·      Fertiliser Ministry has sought clarifications from the Committee of Secretaries on a proposal to hike urea prices by 10% in the draft policy on urea decontrol.