India Morning Note - Keynote Capitals (June-17-'11)

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Views on markets today

·      Indian markets ended on negative note to its 3-week low yesterday after the RBI raised rates for a 10th time in 15 months and signaled more tightening was on the way, playing down slowing growth. The RBI raised key lending rate viz. the repo rate by 25 basis points to 7.5% in its mid-quarter monetary policy review to tame inflation. Although the 25 basis points (bps) increase was expected, the RBI’s comments were hawkish and pushed shares lower for the sixth time in seven sessions. The fall in global markets on Greek's debt problems added more pressure on Indian markets. All the sectoral indices closed negative with IT, capital goods, metal and consumer durables stocks were major losers. IT stocks fell on weak economic data in the US and on continuing sovereign debt crisis in Europe. While metal stocks fell as metal prices declined on the London Metal Exchange. Reliance Industries fell 1.4% after HSBC downgraded the energy major to "neutral" from "overweight" and cut the price target to `1,040 from `1,084. L&T shed 2.3% on concerns rising interest rates could hurt order inflow for the engineering and construction firm.

·      Market breadth was weak at ~0.62x as investors sold large cap stocks. FIIs sold equities worth `5.99bn while domestic institutions bought equities of `2.86bn.

·      Asian markets are down today as investors worried about Europe's debt troubles and uncertainty on the progress of the US economic recovery increased. Japanese shares are flat today while the Hang Seng is weak on account of downbeat tech stocks.

·      We expect a weak opening for the Indian markets as the Asian markets are down. The markets may also react negatively to yesterday's rise in repo rate and higher food and fuel inflation.

Economic and Corporate Developments

·      The Reserve Bank of India raised repo rate by 25bps to7.50% and reverse repo rates by 25bps to 6.50% in a move to arrest surging inflation.

·      DoT asks TRAI to reconsider its recommendation to cancel 69 licences of five operators, only 15 licences required to be scrapped.

·      Govt orders probe on the alleged cartelization in sugar industry after the sharp spike in sugar prices.