India Note - Keynote Capitals (June-15-'11)

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Views on markets today

·      Indian markets snapped four days losing streak and closed on a positive note yesterday tracking firm global markets. However, the outlook remained downbeat after inflation came in well above expectations. The WPI based inflation climbed to 9.06% in May, with a sharp rise in manufacturing inflation from the previous month offsetting a slowdown in the rise of food and fuel prices and adding to the likelihood of a rate increase by the RBI. India's economy is beginning to show signs of slowing despite inflation that is racing well above the central bank's comfort zone, putting policymakers in a tight spot over the extent of further interest rate increases. Except consumer durable and oil & gas, all sectoral indices closed positive with capital goods, power, FMCG and banks stocks were major gainers. Suzlon Energy gained 0.9% after the company’s North American unit got a 31.5 mega watt order from Canada-based Sprott Power Corp. While Idea Cellular firmed 1.8% after it reported a better-than-expected 3% rise in consolidated quarterly profit, helped by strong subscriber growth and steady call prices.

·      Market breadth was strong at ~1.35x as investors bought large cap stocks. FIIs sold equities worth `7.98bn while domestic institutions bought equities of `6.11bn.

·      Asian markets are mixed today as Japanese shares are positive while the Hang Seng is weak. The markets have ignored the pull back rally in the Us markets overnight.

·      We expect a flat opening for the Indian markets as the cues from the Asian markets lack direction. A high level of the inflation is a major concern which may keep the investors away from investing in the risky assets such as equities.

Key events today

·      Announcement of advance tax number by corporates

Economic and Corporate Developments

·      India's wholesale price index (WPI) rose an annual 9.06% in May, driven by higher manufactured goods prices.