Brace yourself for a fall in the Markets :: HDFC Securities

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The markets are likely to open on a weak note on Monday. The technical pattern of our markets on Friday, the lower GDP growth in Q4 in the U.S. and a weak economic data this morning in China, cumulatively would conspire to push our markets in the red zone in the morning.

China HSBC PMI comes in lower than initial reading

The final HSBC Purchasing Managers' Index (PMI) came in at 49.7, a touch below its 49.8 flash reading, and after dipping to 49.6 in December. A reading below 50 indicates contraction.

Chinas manufacturing sector remains  in a poor state in January, amid increasing speculation that policymakers will intervene with fresh measures to spur the economy.

Bearish Engulfing on Nifty daily chart

Last week, Nifty made a new all time high at 8996. This achieved our target of 8950-9000, which we had given in our morning note dated 21st January.

This target having been achieved, now the Nifty has met with a resistance at the 9000 mark and from the upper line of the rising channel spoken about in the said report. This too was mentioned in that report.

On Friday, the Nifty has made a bearish engulfing pattern on the daily chart. This candlestick pattern indicates the trend reversal from bullish to bearish.

RSI on the daily chart has just left the overbought zone, indicating a trend reversal. Weekly RSI has made negative divergence with lower tops coupled with the higher tops on the price chart. Negative divergence usually indicates weakness in the existing bullish trend.

From the bottom of 8085 made on 7th January 2015, Nifty has risen more than 900 points to 8996 till date. This rise was seen in just last 17 sessions. If we apply 38.2% and 50% Fibonacci retracement to the swing from 8065 to 8996, then levels comes to 8640 and 8530 respectively. These levels can act as a support while 8900 could act as a resistance for the Nifty going forward.

Nifty Results this week

3-Feb	ACC
	HEROMOTOCO
	JINDALSTEL
	LUPIN
	PNB
4-Feb	BHARTIARTL
	TATAPOWER
5-Feb	TATAMOTORS
6-Feb	GAIL
	NMDC
	TATASTEEL

 
Key earnings this week in the U.S, include Exxon Mobil and Anadarko Petroleum on Monday, Walt Disney on Tuesday, General Motors and Merck on Wednesday. LinkedIn  and Sprint  will report their earnings on Thursday.
 
Asset quality deteriorates at both ICICI and Bank of Baroda

Quarterly results from the largest private sector bank and the second largest public sector bank on Friday  had a common element ? deteriorating asset quality.

ICICI Banks asset quality worsened as gross non-performing assets (NPAs) increased 35 bps YoY (up 28 bps QoQ) to 3.4 % and net NPA rose 33 bps YoY (up 18 bps QoQ) to 1.27 %. The Net profit also came in lower than expected. The Bank reported 14% YoY (expectations of15%) rise in its net profit at Rs 2,889 crore in Q3FY15, aided by other income and net interest income. However, higher provisions restricted profit growth. NII grew 14% to Rs 4,812 crore during the quarter, slightly lower than estimated 15% growth.

In Bank of Baroda, the deterioration in asset quality was sharper with gross NPAs rising to 3.85%, up by 53 bps on a YoY as well as a QoQ basis. Net NPAs also climbed 23 bps YoY (up 37 bps QoQ) to 2.11%. Going ahead, the management said, it will be tough to contain gross NPA at 3.1-3.2% as targeted for financial year 2014-15.

Earnings came in  highly disappointing with 68% YoY decline in profit at Rs 334 Cr dented by higher provisions and tax expenses. Expectations were for a 19% growth.  Net interest income grew 8% to Rs 3,286 Cr as against estimated rise of 15%. Provisions for bad loans jumped 65.6 % YoY (up 42 % sequentially) while tax expense doubled to Rs 743 crore due to Dubai income tax levy. 
 
Tech Mahindra Q3 net up 12%, announces bonus & stock split

Consolidated profit of Tech Mahindra jumped 12% sequentially to Rs 805 crore during Q3FY15, almost as per expectations, whereas consolidated revenue increased 5% QoQ to Rs 5,752 Cr and dollar revenue grew 2.7 % to USD 924 million. Analysts had expected dollar revenue at USD 921.5 million.

Meanwhile, the board approved for issue of one bonus equity share for every one equity share and also approved the stock split of equity shares from the existing face value of Rs 10 per share to Rs 5 per share.

Adani Enterprises recast; port, power biz shifted to arms

Adani Enterprises on Friday announced a complex restructuring of its various businesses in an attempt to simplify its corporate structure. Under the terms of the recast, Adani Enterprises (AEL) port business will be transferred to subsidiary Adani Ports and Special Economic Zone, its power businesses to Adani Power (APL), and transmission business to unlisted Adani Transmissions, which will subsequently be listed.

Also, Adani Mining Private Limited (AMPL), a wholly owned subsidiary of AEL is proposed to be merged into AEL. The scheme is subject to approvals from the stock exchanges, Sebi, shareholders, creditors and the Gujarat High Court.

Once approved, this is what the share swap ratio will be or each of the transfers:

Adani Ports will issue 14123 shares for every 10000 shares of AEL

Adani Power will issue 18596 shares for every 10000 shares in AEL

Adani Transmission will issue one share for every one share in AEL
 
The scheme of arrangement will simplify the corporate structure providing the shareholders of AEL direct shareholding in the respective operating companies, listing of one of the largest private sector transmission companies with over 5,000 circuit kms of transmission lines across Western, Northern and Central regions of India and increase free float at APL and APSEZ, the company said.  

Indias economic growth revised to 6.9% for FY14 ? Thanks to revision of base year

The economic growth rate was revised upwards to 6.9% for 2013-14, as against 4.7% estimated earlier, after the government updated the base year for measuring national accounts as 2011-12. The rate of expansion was estimated at 4.7% under the old series that had 2004-05 as base year. Similarly, the economic growth rate for 2012-13 has been revised upwards to 5.1% from earlier estimate of 4.5%. Further, India's per capita income, a gauge for assessing standard of living, for 2013-14 was revised up at Rs 6,699 per month as against the earlier estimate of Rs 6,198.33, higher by 8%.

The base year was last revised in January 2010 and goes under revision every five years. The higher growth rate, however, may not provide any cushion on the fiscal deficit front as size of economy has shrunk to Rs 113.45 lakh crore under the new series from Rs 113.55 lakh crore under the old series.
 
Coal India 10% stake sale fully subscribed; Govt garners Rs 22,400 crore

The government on Friday successfully offloaded 10% stake in Coal India to raise around Rs 22,400 crore in India?s biggest-ever equity offering. The 631-million-share offer for sale (OFS) saw a total of 675 million bids at an indicative price of Rs 358.5 a share slightly higher than the floor price of Rs 358 set by the government.

Life Insurance Corporation was the biggest investor, with investment of around Rs 8,000 crore . Other state-owned institutions, including General Insurance Corporation (GIC) and State Bank of India (SBI), put in another Rs 1,000 crore worth of applications.

Bids worth over Rs 2,000 crore were received from small investors (those investing up to Rs 2 lakh), however, the retail portion was subscribed around 44%. The unsubscribed shares in the retail category will be allotted to non-retail investors, the demand from whom was 1.23 times more than the shares on offer.

Following the 10% disinvestment, the government?s holding in the company will drop to 80%.
 
Slashed ATF prices, make it cheaper than Diesel

Aviation Turbine Fuel (ATF)  price was slashed by a steep 11.3 per cent on Sunday. This now makes ATF cost less than diesel.

The cut, effective from Sunday, is the seventh reduction in jet fuel rates since August. Jet fuel constitutes over 40 per cent of an airline?s operating costs and the price cut will ease the financial burden of cash-strapped carriers.

Last month, its rate had fallen below the price at which petrol is sold. While petrol and diesel prices have so far not been changed as per the fortnightly revision, non-subsidised domestic cooking gas (LPG) was cut by Rs. 103.5 per cylinder to Rs. 605 a cylinder after international oil prices slumped to near six-year lows.

US regulator imposes conditions on Sun Pharma's Ranbaxy acquisition

An American federal trade regulator has imposed conditions on Sun Pharmaceuticals' acquisition of Ranbaxy on the grounds that the $4 billion proposed deal would likely be anti-competitive. The Federal Trade Commission (FTC) yesterday said pharmaceutical companies Sun Pharmaceutical Industries and Ranbaxy Laboratories have agreed to divest the latter's interests in generic minocycline tablets in order to settle charges that Sun's proposed acquisition of Ranbaxy would likely be anti-competitive.

Torrent Pharmaceuticals, a global drug company based in India that markets generic drugs in the United States, will acquire the divested assets, the FTC said.

Generic minocycline tablets are used to treat a wide array of bacterial infections, including pneumonia, acne, and urinary tract infections. According to the FTC's complaint, the proposed merger would likely harm future competition by reducing the number of suppliers in the US markets for three dosage strengths (50 mg, 75 mg, and 100 mg) of generic minocycline tablets.

Ranbaxy is currently one of the three suppliers of the products, while Sun is one of the only limited number of firms likely to sell generic minocycline tablets in the United States in the near future.

Suns entry would likely have resulted in significantly lowering prices for these drugs, it said.

Under the proposed settlement, Sun and Ranbaxy must also sell Ranbaxys generic minocycline capsule assets to Torrent, to enable Torrent to achieve regulatory approval for a change in ingredient suppliers for its minocycline tablets as quickly as Ranbaxy would have been able to do in the absence of the deal.
 
In addition, Sun and Ranbaxy must supply generic minocycline tablets and capsules to Torrent until the company establishes its own manufacturing infrastructure.
 
The FTC has appointed an interim monitor to ensure that Torrent receives the support it needs from Sun and Ranbaxy during the divestiture process.
 
Weaker Q4 GDP pummels U.S. Indices

Key U.S. Indices sold off on in the last hour of trade as markets ceded ground on account of a weaker than expected GDP growth in Q4 and less than stellar earnings. The Dow Jones Industrial Average fell like a stone, ceding 252 points or 1.45% at 17,165. The S&P 500 lost 26 points or 1.30% at 1,995. The Nasdaq Composite was least hurt, falling just 1.03% or 48 points at 4,635.

The U.S. economy grew more slowly than expected in the fourth quarter as government spending fell sharply and business investment pulled back. Gross domestic product expanded at a seasonally adjusted annual rate of 2.6% in the three months ended Dec. 31, slowing sharply from a robust 5% pace in the third quarter, the Commerce Department said Friday. Economists expected 3.1% growth.

For all of 2014, the economy grew 2.4%, up from 2.2% in 2013, after harsh winter weather early in the year caused the economy to shrink in the first quarter.

Crude oil prices swung higher Friday, settling at $48.24 a barrel, driven by a big drop in U.S. rig counts as producers responded to oversupply. Oil also got a boost as traders ended bets that the price of oil will see a continued slide.

Prices were also  boosted by news of intensified fighting between ISIS rebels and Kurdish forces in oil-rich Iraq.

Fridays steep losses means that the indices threaded water for the January month. The Dow has lost 4.5% for January and the S&P 500 has lost 4% and the Nasdaq Composite 3%. There is an old Wall Street adage that says a goes January, so goes the year! Which essentially means the year could end up in a loss.

But there is little logic in this. Last year for instance, the markets were in the red for January, but the markets ended with a near 15% gain. One bright spot, however, was the IPO of burger chain Shake Shack, which closed more than 118% higher than its IPO price in its first day of trading.

On the positive earnings side on Friday, Amazon soared more than 13% after turning a quarterly profit above expectations, while gross margins rose 300 basis points from a year earlier to 29.5%.
MasterCard  jumped nearly 1% as revenue surged 14% from a year earlier. The world's second-largest credit card company reported a 29% increase in profit.

On the flip-side, Mattel and Eli Lilly reported weaker-than-expected sales as a result of a stronger U.S. dollar and foreign exchange fluctuations. Earlier in the week, Procter & Gamble PG and DuPont DD credited currency for similarly weak results. Microsoft, Qualcomm , Apple and Facebook were among the companies that reported earnings earlier in the week.

The season is far from over with only 45% of S&P 500 companies having reported so far.

News a number of oil producers including Baker Hughes  and Chevron cut back on capital expenditures this year also boosted prices, as investors saw limited output from major suppliers as a solution to global oversupply.

Investors will get a chance to see how the wage growth fares in the nonfarm payrolls report for January that is due next Friday. Average hourly wages fell 0.2% in December.

Treasuries trimmed their gains, but the yield on the 10-year note, which moves inversely to prices, was still down 6 basis points at 1.7%, after hitting the lowest level since May 2013 earlier. European markets were mixed after consumer-price data for January showed the Eurozone slipped deeper into negative inflation.

And in Russia, the ruble slid against the dollar after the country?s central bank cut interest rates to 15% from 17%. The dollar bought 70.721 rubles, up from 68.902 on Thursday. The dollar traded mixed against other major currencies.

Gold prices rose 2% to 1$1,285.20, recovering some of the steep losses from the previous session. Crude prices rebounded sharply, with Nymex futures rising more than 8%