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

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Views on markets today

·      Indian markets closed on negative note yesterday on rising crude oil price and concerns of further monetary tightening after the central bank raised interest rates at its policy review as it battles stubborn inflation. Political uncertainty also weighed on the market following fresh allegations of government corruption. The RBI raised interest rates for the eighth time since last March and warned both of inflationary pressures and emerging risks to growth, leading to fears of further rate hikes. Except power and consumer durables, all sectoral indices closed negative with FMCG, IT, auto and metal stocks were major losers. Metal stocks declined as base metal prices dropped in Shanghai on fears the worsening nuclear crisis in Japan would hurt the global economy. Reliance Communications jumped 3.5% after Citigroup upgraded the beaten down stock to buy from sell, saying a good asset was available at a discount.

·      Market breadth was weak at ~0.73x as investors sold large cap stocks. FIIs sold equities worth `11.28bn while domestic institutions bought equities of `4.32bn.

·      Asian markets gained today morning following the cues from the US markets overnight and the announcement of G-7 for joint intervention in the currency markets at the request of Japan to help pull yen back from its recent record highs. Both the Nikkei and the Hang Seng are up today.

·      We expect a positive opening for the Indian markets as the Asian markets are strong. However, domestic issues such as higher inflation and the increase in repo rates by the RBI yesterday may provide resistance to the markets at higher levels.

Key events today

·      Closing of IPO of PTC India Financial Services Ltd. (subscribed 0.08x as of March 17, 5PM)

Economic and Corporate Developments

·      RBI hikes repo and reverse repo rates by 25bps.

·      Food inflation declined to 9.42% in the week ended March 5 from 9.52% a week ago.

·      RBI has lifted inflation rate forecast to 8% from 7% as price rise spill over manufactured goods.