Markets to lie low in the result season :: HDFC Securities

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Markets are likely to be in a contemplative mood this week as corporate results and oil prices will dominate the proceedings. The Greek elections, which will be held on 25th June, will be acting as a overhang.

However, gas prices are tumbling, which could make the going easier for the power and the fertiliser companies that use gas as a raw material. We expect this development to manifest itself in the current quarter. The Nifty has a resistance at 8303, 8327 and 8378. Support exists at 8167 and 8065.

Russia Downgraded

Fitch Ratings on Friday downgraded Russia's sovereign rating to BBB- from BBB, placing it just one notch above the speculative, or junk, status. The outlook on the rating is negative, implying the agency could lower it again in the medium to long term.

Western sanctions first imposed in March continue to weigh on the economy by blocking Russian banks' and corporates' access to external capital markets, said the agency. Fitch could cut the rating further if the weak ruble leads to broader financial sector turmoil that requires government support, or if oil prices remain low in 2016, among other factors.

Inflation seen ticking up in December

The CPI and industrial output data are due to be released on Monday. Retail inflation for the month of December is expected to rise to 5.4% after the record low of 4.4% registered in November, fueled by food prices. The rise would be partially attributed to declining base that would come into effect from December.

Industrial output is likely to see a turnaround with 2.2% growth in November from a de-growth of 4.2%, a month ago.  Eight core industries, which account for over a third of overall factory output, increased to a 5-month high at 6.7% in November driven by higher production of cement and refinery products.

Other economic data

Amongst all the major data expected this week, the December's core producer price index, will arrive on Thursday morning. It is expected to gain 0.1% from a flat reading in November. Consumer inflation, excluding volatile items such as energy prices, will be released on Friday morning. It is estimated to climb 0.1%, the same rate as the month earlier.

Earnings season

Amongst the Nifty constituents, IndusInd Bank will report on Tuesday. On Thursday, Bajaj Auto and TCS will present their quarterly credentials. Friday will be more heavily loaded with Axis Bank, Reliance and Wipro announcing their quarterly numbers.

Earnings season will begin in earnest today in the U.S. with Alcoa. Though it is no more a part of the Dow, it is still considered as a bellwether.
Major banks such as JPMorgan and Wells Fargo will disclose their quarterly figures on Wednesday followed by Bank of America and Citigroup on Thursday and Goldman Sachs  on Friday. Among other Dow components, Intel will report on Thursday afternoon and Schlumberger on Friday.

Eight of the 10 S&P sectors are expected to show positive earnings growth over the fourth quarter, with only the energy and material sectors expected to lag, according to S&P Capital IQ. Aggregate earnings over the quarter are forecast to increase 4.6% to an average $29.66.
Wages dropped for the month, placing wage growth barely ahead of inflation. It appears that stagnant wage growth is helping keep earnings afloat this season.

Infosys beats street, Q3 PAT up 5%, maintains FY15 guidance

Infosys third quarter earnings beat analyst estimates on Friday with net profit rising 5.0% sequentially to Rs 3250 crore and revenues increasing 3.4% to Rs 13342 crore. Moreover, it maintained its FY15 dollar revenue growth guidance of 7-9%, as against expectation of lowering of it, though it comes with a rider.

The street had estimated net profit at Rs 3,157 crore and revenues at Rs 13,783 crore.
The company?s volumes grew 4.2% sequentially, the highest in 3 years. Dollar revenues rose 0.77% sequentially to USD 2.218 billion which translates into 2.6% in constant currency terms. Consolidated earnings before interest and tax (EBIT) climbed 5.9% Q-o-Q to Rs 3,689 crore and margin expanded by 60 basis points sequentially (up 170 bps Y-o-Y) to 26.70% in the December quarter as against estimated 25.95%. Margin improvement got a boost from increased utilization rate of IT staff (excluding trainees), which at 82.7% was the highest in 11 years.

Volume growth had been an issue with Infosys. But this quarter?s volume growth of 4.3% , which is the highest in 3 years, does give the markets a ray of hope that this lacuna is being addressed.

The margins have always been better and this quarter?s improvement further lends credence to the belief that the company could be in for transformation. 

The markets have so far treated the new management with kid gloves, and the quarterly results have given Infosys some elbow room for one more quarter of to prove that Sikka is on the right track to rejuvenate the company.
 
Tech Mahindra acquires SOFGEN to boost banking business

Tech Mahindra signed a deal to acquire SOFGEN Holdings Ltd, a Geneva-based consulting and services company that specialises in private, wealth, commercial and retail banking solutions. The transaction is expected to close by March, subject to regulatory approvals. Financial details of the deal were not disclosed. 

This acquisition gives the company an opportunity to enhance its expertise to implement modernized core banking and transformation services capabilities. SOFGEN has 450 employees with 20 Tier 1 client relationships.

The acquisition is also expected to help Tech Mahindra to partner with global wealth managers and private banking companies. Acquisitions are important for Tech Mahindra as it hopes to achieve its declared target of $5 billion in revenue by 2017. In 2014, Tech Mahindra had made three acquisitions.

Govt to exempt ONGC, OIL from fuel subsidy payment this fiscal

The government is likely to exempt Oil and Natural Gas Corp (ONGC) and Oil India Ltd from payment of fuel subsidy during the rest of the fiscal year due to a steep decline in global oil rates to around $50 per barrel. Upstream producers ONGC and OIL made nearly half of the revenue loss or under-recoveries that fuel retailers incurred on selling cooking fuel and diesel until recently at government controlled rates. This subsidy contribution was by way of discount on crude oil they sold to the downstream firms and it was capped at $56 per barrel in 2013.
Under-recoveries during current fiscal are pegged at around Rs 73,000 Cr. Of this, about Rs 51,000 Cr have already been accounted for in first half where ONGC paid Rs 26,841 Cr subsidy, OIL Rs 4085 Cr and GAIL Rs 1000 Cr. Government provided cash subsidy to cover the rest of it.

 For a company that is OFS bound, clarity from the Government could help. But merely keeping it away from sharing the subsidy burden for the remainder of the current fiscal is not sufficient to make FIIs line up at the OFS. For that it is important that clarity should be there for all times to come.

But the falling crude per se will make ONGC a damp squib. This government could be of help to the PSU Oil major if the Crude was to rise from here.
 
Suzlon to cut its domestic debt by half

Suzlon Energy Ltd on Saturday said that the company?s rupee debt will be halved at Rs.4,000 crore by the end of the current fiscal. The company?s rupee debt stands at Rs.8,000 crore and it will be reducing it by 50% by the end of this fiscal.

The announcement came when it unveiled plans to invest Rs.24,000 crore over the next five years on energy projects to generate 3,000 MW in Gujarat.

The company will be setting up 2,000 MW of on-land wind capacity, 500 MW of offshore wind capacity and 500 MW of solar capacity, he said, adding that offshore capacity will be 5-10km off the Kutch coast. Asked about speculation around listing of its German subsidiary Senvion (formerly Re-Power) and if funds will be generated from this avenue to retire debt, Tanti refused to comment, pointing out that the company is publicly listed and has to inform the bourses first.

Adani Enterprises, SunEdison to invest Rs 25,000 crore in Gujarat

Adani Enterprises, India's biggest private power producer and port owner, is taking giant strides in the energy sector - planning to make solar panels that can generate competitively priced electricity and investing in LNG sourcing and oil and gas exploration..

It is agreed to set up a joint venture with SunEdison that will invest Rs  25,000 crore, or $4 billion, to make India's biggest solar photovoltaic manufacturing facility and signed an accord with Australia's Woodside Energy in the oil and gas business. The solar plant, to be constructed in Mundra, Gujarat, over a three-year period, will make low-cost panels capable of producing electricity that costs as much as power generated by using traditional fuels.
The facility will manufacture solar panels to fuel solar power growth in India, furthering India's goals for clean, renewable energy independence, and will add up to 20,000 jobs to the local economy," Adani and New York listed SunEdison said in a joint statement on Sunday. The venture will boost domestic solar equipment supply to meet the huge requirement of the sector.

Vedanta exploring merging Cairn, Hindustan Zinc with Sesa Sterlite: Anil Agarwal

Mining baron Anil Agarwal is mulling merging cash-cows Cairn India and Hindustan Zinc into his flagship Vedanta Group firm to create a global natural resources giant to rival Rio Tinto or BHP Billiton.

In an interview, Agarwal, said consultants have been appointed to explore if it would make sense to merge the two firms into Sesa Sterlite.
 
The consultant will look at if it made sense to ?keep oil and gas and energy companies separate or merge Hindustan Zinc, merge Cairn, so that we can have a company like BHP.
Sesa Sterlite, India?s biggest zinc and aluminium maker, is laden with debt, Rs 29,769 crore as on March 31, 2014 while Cairn and Hindustan Zinc (HZL) are its cash generating units. Sesa holds controlling stake in both the firms. Cairn and HZL account for about 80 per cent of Sesa?s pre-tax earnings.

PVR set to acquire Chennai movie exhibition company SPI Cinemas for Rs 750-1,000 crore

According to the media reports, PVR group seems set to acquire Chennai's premier movie exhibition company SPI Cinemas, popularly known as Sathyam Cinemas, in what could end up to be the biggest deal  for India's multiplex sector. Multiple sources aware of the on-going discussions said save last-minute developments, the deal may close for a rather steep valuation of approximately Rs 750-1,000 crore for just 40 odd screens, located predominantly in the Southern metro.

PVR, with 454 screens in 102 locations across 43 cities, is the largest cinema exhibitor in the country today.

United Spirits-Diageo deal gets shareholder approval

United Spirits (USL) on Saturday said it has received approval from minority shareholders for exclusive licence and distribution agreements with its parent Diageo, a proposal that had been defeated in a previous vote in October. The nod for these agreements will now put USL?s integration with Diageo back on track.
 
Wage Drop Worries Wall Street

Wall Street ended a volatile week on a weak note Friday, with the key indices tumbling after the Non-Farm Pay Roll Report showed that wages had dropped for the first time in 13 months.
Renewed weakness in Oil and the hostage crisis in France also contributed to the fall.
The Dow Jones Industrial Average slumped 171 points or 0.95% to 17,737.

The S&P 500 fell 17 points or o,83% to 2,045.The Nasdaq Composite dropped 32 points or 0.68% to 4,704.
Volatility returned to the market in force for the first full trading week of the year as falling oil prices, a slowing global economy and weak U.S. wage growth took center stage.
The main benchmarks finished lower for the week. The Dow Jones Industrial Average moved by triple digits for the fifth session in a row. Friday?s losses put the main indexes back into negative territory for the year. The S&P 500 ended the week with a 0.7% loss and the Nasdaq Composite receded  0.5% for the week.

The headline December Non-Farm Pay Roll numbers came in better than expected.  It came in at 2,52,000 as against expectations of 2,35,000. With the December data, CY14 has added the largest number of jobs in 15 years in the U.S.  The unemployment rate  tumbled lower to 5.6%.
Also, the November Job numbers were revised higher. However, hidden somewhere in the data was a bomb of sorts.

U.S. wage growth slipped 5 cents an hour, or 0.2%, in December. For the year, earnings posted their smallest gain since October 2012, up just 1.7%. This basically means that the average worker is keeping his head above water but he's not really doing a lot better. This was picked by the markets.

On Friday, Germany's industrial production for November unexpectedly fell for the first time in three months, while China's inflation neared a five-year low, slumping for the 34th consecutive month.

The falling crude is indicating a weaker global economy. Weaker demand prospects in China and Europe remain dominant. They further push the Crude prices down. A falling crude indicates still weaker economy.

But hourly wages declined and more Americans dropped out of the labor force, suggesting the economy may not be shifting into a higher gear. Analysts said decelerating wage growth may keep the Federal Reserve from raising rates sooner.
 
Bed Bath & Beyond was the second-worst performer among S&P 500 stocks after the retailer late Thursday posted quarterly revenue that missed Wall Street?s forecasts.
Oil major Chevron fared worst among Dow components, falling 1.7%.

The U.S. oil benchmark dropped, while gold prices gained. Asian stock markets closed mixed, while European equities ended Friday mostly lower. The dollar declined against most major currencies.