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Indian stock market morning report by Keynote Capitals (October 22, 2008, Wednesday, 7.00 a.m. GMT)

Economic and Corporate Developments

- The rupee weakened past 49.30 per USD to a record low of 49.34/50 this morning on expectations of further outflows from local stock market. It had closed at 49.04/06 yesterday.

- Crude oil prices are at $70.07 per barrel, down about 2%.

- The Government and the RBI are looking at further easing of ECB guidelines and FDI norms to enhance overseas fund inflows. On ECBs, the option of putting loans up to $500mn for rupee expenditure by Indian infrastructure companies under the automatic approval route is being considered.

- The steel ministry may provide protection to domestic steel companies by levying a 10% import duty on all grades of steel. It is also likely to suggest re-imposition of 14% countervailing duty (CVD) on bars and structurals (primarily Tor steel) and reduction in excise duty on Tor steel and galvanised products from the present 14% to 8%.

- According to media reports, Norway’s sovereign wealth fund, the world’s second largest, is likely to invest $2bn in Indian stocks upto January 2009. This comes in the wake of net sales by FIIs of about $11bn worth of equity in 2008 YTD.

- As per our sources in the banking industry, some banks have decided to stop fresh disbursements to the cement, steel and real estate sectors, anticipating a major slowdown, and fears of NPAs from these sectors by March 2009.

- In spite of the economic slowdown, India’s cellular telephony sector continues to grow. India added 10mn mobile phone subscribers in September, taking the total subscriber base to 310mn.

- Wipro’s net profit for Q2 grew just 1.2%, missing forecasts. While Wipro has not seen any project cancellations so far, decision making by clients is getting delayed. However, the deal pipeline still looks good, as per the management.

- Hindalco Industries may sell stakes in group companies to raise funds to repay a part of the $3bn bridge loan it obtained to buy Novelis.

- BHEL has bagged an order worth Rs6.4bn for setting up a 412Mw hydro-electric project in Himachal Pradesh.

- According to press reports, ITC is understood to have accumulated losses of Rs700Cr over the past seven years in its food business. The segment which crossed Rs1,000Cr revenue mark in the last financial year, is reportedly losing on an average, Rs60Cr per year.

Results to be announced today

Bajaj Auto, TCS, Wipro, Reliance Infrastructure, Educomp Solutions, Jindal Saw, Cipla, Bank of India, Yes Bank, Sesa Goa, IDFC, 3i Infotech, Neyveli Lignite, Hotel Leela Venture, McDowell Holdings

US markets yesterday

The US markets declined 2.5% with several companies posting quarterly earnings misses and cautious outlook overshadowing signs of improvement in the credit markets. The new plan of the government to boost money market funds and gloomy corporate outlooks kept investors on the edge. Financials closed down 1.8%. Earnings were mixed; of the 77 companies that reported earnings, 52% topped estimates, 35% missed and 13% were inline. Outlooks were cautious of the 49 companies that issued guidance, 45% were negative, 30% were in-line, 21% were mixed and only 3% were positive. In stock specific earnings action, Apple beat market forecasts but gave a weak outlook. Yahoo’s Q3 profit declined 64% and it announced layoffs of 1500 workers and lowered its revenue forecast. Citibank being downgraded and word from billionaire Kurt Kerkorian that he is dumping Ford shares added to downside in the markets.

Views on markets today

A strengthened Yen brought the Japanese markets down this morning. Overnight fall of the US markets also led to negative sentiments in Asian markets. Fears of global recession are mounting. We expect Indian markets to perform in line with their global counterparts and remain negative today. Apart from the weak global cues we may see a profit booking in heavyweight stocks. Domestic institutions have been in the buying mode over the last two days. We expect markets to remain in a cautious state till the announcement of RBI's monetary policy on October 24. We may see a weakness in the Wipro stock. The company issued cautious near term outlook because of deteriorating economic conditions. Tech Mahindra may see some action after its 56% growth in the bottom line. A few major companies are announcing results today which will also drive the market movement. We note that speculative activity in top traded stocks seems to have shifted to the BSE from the NSE. Aggregate deliverable volumes for top 10 stocks (in terms of value of turnover) stood at just 12.6% on the BSE, vis-a-vis 25.4% on the NSE.