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Indian stock market morning report by Keynote Capitals (November 10, 2008, Monday, 7.00 a.m. GMT)

Economic and Corporate Developments

- Orders for Cisco Systems’ computer networking equipment fell abruptly in October. The fourth quarter could be even more disappointing as businesses are cutting back spending by putting off equipment purchases and upgrades and laying off workers. Even software, considered a safer bet, will likely take a hit. Technology makes up a big chunk of corporate spending. Of the total spend of US businesses on fixed investments, incl. offices and factories, about 28% goes to computer and communications equipment and software. Products that require capital spending, such as routers, switches and computers, are expected to suffer first. This could mean bad news for IT companies in India, since the US accounts for most of their customer base.

- As per RBI data, bank loans in India grew by 29% y-o-y in the two weeks to October 24, while deposits were up 21%. Non-food credit rose by Rs8277Cr to Rs25660Cr, while food credit fell by Rs640Cr to Rs48255Cr.

- India’s infrastructure sector grew 5.1% in September 2008, the fastest pace in the current financial year, helped by higher coal and cement production. Though lower than 5.8% growth in September 2007, it is higher than last month’s 2.7%.

- Elder Pharmaceuticals has entered into an agreement with Daiwa Pharmaceuticals Co. Ltd., Japan, for manufacturing and marketing of some of Daiwa’s products in India. Daiwa Pharma specializes in health supplements and functional foods. Elder Pharma proposes to initially launch "IMBRAN", a novel nutritional supplement for immunity enhancement, in the Indian market.

- Blue Dart Express plans a capex of Rs100Cr in FY10, compared with Rs200Cr capex plan for FY09. It has a capex plan of Rs1000Cr over 5-7 years, to be raised through internal accruals. About 60% will be spent on aviation services and the rest on infrastructure facilities and technological upgradation. It plans to induct a Boeing 757 on lease this year, which will take its total fleet size to seven aircraft. It is adding 58 domestic facilities including warehouses and operating centres, to its existing 282 in 2009. The firm, which has a 42% market share in the domestic logistics space, has seen a slowdown in certain verticals including automotive, telecoms and IT on account of a global financial crisis. While volumes have not been affected, volume growth may be impacted on y-o-y basis.

- Aurobindo Pharma has obtained final approval from the US FDA to make and market a 20 mg dose of Sertraline Hydrochloride.

- C&C Constructions plans to diversify into construction of power transmission towers as a part of its future growth plan. It is a major player in road-building and water pipelines with over Rs 2,100Cr worth of projects under execution. It is eyeing to reach Rs1,500Cr turnover by FY10.

US markets last Friday

The US markets ended up 2.9% last Friday in spite of the worst unemployment figures in 14 years and a scream for help from General Motors. The auto giant stated that it may not have enough cash to make it to the end of the year without federal assistance. The President of Automotive Consulting Group said that if the government doesn't step in, the entire US auto industry may die. Ford Motor posted 3Q operating loss of $2.98bn and said that it would cut staff and capital spending to preserve its dwindling cash. That the market rallied on such bad news indicated it had already accounted for it in prior two sessions when it fell 10%. President-Elect Obama in his 1st press conference, summarized 4 initiatives he would pursue immediately upon entering office in January (1) rescue plan for the middle class that would include a new fiscal stimulus package, which will be his first priority (2) working to stem the spread of the impact of the crisis on other sectors of economy (3) reviewing current administration's implementation of the financial program and (4) laying out policies that grow the middle class and strengthen economy for the long term. Libor that banks charge each other for three-month loans in dollars dropped 10bps to 2.29%, the lowest level since November 2004.

Views on markets today

China rescue package of $586bn for its economy has acted as a stimulus for other Asian markets. The major Asian indices have opened up with a gap today. However, the Hang Seng has witnessed some profit booking at higher levels. Crude prices also reacted positively on the news and jumped up by around $3/barrel to touch $64 levels.

Back home, Indian markets saw buying in large cap counters on Friday. However, mid and small cap stocks have not been showing movement. For A group stocks, A/D ratio was almost 3 times in favor of advances. Both FIIs and MFs remained net sellers. Friday's rally was backed by weak volumes which is a major concern. Trading volumes had declined from Rs110bn on NSE and Rs40bn on BSE to Rs92bn and Rs35bn respectively. Deliverable volumes on top 10 stocks had also remained weak at 17.2% on NSE and 12% on BSE on Friday. Specific to stocks, we may see momentum in pharma stocks particularly Ranbaxy, Sun Pharma, Aurobindo Pharma and Elder Pharma. The RBI has rejected the application of early redemption of FCCBs of Ranbaxy. Sun Pharma's offer to buy outstanding Taro shares has been extended from November 7 to December 19, while Aurobindo Pharma got the US nod to make, market depressive disorder drug. We expect Indian markets to follow the Asian markets and trade in the positive initially. However, profit booking on the higher levels cannot be ruled out.