Reports » India
Indian stock market and companies daily report (April 01, 2013, Monday)
The Indian market is expected to open flat mirroring flat opening trades in the SGX Nifty and negative trades in the major Asian Indices. Major Asian bourses are trading lower, as the recent economic data releases have shown that the confidence among big Japanese manufacturers missed estimates and factory output in China has expanded at a slower-than-expected pace.
The US and the European markets were closed on Friday due to the Easter holiday. On Thursday, the US markets, after initially showing a lack of direction, moved mostly higher over the course of the trading day. The strength on the Wall Street was partly due to the recent upward momentum for the markets, with traders showing continued buying interest despite recent concerns about the sequester and the situation in Cyprus. Most of the European bourses finished in the green on Thursday. Cypriot banks reopened for business on Thursday, after being closed since March 16, with limits imposed by the Cypriot Govt. on withdrawals and credit card transactions in a bid to prevent the nationRs.s financial sector from collapsing. Investors were encouraged by the lack of panic in Cyprus and the relative calm of those waiting in line at the nationRs.s banks.
Meanwhile, Indian markets were also closed on Friday on account of the Easter holiday. On Thursday, Indian markets rallied, primarily on short covering due to F&O contract expiry, even as IndiaRs.s Current account deficit widened to a record-high of 6.7% of GDP in 3QFY2013 and 5.4% in 9MFY2013.
The trend deciding level for the day is 18,762 / 5,660 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,956 - 19,076 / 5,715 - 5,748 levels. However, if NIFTY trades below 18,762 / 5,660 levels for the first half-an-hour of trade then it may correct up to 18,642 - 18,448 / 5,627 - 5,572 levels.
Current Account Deficit (CAD) hits a record-high at 6.7% of GDP in 3QFY2013
As the trade deficit deteriorated, IndiaRs.s CAD widened to a record-high of 6.7% of GDP (USD 32.6 billion) in 3QFY2013 as compared to 5.4% of GDP (USD 22.6 billion) in the previous quarter and 4.4% of GDP (USD 20.2 billion) in 3QFY2012. For the nine months of FY2013, the CAD has widened to a much higher 5.4% of GDP (USD 71.7 billion) as compared to 4.1% of GDP (USD 56.4 billion) in the corresponding period of FY2012.
The negatives: The trade deficit widened to US$ 59.6 billion in 3QFY2013 from USD 48.3 billion in the previous quarter as imports of goods (9.4% growth) were largely led by oil and gold imports while exports growth remained flat. The trade deficit surged to 12.3% of GDP during the quarter. Exports in services also reported 2% decline to USD 36.5 billion in 3QFY2013 as compared to a growth of 6.4% in the corresponding quarter of the preceding year. Transfers on account of remittances declined to USD 14.8 billion from USD 15.6 billion in the corresponding quarter of the preceding year. Also, outflow from primary income came at a higher USD 8.9 billion as compared to USD 6.1 billion in 3QFY2013 largely due to fall in investment income receipts and rise in investment income payment.
Capital inflows remained strong and net inflows totaled USD 31 billion owing to FII inflows as FDI inflows deteriorated to USD 2.5 billion. However, FII inflows in debt instruments increased and it raises concern over the quality of financing. On a BoP basis, there was an accretion to the foreign exchange reserve by USD 0.8 billion during the quarter.
Going forward, we anticipate an improvement in the number during 4QFY2013 in the range of 4.2% - 4.7% of GDP as the trade deficit has moderated in the previous two months. Gold and oil imports are expected to be lower as the import duty bears effect and crude prices have moderated as compared to the previous year. Improvement in the trade deficit for the fourth quarter is also largely due to seasonal factors and it remains to be seen whether it can be sustained going ahead. We expect the CAD for the whole of FY2013 to inch towards 5% of GDP, up from 4.2% of GDP in the previous fiscal.
We believe that to boost exports in the interim, the foreign trade policy due this month is likely to enhance sops for the export-oriented sectors particularly in manufacturing since non oil, non gold imports also continue to remain high. In addition, a high CAD is also likely to reinforce the growth-supportive but still-cautious stance of monetary policy limiting the room for aggressive rate cuts.
TN pollution board orders closure of Sterlite's smelter
The Tamil Nadu Pollution Control Board has ordered Sterlite to shut its Tutikorin smelter. On March 23, 2013, local people had complained due to gas leakage from the plant. As per media reports, Sterlite has already begun to shut its plant. However, there is no clarity on the duration of closure of the smelter. SterliteRs.s Tutikorin smelter contributes approximately 10% to the consolidated SOTP valuation of Sesa Sterlite. Hence, we do not expect material impact on SterliteRs.s stock price on account of this temporary closure. We maintain our Buy rating on the stock with a target price of Rs.110.
Removal of import alert by USFDA for Unit-VI of Aurobindo Pharmaceuticals
The USFDA has lifted the import alert for non-sterile products manufactured at UNIT-VI cephalosporin facility of Aurobindo pharmaceutical based in Hyderabad, thereby, paving the way for resumption of exports of 9 products to the US market. The import alert was earlier imposed in February 201 1. Prior to import alert, the Unit was having annual US sales of US $33mn for the said products. The development is positive for the company as it indicates that the company is on its way to resolve its USFDA issues. Earlier the company had indicated that the USFDA inspection for unit IV & VI has been completed. While Unit IV had no observations and Unit VI had 2-3 minor observations, for which the company had replied to the USFDA. So the removal alert of the unit VI, should increase the possibility of the approval of unit IV. We maintain our buy with a target price of ?208.
HDFC Bank reduces base rate by 10 bps to 9.6%
HDFC Bank has reduced its base rate by 10bp from 9.7% to 9.6% w.e.f March 30, 201 3. It has become the first bank to reduce its base rate after the Reserve Bank of India (RBI) cut its repo rate by 25 bps on March 19. Now HDFC Bank has the lowest base rate at 9.6% followed by SBI at 9.7% and ICICIBK at 9.75%. In our view, the tight liquidity situation has restricted the ability and intent of banks to lower deposits rates and thereby posing hurdles for effective transmission of monetary policy. Though deposit rates remains elevated amid moderate deposits growth, however if liquidity situation improves from here on (it was affected by advance tax outflows during last few weeks in March), other banks are likely to follow HDFC Bank and reduce their lending rates by a similar extent in near time.
For HDFC bank, reduction in base rates is expected to impact margins slightly, but that would be only beginning 1QFY2014. At CMP, the stock trades at 3.5x FY2014 ABV. We maintain our neutral view on the stock.
L&T completes acquisition of Audco India Ltd
Larsen & Toubro (L&T) said it has completed the acquisition of its group firm, Audco India Ltd (AIL). The acquisition would help L&T grow its valve business globally with a comprehensive range of valve offerings. The company would retain the manufacturing plants of AIL at Manapakkam, Chennai and Kanchipuram. However, the company did not disclose the deal value. We continue to maintain our Buy rating on the stock with a target price of Rs.1,788.
Economic and Political News
- Fiscal deficit touches 97% of revised estimate till Feb
- Forex reserves rise by USD 1.1bn in Apr-Dec
- CCI push to projects worth Rs.74,000cr hit by delays
- Retail inflation for industrial worker surges to 12.06% in Feb
- Gujarat: New Irrigation Bill gets governorRs.s nod
- Six states agree to debt recast plan of discoms: Scindia
- SEIL secures contract from RINL
- CCI gives green signal to Denso-Pricol joint venture
- Nokia fined by Indian tax officials, court issues stay
- BP says USD 8-8.50/mmBtu inadequate for developing deep sea gas finds
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