Reports » India
Indian stock market and companies daily report (December 03, 2013, Tuesday)
Indian markets are expected to open flat to negative tracking negative start to SGX Nifty and most of the Asian indices. The Asian markets are trading weak following better-than-expected reports on US economy which has raised concerns that the Federal Reserve will soon start tapering the monetary stimulus.
US stocks ended on a negative note on Monday after better-than-expected US economic indicators raised speculation that the Federal Reserve will soon indulge in monetary tightening. According to the Institute for Supply Management, manufacturing index rose to 57.3% in November from 56.4% in October, its highest reading since April 2011. Meanwhile, construction spending according to the Commerce Department too rose more than expected in October.
The Indian markets closed on a positive note on Monday, as investors cheered encouraging GDP and PMI reports pointing to economic recovery following sluggish growth in the first quarter.
The trend deciding level for the day is 20,870 / 6,206 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,969 - 21,040 / 6,241 - 6,263 levels. However, if NIFTY trades below 20,870 / 6,206 levels for the first half-an-hour of trade then it may correct up to 20,799 - 20,699 / 6,183 - 6,148 levels.
CAD improves sharply, comes in line, at 1.2% of GDP during 2QFY2014
During 2QFY2014, the Current Account Deficit (CAD) narrowed sharply to USD5.2bn (1.2% of GDP) as compared to USD21.7bn (4.9% of GDP) in 1QFY2014 and USD21bn (5.0% of GDP) in the corresponding quarter of the previous year. This improvement can be attributed to narrowing of the trade deficit on account of strong export growth and moderation in imports (particularly gold). The trade deficit moderated to 7.9% of GDP (USD33.3bn) in 2QFY2014 as compared to 11.3% of GDP (USD50.5bn) in the previous quarter and 11.4% of GDP (USD47.8bn) in 2QFY2013 as merchandise exports reported double-digit growth of about 12% yoy along with contraction in import by 4.8% yoy as domestic demand remained sluggish. Aided by 12.5% growth in services exports, invisibles reported net inflow of USD28.1bn as compared to USD26.6bn in 2QFY2013. Primary income (profit, dividend and interest) reported higher net outflow of USD6.3bn during the quarter as against USD4.8bn in 1QFY2014 and USD5.6bn in the corresponding quarter of the previous year.
Overall, despite the extent of moderation in the CAD, there was a drawdown of foreign exchange reserve amounting to USD10.4bn during the quarter. This is because the capital account witnessed higher inflows owing to heavy FII outflows on the back of the Fed's indication of a tapering of QE3. While FDI came in at USD6.9bn during the quarter almost matching the outflows from FIIs at USD6.6bn mainly from the debt market (USD5.7bn). NRI deposits reported an astounding 193% growth to USD8.3bn as compared to USD2.8bn in 2QFY2013. However overall outflows from the capital account were also witnessed owing to net outflows from short-term credit due to repayment of short-term credit on overseas borrowings and other capital etc.
For FY2014 as a whole, we expect the CAD to moderate significantly led mainly by export growth on account of revival of demand in advanced economies as well as to an extent the INR depreciation on a yoy basis. It is also expected to be aided by curtailing of imports particularly of gold and exports of software services benefiting from INR depreciation. The CAD is expected to narrow meaningfully to about 3.0% of GDP in FY2014 from 4.8% in FY2013. Owing to this improvement, the risks of financing the CAD gap have materially subsided and we also believe that the external sector is likely to be much more resilient now to the tapering of QE3 over the coming months, in wake of measures taken by policymakers to attract inflows through FDI, FII and banking capital.
Auto Monthly - November 2013
Ashok Leyland (AL) registered lower-than-expected volumes, with total sales posting a significant decline of 27.1% yoy to 5,375 units led by the continued weakness in the medium and heavy commercial vehicle (MHCV) segment amidst slowdown in the industrial activity. While the sales in the MHCV segment declined by a steep 39.5% yoy; light commercial vehicle (LCV) sales registered a fall of 7.7% yoy during the month.
Hero MotoCorp (HMCL) reported better-than-expected growth of 5.6% yoy to 530,530 units driven by strong traction from the rural markets led by good monsoons and also on account of the few strategic initiatives taken by the company. According to the Management, the five year warranty scheme on the entire range of motorcycles and scooters is receiving a strong response from the consumers.
Maruti Suzuki (MSIL) registered lower-than-expected sales in November with total sales posting a decline of 10.7% yoy to 92,140 units driven by a sharp decline of 46.2% yoy in exports. The domestic volumes too dropped by 5.9% yoy as the compact and utility vehicle segments witnessed a steep decline of 24% and 21.5% yoy led by slowdown in demand and increasing competition from Renault and Ford. The super compact segment however continued its strong performance registering a growth of 13.2% yoy. The mini segment too remained in the positive zone with a modest growth of 3.7% yoy.
TVS Motor (TVSL) reported lower-than-expected sales as total sales witnessed a decline of 5.8% yoy to 161,908 units. The performance was impacted due to the weak demand in the domestic markets led by the slowdown in the economic activity and also due to higher competition in the two-wheeler segment. Exports however, continued its strong momentum and registered a growth of 26.2% yoy driven by 21.9% and 47.7% yoy growth in the two-wheeler and three-wheeler sales respectively. The company's two-wheeler sales declined by 6.7% yoy as motorcycle and moped sales declined by 6.1% and 13.3% yoy respectively. Scooter sales though grew modestly by 3.6% led by the launch of Jupiter. Threewheeler sales grew strongly by 24.7% yoy driven largely by exports.
Wipro buys US mortgage firm - Opus CMC for US$75mn
Wipro Ltd announced that the company would acquire Opus Capital Markets Consultants LLC (Opus CMC), a US-based BPO provider of mortgage due diligence and risk management services for US$75mn. The purchase tag, however, includes a deferred earn-out component. Opus CMC is expected to close 2013 with revenues of US$43.4mn - the acquisition will be completed during the fourth quarter of FY2014 and will provide the struggling Wipro a much needed inorganic revenue boost. Wipro indicated that Opus CMC had been growing at over 30% for the last three years. Headquartered in Lincolnshire, Illinois, the company has over 490 employees, which includes 315 loan underwriters. The company has five centers in the United States.
The purchase will strengthen Wipro's mortgage solutions and outsourcing business while complementing its existing offerings in mortgage origination, servicing and secondary market. Most IT/BPO companies are building platforms, which typically bundle business process outsourcing with a technology layer. Platform-based BPO is not really new to the Indian IT industry, however - rival Infosys, for instance, acquired McCamish Systems in 2009 to gain a platform edge in the insurance and financial services sector. This acquisition provides Wipro access to a niche and a high growth segment and shows intent to fill gap in financial services portfolio and increase penetration in US. We maintain our Buy rating on the stock with target price of Rs.567.
Tata Steel Management meet update
We met the management of Tata Steel to get an update on the company's upcoming expansion. Key takeaways from the interactions were:
1) The upcoming Kalinganagar steel plant in Odisha would be completed by end of FY2015; however, the expansion of iron ore mine to feed the blast furnaces still awaits regulatory hurdles. We believe timely clearance of iron ore mine is critical for the plant.
2) The company aims to make value added steel products at the new facility in Odisha where the blended realizations could be potentially higher than existing products.
3) The company's Odisha plant is likely to require ~6,000 employees for a runrate of 6mtpa capacity as compared to 20,000 employees in Jamshedpur for a 9.7mtpa capacity.
4) The stake sale of non-core investments is not finalized as of now. However, the company's board may consider selling the investments to fund expansion plans/ lower debt levels. Currently the market value of its quoted investments is ~Rs.8,000cr.
5) The company stated that the debt levels would remain elevated until the Odisha capex cycle is complete; substantial reduction in debt can only be seen after FY2015 in case the company delays 2nd phase of the Odisha expansion. The company has not drawn any debt for the project until October 2013. However, it is likely to raise debt going ahead. Thus far it has already incurred a capex of Rs.10,600cr (total capex is likely to be Rs.25,000cr) on the project.
We maintain our positive stance on the company and keep our target price under review.
Cairn strikes oil on the east coast
Media reports suggest that Cairn India has struck significant oil reserves in its Krishna-Godavari (KG) Basin onshore field KG-ONN-2003/1. The company has drilled three appraisal wells in the field namely Nagayalanka SE, 1Z and 1Z ST. However we await clarity by management on capex, estimated timelines, reserves etc for this discovery and till then maintain our estimates and Buy rating on the stock with a target price of Rs.380.
Economic and Political News
- State oil firms now sourcing all dollars from market: RBI
- Confident to mobilise Rs.40,000cr from spectrum sale: DoT
- India not to compromise on food security: Sharma
- NTPC's tax-free bond issue to open today
- SBI to raise up to $1.5 billion via share sale
- Spicejet allots 1.5cr equity shares
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