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Indian stock market and companies daily report (December 12, 2013, Thursday)
Indian markets are expected to open in the red today tracking a weak opening in SGX Nifty which is trading lower by 0.6%. Most of the Asian markets are trading in the negative territory.
US markets closed lower on Wednesday due to renewed concerns about the outlook for the Federal Reserve's stimulus program. The speculation about budget agreement post which Fed would begin scaling back its asset purchases in the near future resulted in the weakness in markets. Both houses of the congress are expected to vote on the proposed budget agreement.
Although the final passage of the proposed budget is not guaranteed, the legislation is expected to lift some of the fiscal uncertainty that the Fed has frequently cited as a hindrance to the economy. Most of the European markets too fell on concerns about the US budget deal.
Indian markets fell for the second consecutive session on Wednesday. Concerns about fed tapering overshadowed positive data on trade front.
The trend deciding level for the day is 21,152 / 6,305 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,235 - 21,299 / 6,330 - 6,351 levels. However, if NIFTY trades below 21,152 / 6,305 levels for the first half-an-hour of trade then it may correct up to 21,089 - 21,006 / 6,283 - 6,259 levels.
Trade deficit for November at USD9.2bn led by lower imports
According to provisional data released by the commerce ministry, the trade deficit for November 2013 has narrowed to USD9.2bn as against USD10.6bn in the previous month and USD17.2bn in November 2012 mainly on account of a sharp decline in imports. Imports reported a contraction of 16.4% during November 2013 as against 14.5% in the previous month and growth of 3.5% in November 2012. However, the momentum of strong export performance witnessed over the past four months slowed in November 2013, with export growth at 5.9% as compared to 13.5% in October 2013.
The decline in imports for the sixth consecutive month can be attributed to the steep contraction in non-oil imports due to restrictions on gold imports as well as the impact of weak domestic demand in the economy. Non oil imports reported de-growth of 23.7% as compared to 22.8% in the previous month and oil imports came in lower by 1.1% as compared to growth of 1.7% in the previous month. Gold and silver imports have declined by more than 80% over a year ago since the previous three months despite higher festival season demand during the period owing to RBI's policy of linking import of gold to exports aimed at curtailing demand for the precious metal since it has resulted in a bloated CAD and divergence of household savings to non-productive physical assets.
The cumulative trade deficit in the April - November 2013 period at USD99.9bn has reported de-growth of 23% as compared to deficit of USD129.2bn during April - November 2012. This contraction is on account of the 6.3% growth in exports as well as decline of 5.4% in imports. We believe that these positive trends in the trade balance are likely to bode well for the current account deficit in 3QFY2014 as well. We expect CAD in the third quarter to remain within RBI's comfort level of 2.5% of GDP. We also note that the import cover of reserves, another indicator of external sector vulnerability, has also improved to 8.6 months, the highest level since May 2011. The financing of the CAD would be aided by the banking sector's mobilization of funds to the tune of USD34bn on account of the concessional FCNR (B) swap window offered by the RBI until end-November. We believe that these factors together have materially reduced the risks emanating from the external sector.
JLR witnesses yet another strong month in November 2013
Jaguar and Land Rover (JLR) witnessed strong volume growth in retail sales yet again in November 2013, posting a better-than-expected growth of 25.1% yoy (9.7% mom) to 37,403 units. The performance continues to be driven by strong momentum in the newly launched models coupled with sustained growth traction across the world markets. China, Rest of the World, North America and Asia Pacific markets posted stellar growth of 41.8%, 41.9%, 37.5% and 13.8% yoy respectively. The volumes in UK however declined 0.9% yoy ahead of the new registrations that would begin from January 2014.
Jaguar sales maintained its impressive run recording a growth of 54.9% yoy (8.6% mom) on the back of the strong growth in the XF and XJ models (driven by the introduction of the Sportbrake, AWD and smaller engine variants) and aided further by the incremental sales from the F type model. Geographically, Jaguar posted a robust growth in China (up 193.2%), North America (up 105%) and Asia Pacific regions (up 61.6%) during the month; however, volumes in UK declined by 5% yoy.
Land Rover sales too recorded a strong growth of 20.5% yoy (9.9% mom) led by the healthy growth traction in Range Rover Evoque (up 10.4% yoy and 9.6% mom) and ramp-up in the dispatches of the new Range Rover (up 8.3% mom) and the Range Rover Sport (up 27.4% mom). Geographically the growth was strong across all the markets (except UK which stood flat) with Rest of the World, China, North America and Asia Pacific regions posting a strong growth of 45.3%, 27.1%, 25% and 24.5% yoy respectively.
Meanwhile, Tata Motors has announced that the capital expenditure at JLR will be increased to GBP3.5-3.7bn (~40% for R&D and ~60% for capital expenditure) in FY2015 from GBP2.75bn planned earlier. The company intends to continue its investment plans towards new product development, new powertrains and technologies to meet regulatory requirements, capacity expansion at existing UK facilities and setting up of new plants in China and Brazil. Over the long term, though, JLR intends the capital spending to be around 10-12% of net sales (as against current levels of 15-17%), which is broadly in-line with the global peers. While increased thrust on R&D, new product development and capacity expansion is essential for JLR to sustain its strong growth momentum and is expected to be positive in the long run; we believe that in the near term it will strain the company's cash flows. Management expects free cash flow to be in the negative zone in FY2015 largely due to increase in the capital expenditure plans.
Going ahead, we expect headwinds in the standalone business to continue in FY2014 due to weak macro-economic environment, which is expected to continue impacting the domestic volumes. Nevertheless, we expect JLR to sustain its strong performance driven by continued momentum in the global luxury vehicle market, success of the recently launched models and strong product launch pipeline. We are building in an ~13% volume CAGR for JLR with an EBITDA margin improvement of 170bp over FY2013-15E, driven by superior product mix and favourable geography mix. We retain our positive view on TTMT and recommend an Accumulate rating on the stock with a revised target price of Rs.410.
Economic and Political News
- Monetary policy to focus on inflation, liquidity: Rajan
- Economic growth in 2013-14 to be around 5%: RBI
- Inter-Ministerial Committee on coal linkages to meet next week
- Govt, exempts UMPPs from compensatory afforestation clause
- Govt, will not compromise on fiscal discipline: Chidambaram
- MahaGenco wants change in fuel supply pacts with CIL, subsidiaries
- Ultra Tech Cement to invest Rs.5,000cr in Uttarakhand
- RIL-BP to invest $1 0bn to quadruple natural gas output by 2020
- Coal India to take legal action against CCI penalty order
- Rs.5.04cr fine imposed on 13 telecom cos.
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