Reports » India
Indian stock market and companies daily report (December 19, 2013, Thursday)
Indian markets are expected to open in the green today tacking positive cues from SGX nifty however Fed's decision to scale back its stimulus program would weigh on the market.
The US markets moved sharply higher on Wednesday. The rally on Wall Street came on the heels of news that the Federal Reserve is reducing its asset purchase program by $10 billion per month beginning in January. The Fed also said it will likely be appropriate to keep rates at near-zero well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the bank's 2% longer-run goal. European markets too finished in the green ahead of the highly anticipated announcement from the Federal Reserve and owing to boost from the Germany Ifo business sentiment data and the U.S. housing starts data.
Back home, Indian markets rallied on Wednesday after the Reserve Bank of India (RBI) unexpectedly left its key rates unchanged, saying it will wait for more data, including the decision of the U.S. Federal Reserve on stimulus tapering, before taking calibrated actions in future.
The trend deciding level for the day is 20,782 / 6,194 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,995 - 21,131 / 6,259 - 6,300 levels. However, if NIFTY trades below 20,782 / 6,194 levels for the first half-an-hour of trade then it may correct up to 20,647 - 20,433 / 6,153 - 6,088 levels.
Fed to taper its monthly bond purchases by USD10bn since January 2014
The Federal Reserve has decided to taper its quantitative easing (QE3) program by USD10bn per month since January 2014 by reducing USD5bn in purchase of mortgage backed securities and USD5bn in treasury securities. The quantum of monthly asset purchases would amount to USD70bn (USD40bn in treasury securities and USD35bn in mortgage-backed securities) as compared to the pace of USD85bn maintained since September 201 2. The Fed chairman, Ben Bernanke indicated that the purchases would likely be reduced further at a measured pace through much of next year if job gains continue as expected, with the program fully shuttered by late-2014.
The Fed reiterated its commitment to an accommodative monetary policy stance. The policy rate has been maintained at a near-zero level of 0.25%. It would continue to keep interest rates near zero until employment improves further (below 6.5%) and price stability is maintained at or below its 2% medium-term objective.
The Fed also released economic projections along with the policy statement. According to its latest projections, real GDP growth is estimated to be at 2.2-2.3% in 2013. GDP growth is expected to range between 2.8-3.2% in 2014 and 3-3.4% in 2015. Unemployment rate in 2013 is seen at 7.0-7.1% and estimated to fall to 6.3-6.6% in 2014 and 5.8-6.1% in 2015. Inflation is expected to inch up at moderate pace towards the 1.5-2.0% range until 201 5.
Fundamentally, we believe that with our external sector is now more resilient as compared to the indication of tapering May 2013. The trade deficit looks to be on an improving trajectory and our current account deficit for FY2014 is slated to moderate to sustainable levels owing to the growth in exports and compression in imports, particularly gold. Also, with policy measures taken to attract capital inflows risks to financing of the deficit have also materially subsided.
Status quo on rates surprises positively
The Reserve Bank of India (RBI) maintained status quo on policy rates in its MidQuarter Monetary Policy Review belying our and the market expectations of an increase in the repo rate by 25bp. The repo rate continues to remain unchanged at 7.75% with the reverse repo at 6.75%. The Marginal Standing Facility (MSF) too stands unchanged at 8.75% and the Cash Reserve Ratio (CRR) at 4.0% of banking systemsRs. NDTL.
Calibration of policy action to await more data points
During November 2013, the headline WPI inflation edged higher to 7.5% as against about 7.0% in the three preceding months. At the same time, CPI inflation also picked up for the third straight month to 11.2% as against 10.8% in October 2013. The rise in headline inflation rates for both the WPI and CPI has been largely driven by elevated food prices. The RBI has indicated that vegetable prices are expected to sharply moderate in the near-term itself and that is likely to bring respite from overall high inflation levels.
At the same time, it has also noted that other factors such as 1) exchange rate stability, 2) negative output gap owing to slowdown in growth, 3) lagged effect of policy tightening since July 2013 and 4) fiscal consolidation efforts are likely to contain inflationary pressures. Given the expectation that the vegetable price shock is temporary, the policy statement warrants waiting for more data points to calibrate further policy action.
No rate action but inflation continues to remain priority
Despite keeping rates unchanged we believe that the RBI continues to maintain a cautious vigil on price pressures in the economy. In the growth-inflation dynamics, we believe that the scale is still tilted slightly more in favor of inflation control.
This is clearly indicated in the RBI's own words:
"...if the expected softening of food inflation does not materialize and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank will act, including on off-policy dates if warranted, so that inflation expectations stabilize and an environment conducive to sustainable growth takes hold."
We expect the RBI's future policy action to be data-dependent. The stability in exchange rate and growth in deposit rates picking up and leading to better liquidity are positive factors. Going forward, we do expect the trajectory for food inflation to moderate. In the near-term, vegetable prices are likely to soften substantially, as already being seen in the case of onion prices, which would then provide respite from overall elevated food inflation.
NTPC signs EUR 55mn loan agreement with KfW Germany; also signs a EUR 5mn financing agreement to set up a research lab
NTPC tied up for a EUR 55mn (~Rs.467cr) loan facility from KfW, a German govt. developmental financial institution. The loan, which is on a standalone basis without any sovereign guarantee, has a maturity period of 12 years and is on a fixed interest basis. As per the company, the loan would be used to part finance the capex on Electro Static Precipitators and a part of the Mouda Stage II power project.
NTPC also signed a financing agreement with KfW to setup Solar Thermal and Photovoltaic Lab at NETRA (NTPC Energy Technology Research Alliance) under the Indo-German Research Cooperation through a grant of EUR 5mn with an equal amount of contribution from NTPC. These labs are being set up with assistance from German R&D institutions. NTPC currently has 10MW of Solar PV projects commissioned with another 100MW of Solar PV projects under execution. However, we maintain Neutral rating on the stock.
L&T has bagged Rs.2,935cr order from Qatar
L&T's Power T&D business has secured an EPC (engineering, procurement and construction) order worth Rs.2,935cr for supply and commissioning of transmission lines and substations from Qatar General Electricity and Water Corporation. The order is part of expansion of the Qatar Power Transmission System- Ph XI - stage I and is the single largest order for the company in this segment. The scope of work for the company includes supply, erection, testing and commissioning of gas insulated switch gears, power transformers and auxiliaries which is schedule to be completed within 22 months. We continue to maintain an Accumulate rating on the stock with a target price of Rs.1,188.
Lupin launches Generic Trizivir Tablets
Pharma Major Lupin Limited (Lupin) announced today that its US subsidiary Lupin Pharmaceuticals Inc. has launched its Abacavir Sulfate, Lamivudine, and Zidovudine Tablets, 300 mg (base) / 150 mg / 300mg in the US after the US District Court for the District of Delaware ruled that the Lupin's generic version of Trizivir® did not infringe on patents. Lupin had earlier received approval for the same. Lupin's Abacavir Sulfate, Lamivudine Zidovudine 300mg (Base)/150mg/300mg Tablets are the AB-rated generic equivalent of ViiV Healthcare's (ViiV) Trizivir® Tablets, 300 mg (base) / 150 mg / 300mg and are indicated in combination with other antiretrovirals or alone for the treatment of HIV-1 infection. Lupin is the first applicant to file an ANDA for Trizivir® Tablets and as such is entitled to 180 days of marketing exclusivity. Trizivir® Tablets, 300 mg (base) / 150 mg / 300mg had annual U.S sales of approximately $ US111.6mn (IMS MAT Sep, 2013). Hence the product will contribute almost US $20-25mn during the exclusivity period. We maintain an accumulate with a target of Rs.930.
Economic and Political News
- ADB to lend $176 mn for Jaipur's metro expansion
- India's peak power deficit drops to 2.9% in November: CEA
- India better prepared to deal with Fed tapering: Mayaram
- APSEZ completes work on Vizag coal terminal
- RIL shuts crude unit at 660,000 bpd refinery
- Biocon inks licensing pact with US-based Quark Pharma
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