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Indian stock market and companies daily report (January 01, 2013, Tuesday)

Contributed by Angel Broking

The Indian market is expected to open in the green today tracing the positive opening trades in the SGX Nifty. SGX Nifty is currently trading 0.4% higher, following reports that U.S. lawmakers are hopeful of reaching a sweeping deal to resolve the fiscal crisis that would let income taxes rise significantly for the first time in more than two decades.

US markets moved sharply higher during the trading session on Monday and ended in the green, as traders kept a close eye on developments in Washington, with comments from lawmakers indicating that a budget agreement could be reached in the near future. The rally on the day came on the heels of the downward trend seen over the past several sessions. Major European bourses declined during the trading session, as investor concerns over the ongoing budget negotiations in the United States continued to weigh on the markets.

Meanwhile, the Indian markets ended the last trading session of the year 2012 on a quiet note. Traders remained cautious and reduced their positions as uncertainty persisted over the fiscal cliff issue.

Markets Today

The trend deciding level for the day is 19,441 / 5,907 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,477 - 19,527 / 5,917 - 5,929 levels. However, if NIFTY trades below 19,441 / 5,907 levels for the first half-an-hour of trade then it may correct up to 19,391 - 19,356 / 5,895 - 5,885 levels.

Current account deficit widens to record high of 5.4% of GDP

India's Current Account Deficit (CAD) for 2QFY2013 stood at US$ 22.3 billion as compared to US$ 18.9 billion in the corresponding period of the previous year owing to a large trade deficit. In 1QFY2013, the CAD had narrowed to US$ 16.6 billion i.e. 3.9% of GDP. The CAD to GDP ratio during Q2 of 2012-1 3 reported a steep rise to 5.4% as compared with 4.2% in the corresponding quarter of the previous year. For 1HFY2012-13, the CAD increased to US$ 38.7 billion as compared to US$ 36.3 billion in the corresponding period of the previous year. The CAD as a percentage of GDP also marked an increase during 1HFY2012-13 to 4.6% from 4.0% during the same period of the previous year.

Merchandise exports declined dramatically by 12.2% during 2QFY2013 as against growth of 45.3% in the same quarter of previous year. Merchandise imports too declined by 4.8% during the quarter as against an increase of 38.1% in Q2 of 2011-12. Sharper decline in exports as compared to imports led to the widening of trade deficit to US$ 48.3 billion during Q2 from 44.5 billion during the corresponding quarter of the previous year.

Despite the surge in net financial inflows during Q2 of 2012-13 by US$ 24.2 billion led by foreign direct investment (FDI) and portfolio investment, there was a marginal drawdown of reserves by US $ 0.2 billion during the quarter, mainly due to the higher level of current account deficit. Therefore, the net financial inflows excluding changes in reserves rose to US$ 24.0 billion during Q2 of 2012-13 as compared to US$ 19.3 billion during Q2 in the previous year.

The government recently announced export sops to tackle the declining exports in the economy by extending the 2% interest subsidy on rupee-denominated loans for export-oriented labour-intensive and small-scale industries as well as engineering sector such as hand tools, electrical machinery and boilers until March 2014. We believe that although positive, the impact of these measures on export growth is likely to be limited by the weak external demand environment.

Fiscal cliff uncertainty continues

Lawmakers in the United States are still struggling to reach a last-minute deal to avert the fiscal cliff which is a combination of dramatic spending cuts and tax increases mandated to take effect from January 1, 2013 in order to reduce the nation's budget deficit and debt. Failure to reach a mutually agreed deal to reduce the deficit could lead to about US$600 billion in tax increases and wide spending pushing the fragile economy into a recession. President Obama, however, was confident about a deal in sight that seeks to raise income taxes on high-income Americans, but leave taxes at current levels for the middle class. We believe that lawmakers could still vote for a deal on January 1, 2013 or later and vote retrospectively to avoid the economic consequences of the fiscal cliff. The U.S treasury too is about to hit its $16.4 trillion ceiling on borrowing. So, the Senate is also preparing to vote on raising the debt ceiling.

Indian Overseas Bank to raise funds by rights issue

Indian Overseas Bank has proposed to raise funds by offering 20cr equity shares via rights issue. At CMP, it would amount to '1,713cr. The bank has also proposed to issue 20cr fully convertible preference shares via private placement, which would be convertible into equity shares within a period not exceeding five years from the date of issue. Equity capital raising can be expected to aid its tier-I capital adequacy, which as of 2QFY2013 stood at 7.6% by roughly 120bp and is most likely to be book dilutive, as it currently trades below book. At CMP, the stock trades at 0.6x FY2014 ABV; we maintain an Accumulate recommendation on the stock with a target price of ?90.

MoEF rejects IVRCL's sand mining projects in UP

IVRCL's two sand mining projects in Uttar Pradesh (UP) have been rejected by the Ministry of Environment and Forest (MOEF) owing to improper documentation of mining area and environmental issues. We seek further clarity on this matter and continue to maintain our Neutral rating on the stock.

Economic and Political News

- Direct cash transfer in 20 districts from January 1st: FM

- FIPB seeks more info from IKEA

- Government invites bids for 17 coal blocks from PSU's

Corporate News

- Suven Life gets 3 patent approvals for CNS molecules

- Powergrid inks JV with Bihar State Power company

- Ramky Infra ties up funds for Agra-Etawah project in UP