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Indian stock market and companies daily report (January 03, 2013, Thursday)

Contributed by Angel Broking

The Indian market is expected to open in the green today tracing the positive opening trades in the SGX Nifty and most of the Asian bourses. The Asian markets are trading in the positive zone following different reports which indicate expansion of U.S. manufacturing and ChinaRs.s services industries.

US Markets after moving sharply higher at the start of trading on Wednesday, continued to perform well throughout the session. The markets benefited from a positive reaction to news of a last-minute fiscal cliff agreement in Washington. Major European bourses also ended the session with strong gains. The news that Democrats and Republicans in the United States reached a deal to avert the fiscal cliff sparked a relief rally. Manufacturing data from China also contributed to the positive mood among investors.

Meanwhile the Indian markets rose notably on Wednesday, extending the rally of previous sessions, after U.S. politicians finally agreed to a bipartisan Senate-backed deal on tax increases and spending aimed at averting the fiscal cliff.

Markets Today

The trend deciding level for the day is 19,719 / 5,994 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,752 - 19,789 / 6,006 - 6,018 levels. However, if NIFTY trades below 19,719 / 5,994 levels for the first half-an-hour of trade then it may correct up to 19,682 - 19,649 / 5,981 - 5,970 levels.

United States averts fiscal cliff

The deal aimed at averting the economic consequences of the fiscal cliff has been cleared by lawmakers in the United States. The bill was cleared with a 257-167 vote in the House of Representatives after winning a majority by 89 - 8 vote in the Senate a day earlier. The legislation averted the negative consequence of deficit-reduction measures amounting to around USD 600 billion starting on January 1, 2013.

The major issues addressed by the deal are:-

Income tax rates: increase in marginal tax rates at incomes over USD 400,000 for individuals and USD 450,000 for couples.

Dividend and capital gains tax: increase in taxes on capital gains and dividends from 15% to 20%.

Relief to certain taxpayers: seeks to extend jobless benefits for the long-term unemployed (approximately 2 million) for an additional year, makes permanent changes to alternate minimum taxes granting relief to middle-income earners and extends tax breaks for businesses for renewable energy purposes.

Medicare payments: Likely to prevent a 27% cut in Medicare payments to doctors for a year

Payroll tax: The payroll tax exemption of 2% not extended. Thus taxes for all wage earners will be rise to 6.2% from the earlier 4.2%.

Estate tax: Raises the estate tax rate to 40% from 35% on value of estate over USD 5 million (USD 10 million for couples).

Spending: Defers for two months USD 109 billion worth of automatic spending cuts (sequester) across military and domestic programs offsetting the cost of delay (USD 24 billion) with a combination of revenue increases and other spending cuts.

According to the Congressional Budget Office (CBO) estimates, the legislation passed would add about USD 4 trillion to deficits over the decade as compared to the scenario of going over the fiscal cliff and letting tax increases and spending cuts to kick in. The next legislative agenda is likely to be raising the debt ceiling as the U.S treasury is about to hit its statutory borrowing limit of USD 16.4 trillion and the issue of sequestered spending cuts which is likely to be taken up by the parliament again in February and we expect these developments to continue steering the direction for markets.

Auto sales numbers - December 2012

Ashok Leyland (AL)

Ashok Leyland (AL) reported lower-than-expected volumes in December 2012 primarily due to unexpected fall in Dost sales. The Dost volumes declined by a steep 28.2% mom to 2,069 units as against monthly run-rate of 3,000 units clocked over the last three months. The medium and heavy commercial vehicle (MHCV) segment too maintained its downward trajectory and recorded a decline of 33.4% yoy. Going ahead, while we expect the MHCV sales to remain weak due to slowdown in industrial activity; we expect the sales momentum in Dost to remain strong with it getting introduced across India (currently available in seven states). At Rs.27, AL is trading at 9.7x FY2014E earnings. We maintain our Accumulate rating on the stock with a target price of Rs.31.

Bajaj Auto (BJAUT)

BJAUT reported an in-line volume growth of 12.5% yoy (down 7.6% mom) to 343,946 units driven by strong growth in domestic (17.2% yoy) and export sales (5.3% yoy). The motorcycle sales grew strongly by 13.1% yoy (down 8.7% mom) driven by the new launches, Discover 125ST and Pulsar 200NS which clocked incremental volumes of ~50,000 units during the month. Three-wheeler segment registered a healthy growth of 8.6% yoy (flat mom) led by issue of fresh permits in states like Delhi and Jaipur. Export volumes too posted a healthy growth of 5.3% yoy (1.5% mom) due to gradual revival in volumes in the key markets. Going ahead, the company would be launching a new 100cc motorcycle on January 7 and expects the volumes to benefit from the new launch. At Rs.2,203, BJAUT is trading at 17.4x FY2014E earnings which we believe is higher than its historical average. Thus we maintain our Neutral view on the stock.

NMDC's Q3FY2013 output slumps 25% yoy

NMDC reported disappointing iron ore production and sales volumes for 3QFY2013. As per media reports, its 3QFY2013 ore production decreased by 25% yoy to 5.3mn tonne and sales volumes also declined by 17% yoy to 5.3mn tonne, which were below our expectations. We believe lower sales volumes would have been due to lower demand from secondary steel-makers mainly in the Chhattisgarh region. Also, NMDC has lowered price of its lump by Rs.320/tonne (5.9%). In light of these events, we are likely to lower our estimates for FY201 3 after NMDC reports 3QFY2013 numbers and management guidance on production/sales volumes. Although 3QFY2013 volumes are disappointing, we expect NMDCRs.s volume growth to be higher in FY2014 as it ramps up its capacity. We maintain our Buy rating on the stock with a target price of Rs.196 until further update.

KEC wins orders worth Rs.1,511cr

KEC International (KEC) has secured orders worth Rs.1,51 1cr, including two orders from PGCIL of Rs.286cr and Rs.386cr for supply and erection of +/- 800KV HVDC in Chhattisgarh on turnkey basis. Other orders include Rs.43cr order for supply of power and telecom cables, Rs.602cr order for design, supply and erection of 400KV transmission line in Oman, Rs.131cr order for supply and erection of transmission line and substation in Nepal and orders worth Rs.63cr for supply of lattice towers and poles to Brazil, Mexico and U.S. This is a positive development for KEC which is reflected in 5.7% appreciation in stock price yesterday (January 2, 201 3). We recommend Accumulate on the stock with target price of Rs.78.

ITD Cementation bags Order for Rs.546cr from DMRC

The JV of ITD Cementation with its parent company, ITD, has bagged an order of Rs.546cr from Delhi Metro Rail Corporation (DMRC) which is scheduled to be completed in 30 months. This project includes construction of a 9,035m long elevated metro track along with 8 elevated stations. It also includes architectural finishing, water supply, sanitary installation and drainage works.

The JV is also expected to bag one more order from DMRC for tunneling and station building which is estimated to be worth Rs.725cr, with scheduled completion in 36 months.

Additionally, ITD cementation (standalone) is also expecting an order worth ~Rs.115cr in Ghaziabad for the construction of flyovers with scheduled completion in 15 months.

All the projects will get mobilized from February, 2013. As we roll over to CY2014E, we upgrade the stock to Buy with a target price of ?334 with a target P/BV of 0.8x for CY2014E, given the visibility of new order inflows.

Economic and Political News

- Dec PMI jumps to highest in 6 months

- Y V Reddy to head 14th Finance Commission

- Government considering steps to curb gold imports

- Urjit Patel to succeed Gokarn at RBI

Corporate News

- Reliance Power commissions second 300 MW unit of Butibori project

- Glenmark US partner Salix gets nod for anti-diarrhoea tablet

- Relaxation in green norms to boost CIL output by 45 mt

- RIL to merge four group firms with property arm