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Indian stock market and companies daily report (January 14, 2013, Monday)

Contributed by Angel Broking

The Indian market is expected to open flat to positive mirroring the marginally positive opening trades on the SGX Nifty and major Asian indices.

Stocks in the US market fluctuated over the course of the trading day on Friday and ended flat. The choppy trading came as traders seemed reluctant to make any significant moves amidst mixed news from overseas. News of a new US$116bn stimulus package in Japan generated some positive sentiment, however, it got offset by a report from China showing acceleration in the pace of inflation which suggested that the Chinese may not provide further stimulus. Moreover, a report from the Commerce Department showed that the US trade deficit widened to US$48.7bn in November from a revised US$42.1bn in October. The European markets also ended on a mixed note on Friday mainly due to larger than expected increase in Chinese inflation.

The domestic markets surrendered initial gains to end on a negative note on Friday. IndiaRs.s trade deficit widened to US$17.7bn in December against US$14.7bn in the corresponding month last year. Weak IIP data and subdued global cues also weighed on investor sentiments. Meanwhile, investors will closely look forward to the WPI data (estimated 7.37% yoy), due to be released today.

Markets Today

The trend deciding level for the day is 19,708 / 5,970 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,796 - 19,928 / 6,000 - 6,049 levels. However, if NIFTY trades below 19,708 / 5,970 levels for the first half-an-hour of trade then it may correct up to 19,576 - 19,488 / 5,922 - 5,892 levels.

Marginal decline in industrial production by 0.1%

As per Quick Estimates on the Index of Industrial Production (IIP), industrial activity contracted marginally by 0.1% yoy in November 2012 as compared to a healthy 8.3% yoy growth in the previous month owing to possible drawing down of inventory build-up in October 2012 due to pre-festival season demand. As compared to 6.0% yoy growth in November 2011, there is an across-the-board deceleration in performance for all sectors. The index witnessed a slight 1.0% yoy growth in the April - November 201 2 period mainly owing to the healthy growth in October 2012.

On a yoy basis, Mining witnessed a 5.5% decline during the month as compared to flat performance in the previous month reflecting the decline in production of coal and natural gas. Growth in Electricity decelerated to 2.4% as compared to a healthy growth of 5.5% in the previous month and 14.6% growth in November 2011.

The Manufacturing sector, accounting for 75.5% of the overall index, reported a marginal 0.3% growth during the month as compared to 9.8% in October 2012 and 6.6% in November 2011. On a positive note, growth in manufacturing remained in the positive territory for the third consecutive month on a 3MMA basis.

Under the Use-based classification, Capital goods continued to remain volatile, witnessing a 7.7% de-growth during the month as compared to a 7.5% growth in October 2012 aided by an exceptionally low base. We believe that although the momentum of decline has slowed, it does not point to an improvement in the near term. Cumulatively, in the April - November 2012 period, the Capital goods index declined by 11.1%.

The production of Consumer goods decelerated steeply from a 13.7% growth rate in October 2012 to 1.0% growth during November 2012, reflecting the possible drawing down of inventories piled up in anticipation of the festival season, particularly in the case of consumer durables.

We expect the governmentRs.s reform measures to boost business confidence and give an impetus to the investment cycle going forward. With overall growth in the economy showing signs of bottoming out, we expect a slight recovery in industrial production. As the recovery rests on a sustainable pick-up in investment, consumption and exports, we expect it to be gradual. The overall IIP print for FY2013 is likely to stabilize at a lower level in a flat to marginally positive range.

As far as monetary policy stance is concerned, we believe that the Reserve Bank of India (RBI)Rs.s stance has increasingly shifted towards supporting growth rather than focusing solely on inflation management and with recent moderation in core inflation, we expect the RBI to ease the repo rate by 50bp in 4QFY2013.

Trade deficit narrows for the second straight month in December 2012

Indian exports continued to decline for the eight consecutive months in December on account of weak external demand. However, the 1.9% yoy decline in export growth was lower as compared to the 4.2% yoy decline in November 2012. Imports continued to grow at the same pace of 6.3% yoy as compared to 6.4% yoy in November 2012. The rise in imports was led by a 23.6% yoy increase in oil imports (as against a 26.3% yoy growth in December 2011) while non-oil imports reported a marginal 0.9% yoy decline (as against a 27.4% yoy growth in December 2011).

The trade deficit for December slightly narrowed for the second consecutive month to USD17.7bn as compared to a deficit of USD19.3bn in the previous month but it stayed elevated as compared to a deficit of USD14.7bn in the corresponding period of the previous year. On a cumulative basis, exports for the April -December 2012 period contracted by 5.5% yoy in USD terms while imports during the period declined only marginally by 0.7% yoy in USD terms as oil imports stayed high. The trade deficit widened to USD147bn as compared to USD137bn in the corresponding period of the previous year. The elevated trade deficit in the economy has also led to a record-high current account deficit (CAD) to GDP ratio of 5.4% for 2QFY2013.

We believe that the huge CAD is presently one of the key concerns in the economy and is also leading to the weakening of the rupee and increasing imported inflationary pressures in the economy. On this front, a respite is likely as global growth steadies, resulting in a pick-up in demand. Also, with sops such as extension on interest subvention for export-related industries, we expect an increase in competitiveness of our exports. However its impact would be limited by weak global demand.

JLR retail sales up by a strong ~15% yoy in December 2012

Jaguar and Land Rover (JLR) reported a strong retail volume growth of ~15% yoy (~12% mom) in December 2012 to 33,589 units driven by strong growth in Land Rover volumes (Evoque in particularly) which posted robust growth of ~19% yoy (~11% mom). According to the management, the first deliveries of the all-new Range Rover have commenced and it has created a strong buzz around the brand. Jaguar volumes too posted a strong ~19% growth on a sequential basis (flat mom), led by the model year 2013 launches, XF Sportbrake and all-wheel drive XF and XJ models. Geographically, China continues to be the primary growth driver of JLR volumes, with retails volumes registering a strong growth of ~42% yoy (~5% mom) in December 2012. Meanwhile the company has also announced that it would be adding 800 new jobs at its advanced manufacturing plant in Solihull, West Midlands in the UK to support the introduction of future model plans. While the retail sales numbers for December 2012 and announcement of new jobs is a positive development for the company; we would await for more detailed announcement by the company on the retail and wholesale volumes for JLR which is scheduled today. Due to limited upside from current levels, we recommend Neutral rating on the stock.

3QFY2013 Result Review

Infosys (CMP: Rs.2,713 / TP: Rs.2,850 / Upside: 5%)

Infosys surprised the street with better-than-expected results for 3QFY2013 and also raised its full year guidance, contrary to our as well as street expectations of reducing it. The dollar revenues grew by robust 6.3% qoq to US$1,911 mn, ~3.0% ahead of our as well as street expectations. On an organic basis (excluding Lodestone), dollar revenues grew by 4.2% qoq which is also commendable as traditionally 3Q is a lull quarter for IT companies. Overall volume growth remain subdued though at just 2.0% qoq; 3.7% onsite volume growth and 1.3% offshore volume growth. In INR terms, revenue came in at Rs.10,424cr, up 5.7% qoq. The company signed eight large transformational deals with TCV worth US$750mn during 3QFY2013. The companyRs.s EBITDA and EBIT margin declined by 60bp and 66bp qoq to 28.5% and 25.7%, respectively, due to negative impact of offshore wage hikes given during the quarter. The operating margin decline is less than consensus expectations which is a positive sign.

Infosys raised its full year guidance, contrary to our as well as street expectations of reducing it. Revision of guidance indicates that the management is confident about growth prospects in the short to medium-term versus last few quarters. Organic revenue growth guidance is kept intact at 5% yoy. Including Lodestone, Infosys expects full year FY2013 revenue to be at least US$7,450mn, up 6.5% yoy. Even after increasing the dollar revenue guidance for FY2013, the EPS guidance is kept stable at US$2.97. Over FY2012-14E, we expect USD and INR revenue CAGR of 8.3% and 14.6%, respectively. Over FY201 2—14E, we expect a CAGR of 8.6% and 9.0% in EBIT and PAT, respectively. At the current market price of Rs.2,71 2, the stock is trading at 16.7x FY2013E and 15.7x FY2014E EPS. We value the company at 16.5x FY2014E EPS of Rs.173 and maintain our Accumulate rating on the stock with a target price of T2,850.

3QFY2013 Result Preview

TCS (CMP: Rs.1,306 / TP: Rs.1,448 / Upside: 11 %)

TCS is slated to announce its 3QFY2013 results today. We expect the company to post revenue of US$2,944mn with 3.2% qoq growth. In rupee terms, revenues are expected to grow by 2.0% qoq to Rs.1 5,926cr. EBITDA margin is expected to decline by 28bp qoq to 28.2%. PAT is expected to be at Rs.3,367cr. TCS remains our preferred pick amongst Tier-I IT companies and we maintain Accumulate rating on the stock with a target price of Rs.1,448.

Economic and Political News

- Airline profits go up in 3rd quarter of FY13: IATA

- CCI approves Rs.2,460cr stake sale in Gujarat Gas to GSPC

- Government approves 14 FDI proposals worth over Rs.1,300cr

- Telecom sector gross revenue up 0.8% in Sept quarter: TRAI

- Telcom companies asked to pay Rs.8,000cr spectrum fee by January 15

Corporate News

- Essar to invest Rs.14,000cr in GujaratRs.s port sector, water projects

- Gail plans Rs.9,000cr capex in FY2014E

- Power, Coal Ministers to speed up NTPC coal blocks re-allocation