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Indian stock market and companies daily report (March 05, 2013, Tuesday)

Contributed by Angel Broking

The Indian market is expected to open in the green today mirroring positive opening trades in the SGX Nifty and most of the Asian markets. Also, Finance Minister P Chidambaram's promise to take a relook at a clutch of proposals pertaining to indirect taxes in the budget is expected to cheer the markets.

US market stocks rebounded from early losses on Monday to finish the session with modest gains. The weakness came in due to worries about China and about the ongoing impact of the budget sequester. European shares fell on Monday, mirroring weakness across Asia as ChinaRs.s service sector data missed estimates and US budget cuts of about USD85bn kicked in, threatening the fragile US economic recovery.

Meanwhile Indian markets edged lower, mirroring weakness in Asian and European equities as US budget cuts kicked in and data out of the euro zone and China underlined concerns over the global economic outlook.


Markets Today

The trend deciding level for the day is 18,856/ 5,691 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,952 - 19,027 / 5,719 - 5,740 levels. However, if NIFTY trades below 18,856/ 5,691 levels for the first half-an-hour of trade then it may correct up to 18,782 - 18,686 / 5,671 - 5,643 levels.


Sequester, debt ceiling issues to be eyed

The United States Congress failed to reach an agreement on deferring the Rs.sequesterRs. budget cuts. In effect, across-the-board automatic spending cuts across military and domestic programs kicked in since March 1, 2013. The reduction in deficit through the spending cuts is expected to amount to USD 1.2 trillion over nine years, with USD 85 billion set to take effect in the remainder of the fiscal year (until September 2013). The Republicans are not open to further tax increases since they acceded to raising taxes in the partial deal passed in January 2013. In case the Congress reaches a deal it is likely to apply retrospectively since March 1, 2013 to avoid the economic consequences of the fiscal cliff. According to the International Monetary Fund, the cuts are likely to adversely impact the economic growth in the United States by 0.5%. The next legislative agenda following the issue of sequestered spending cuts is likely to be raising of the debt ceiling as the U.S treasury is about to hit its statutory borrowing limit of USD 16.4 trillion. We believe that progress on resolution to the sequester and raising the debt ceiling is likely to impact risk perception and determine extent of liquidity flows in emerging markets like India.


Defence Ministry clears RIL's two blocks

The Defence ministry has permitted Reliance Industries (RIL) to carry out exploration in the gas producing KG-D6 block and the discovery area of NEC-25, subject to certain conditions. Both these blocks were among the seven blocks that were declared as "no-go" zones by the Defence ministry as they overlapped with a proposed naval base and were also close to missile launching and Air Force exercise area. RIL and BP plan to spend US$5bn over the coming 3-5 years to raise production from KG-D6 block from the current levels of 19mmscmd. We maintain our Neutral rating on the stock until further clarity on production from these blocks.


Tata Motors slashes prices of its passenger cars by up to Rs.50,000

Tata Motors (TTMT) has slashed the prices of its passenger car portfolio (ex. Nano) by upto Rs.50,000 in an attempt to revive the declining sales. According to the company, the prices have been cut in the range of Rs.29,000 - Rs.50,000 with immediate effect to boost the consumer sentiments and make the companyRs.s products more attractive for the consumers. The company is witnessing significant decline in passenger car sales amidst slowdown in demand and increasing competition. The passenger car sales of the company are down 27% yoy YTD in FY2013. However, TTMT has increased the prices of its utility vehicle portfolio, comprising Sumo, Safari and Aria, by upto Rs.35,000 following the excise duty hike in the Budget. While the SumoRs.s prices have been increased by Rs.7,500; the prices of Safari and Aria have been raised by Rs.11,000 each. The Finance Minister in the Union Budget 2013-14 has increased the excise duty on large SUVs (length greater than 4,000mm and engine displacement exceeding 1,500cc) to 30% from 27% earlier. The increase in the prices by the company is on the expected lines and has been undertaken to protect the margins. We do not see any major impact of the price hikes/cuts on the companyRs.s consolidated financials; however, the price cuts will definitely impact the standalone performance which is already struggling.

Meanwhile, TTMT has announced creation of 700 new jobs at Jaguar and Land Rover at its engine plant in Wolverhampton which is expected to commence production from 2014. This is likely to increase JLRRs.s investment at the engine facility from around £355mn to £500mn. We maintain our Accumulate rating on the stock with a target price of Rs.326.


Talks between Hero MotoCorp and workers ends inconclusive

According to media report, the final wage talks between the Management and workers at Hero MotoCorpRs.s Gurgaon factory ended on an inconclusive note. The talks with the workers union were arranged after the state governmentRs.s labor department took an initiative to broker a settlement. Earlier in the last week, the wage talks had fallen apart after both the parties stuck to their demands. Meanwhile, five union representatives at the Gurgaon unit had last week gone on a four-day hunger strike to press the workersRs. demands. However, the strike was called off, after intervention from other trade union leaders in the region.

The workers at the Gurgaon unit have been agitating for the past two months for higher wages in a peaceful manner. The workers have been sporting black armbands at the workplace and had also stopped taking tea and snacks offered by the company. While the employees are demanding an increment of around Rs.15,000 in monthly salary, spread over a period of three years, the Management is not willing to increase wages beyond Rs.7,500-Rs.9,000/ month. The company currently employs around 1,200 permanent workers and 4,000 contract workers at its Gurgaon facility. The Gurgaon facility accounts for ~30% of HMCLRs.s total annual installed capacity of 7mn units.

We would be watchful of any developments on this front as media reports indicate that there is a possibility of production shutdown. However, we believe that an amicable resolution to the wage settlement agreement would be in the best interest of the company. We expect the wage settlement agreement to remain an overhang on the stock in the near term. At Rs.1,638, the stock is trading at 13.6x FY2014 earnings. Currently, we have a Buy rating on the stock with a target price of Rs.1,923.


Bajaj Auto registers sluggish monthly sales in February 2013

Bajaj Auto (BJAUT) reported lower-than-expected sales for February 2013 primarily on account of sluggish demand in the domestic motorcycle segment. Total volumes for the month registered a decline of 3.3% yoy (4.4% mom) to 332,387 units as domestic volumes posted a sharp decline of 10.8% yoy (10% mom).Three-wheeler sales during the month too reported a decline of 1.7% yoy (11.2% mom). The export volumes however, registered a healthy growth of 10.8% yoy (5.2% mom). At the CMP of Rs.1,984, the stock is trading at 15.7x FY2014E earnings. We therefore maintain our Neutral rating on the stock.


Economic and Political News
- Financial inclusion plan key criteria for new bank license: RBI
- Power Regulators bat for legislative changes to ensure grid security
- Budget Rs.realisticRs., positive for ratings, says MoodyRs.s
- Petrol, diesel price hike to impact coal production cost: Government


Corporate News
- Adani Enterprises OFS oversubscribed; promoter gets Rs.1 89cr
- Bharti hits bond mart, to raise at least $500 mn
- Ranbaxy can only sell US-made Lipitor copy