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Indian stock market and companies daily report (March 13, 2013, Wednesday)

Contributed by Angel Broking

Indian markets are expected to open in the red tracking negative trade in the major Asian Indices like Hangseng, Shanghai and Nikkei which are lower by 0.3% to 0.6%. SGX Nifty too is currently trading lower by ~0.3%.

US markets were weak on Tuesday after having a strong rally over the past few trading sessions. The modest weakness on Wall Street is attributable to profit booking by traders after the strong rally. US markets will keenly await the release of key reports during the week on industrial production and consumer price inflation. European markets were mixed on Tuesday as weaker than expected British industrial production data led to some negative investor sentiment in certain markets. However, positive news flows from US resulted in gains for other markets.

Meanwhile India's Key benchmark indices fell on Tuesday for second consecutive day. There was a positive news on the macro economic front, as the IIP for the month of January 2013 improved to 2.4% yoy as compared to de-growth of 0.5% yoy in December 2012 and 1.0% yoy growth in January 2012. However, the hopes of rate cut announcement in RBI quarterly review receded as retail inflation in

February 2013 accelerated to 10.91% vs. 10.79% in January 2013.


Markets Today

The trend deciding level for the day is 19,589/ 5,920 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,673 - 19,782 / 5,946 - 5,978 levels. However, if NIFTY trades below 19,589/ 5,920 levels for the first half-an-hour of trade then it may correct up to 19,481 - 19,397 / 5,888 - 5,962 levels.


Industrial growth rebounds to 2.4%, CPI inflation on upward trajectory

As per Quick Estimates on the Index of Industrial Production (IIP), industrial growth in January 2013 improved to 2.4% yoy as compared to de-growth of 0.5% yoy in December 2012 and 1.0% yoy growth in January 2012. In the April - January 2013 period, the index reported flattish 0.9% growth as compared to 3.4% growth in the corresponding period of the previous year.

Growth in eight core industries (37.9% weightage in the index) also gained traction as it accelerated to 3.9% in January 2013 as compared to growth of 2.5% yoy in December 2012 and 2.2% yoy growth in January 2012.


Performance on sectoral basis

The rebound in IIP growth, after two straight months of contraction, can be attributed to a pickup in manufacturing activity (weightage: 75.5%) and electricity production (weightage: 10.3%). The Manufacturing sector, reported 2.7% growth during the month aided by a low base effect as compared to growth of 1.1% in January 2012 and 11 of the 22 industry groups in manufacturing registered positive growth.

Growth in Electricity accelerated for the second consecutive month to 6.4%, the highest in seven months as compared to 3.2% in the corresponding month of the previous year. Mining sector witnessed 2.9% de-growth as weakness in production of coal, crude oil and natural gas persists due to regulatory issues in the sector.


Performance in the Use-based category

The Capital goods index contracted for the third straight month (by 1.8% in January 2013) despite a favorable base as weakness in the investment cycle clearly continues to persist. The RBI has initiated policy rate easing and this is likely to augur positively for investments with a lag of about two quarters. On a FYTD basis, the capital goods index continued to contract by 9.3% as compared to a 2.9% decline in the corresponding period of the previous year.

Growth in Consumer goods production recovered to 2.8% in January 2013 after two straight months of contraction mainly since Consumer non durables rebounded to 5.3%, the highest level in the past 12 months. Consumer durables contracted slightly by 0.9% as compared to a steeper 8.2% decline in the previous month and 7.5% decline in January 201 2.


CPI inflation at 10.9%

The headline Consumer Price Index (CPI) inflation for February 2013 accelerated for the fifth straight month to 10.9%, higher than 10.8% in the previous month. Food inflation inched up to 13.7% on the back of elevated prices of vegetable, cereals and egg, fish and meat while fuel inflation edged up to 8.7%. The wedge between WPI (which is moderating) and CPI inflation is widening as the food index has 50% weightage in the overall index.


Policy Outlook

We expect growth in industrial activity, as measured by the IIP, to remain subdued in the range of 1% - 2% for FY2013, lower than 2.9% growth in the previous fiscal year. Going forward, growth in industrial production is likely to be augmented by the impact of monetary policy easing (with a lag) and a low base effect setting in for FY2014. We expect a 25bp cut in the repo rate by the Reserve Bank of India in its March 19 policy review owing to the moderation in growth (4.5% in 3QFY2013 and estimated 5.0% for FY2013) and deceleration of WPI inflation along with efforts to narrow the fiscal deficit.


Punjab discom may not participate in the SEB debt restructuring plan

As per media reports, Punjab discom may not participate in discom debt restructuring plan for ailing state electricity boards, announced last year, as the power ministry has refused to make changes in the plan, which the Punjab discom had demanded. As we recollect, the discom debt restructuring process called for the conversion of 50% of the debt of loss making electricity boards by the respective states into bonds backed by state guarantees, while the remaining loans were to be restructured by the lenders with a 3 year moratorium on principal repayments. Though, the conversion of debt into bonds would have lead to lower yields for banks(by ~250bps), however, the overall plan was expected to be a favorable move for the banking sector from a longer term perspective, as it provided more confidence and clarity on the timeline of the SEB loan repayments. Till now, six states have agreed to participate in the plan, the deadline for which is open till March 31, 2013. Now, if Punjab discom refuses to be part of the plan, it would become the second state after Madhya Pradesh to do so.


Komatsu set to buy out L&T Stake in JV, deal likely to be valued at Rs.600-700cr

As per media reports, Larsen & Toubro (L&T) is in the final stages of negotiations to sell its 50% stake in their hydraulic equipment manufacturing joint venture (JV) L&T Komatsu to Japanese partner Komatsu. As per the report, the deal is valued at Rs.600-700cr and is a part of restructuring plan of selling its noncore assets. We continue to maintain our Buy rating on the stock with a target price of Rs.1,788.


JLR registers lower-than-expected retail volumes in February 2013

JLR posted lower-than-expected retail volumes for February 2013 primarily due to a sharp 23% yoy decline in volumes in China following festival season in February which resulted in lower working days. The sales momentum in other geographies, however, remained strong with US, Asia Pacific and UK posting a strong volume growth of 19%, 19% and 15% yoy respectively. The total volumes for the month posted a modest growth of 3.1% yoy (down 23% mom) to 26,855 units as Land Rover volumes registered a decline of 0.8% yoy (23.6% mom). Total volumes ex-Evoque, however, posted a healthy growth of 7.2% yoy (down 22.2% mom) led by easing of capacity constraints on the Freelander model and the dispatches of the new Range Rover, smaller engine and AWD variants of XF and XJ.

Jaguar sales for the month registered a strong 27.1% yoy (down 20.2% mom) growth, led by growth in the XF and XJ models, which grew by 36.9% and 14.7% yoy respectively. The introduction of the model year 2013 models - XF Sportbrake, XF AWD and smaller engine variants of XF and XJ were the primary growth drivers.

Land Rover volumes on the other hand posted a decline 0.8% yoy (23.6% mom) largely due to 5.5% and 15% yoy decline in Evoque and Range Rover Sport volumes respectively. The Freelander model however continued its growth momentum benefitting from the availability of additional capacity which led to a 25.5% yoy growth in sales. The new Range Rover too posted a strong growth of 24.8% mom as the company continues to ramp-up the deliveries of the new model.

We retain our positive view on JLR and expect the company to sustain its growth momentum driven by Evoque and new product launches (Range Rover, Range Rover Sport, Jaguar XF Sportbrake and AWD and smaller engine variants of XF and XJ models). We maintain our Accumulate rating on the stock with an SOTP based target price of ?326.


Economic and Political News

- Gujarat govt to develop IndiaRs.s first International Financial Services Centre

- Over Rs.4.18lakh cr outstanding in I-T arrears till December: FM

- Road Ministry to miss 9,500 km highway projects target for this fiscal


Corporate News

- IL&FS Engineering and Construction gets Rs.1,436cr order

- Infosys expands footprint in Latin America, opens delivery center in Costa Rica

- NMDC eyes Rs.10,000cr from stake sale in Nagarnar plant

- ONGC to sign pact for Mangalore LNG terminal on March 18