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Reports India

Indian stock market and companies daily report (March 18, 2014, Tuesday)

March 18, 2014, Tuesday, 06:03 GMT | 02:03 EST | 10:33 IST | 13:03 SGT
Contributed by Angel Broking

The Indian Markets are expected to open flat with a positive bias, tracking SGX Nifty which is trading marginally higher by ~0.2%. Most of the Asian markets too are trading in the positive territory.

US markets which opened strong in the early trade on Monday continuing to maintain the momentum throughout the trading session and ended the day in the positive territory. The gains in the early trade were due to bottom fishing following last week's pullback, which dragged the major indices down to their lowest levels in almost a month. Positive sentiment was also aided by the release of a report from the Federal Reserve which showed that growth in industrial production for January was higher than estimates at 0.6% (vs. Estimate of 0.2%). The markets largely ignored another report from the National Association of Home Builders showing a smaller than expected rebound in homebuilder confidence. European markets too rose higher on Monday after Crimea voted overwhelmingly to secede Ukraine and join Russia.

Meanwhile, Indian markets reversed early losses to end modestly higher on Friday buoyed by the fall in Wholesale Price Index (WPI) to a nine-month low of 4.68% in February.

Markets Today

The trend deciding level for the day is 21,746 / 6,485 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 21,918 - 22,025 / 6,538 - 6,571 levels. However, if NIFTY trades below 21,746 / 6,485 levels for the first half-an-hour of trade then it may correct 21,638 - 21,466 / 6,452 - 6,399 levels.

Inflation surprises positively at nine-month low

The Wholesale Price Index (WPI) based inflation moderated for the third straight month to 4.68% during February 2014 as compared to 5.05% in January 2014 and 7.28% in February 2013. The headline inflation print, at a nine-month low surprised positively by coming in below marketRs.s expectation of 4.90% inflation. The moderation is driven by easing of inflation in Primary Articles as well as Fuel & Power.

Primary articles - weightage 20.1%

During February 2014, Primary articles inflation decelerated to 6.33% as compared to 6.84% in January 2014 owing largely to easing in inflation of Food articles. During the month inflation in Non-food articles inched higher to 5.13% as against 4.40% in January 2014 while Minerals declined by 1.59% from deflation of 0.20% in January 2014.

Food articles: Inflation in Food articles eased to a 10-month low of 8.12% during February 2014 from 8.80% in the previous month. This deceleration can be largely attributed to vegetable prices coming off further on expected lines. Vegetable inflation decelerated to 3.99% from 16.60% in January 2014 and 56.78% in December 2013. Going ahead, in March 2014 vegetable prices are likely to be stoked to an extent on account of the unseasonal rains witnessed in some parts of the country. Inflation in food grains hardened to 6.53% during February 2014 as against 6.29% in the previous month owing to lower deflation in pulses even as cereals inflation decelerated for the ninth straight month.

Fuel and power - weightage 14.9%

Fuel and power inflation too moderated considerably for the third straight month to 8.75% during February 2014 as compared to 10.03% in the previous month and 10.64% in the corresponding month of the previous year. This is largely due to deceleration of inflation in mineral oils to 9.28% as compared to 10.94% in January 2014 but on a sequential basis, the index reported a marginal 0.13% mom rise. In this segment, LPG prices reported deflation of 4.09% as against 1.42% decline in the previous month but inflation in the same is likely to pick up going forward on a low base. While inflation in high speed diesel and petrol eased during February, on a sequential basis prices of the same reported rise of 0.88% and 0.71% mom respectively.

Manufactured products - weightage 65.0%

Manufactured products inflation remained stable at 2.76% during February 2014 as deceleration in manufactured food products has been offset by pick up in core inflation. Core (non-food, non-fuel) WPI inflation has picked up to 3.2% during the month from 3.0% in the previous month. In addition, core inflation for December 2013 has been revised higher to about 3.3% from 2.8% reported earlier reflecting pass-through of higher input prices. Manufactured food products inflation moderated further to 0.9% as compared to 1.50% in the previous month and 8.81 % in February 2013.

Policy Guidance

Headline WPI as well as CPI inflation during February 2014 has eased owing to cooling off in food prices led by the continued normalization of vegetable prices in particular. Food inflation measured by WPI as well as CPI has decelerated for the third straight month but there are upside risks to food inflation going into March 2014 on account of the impact of the unseasonal rains in some parts of the country. As far as the RBIRs.s policy action is concerned, we believe that it is more likely to be impacted by retail inflation and despite considerable moderation, the CPI inflation still remains over the 8%-level. We continue to expect a status quo on rates in the policy review on April 1, 2014.

Banks to Sell ~Rs.42,800 cr of NPAs to ARCs

Around 40 banks have invited bids to sell NPAs worth Rs.42,800cr by FY2014. SBI plans to sell Rs.7,629 cr while Bank of India and OBC have Rs.4,644cr and Rs.3,375cr on the block. Also Central Bank of India and IDBI plans to sell ~Rs.3,000cr of assets each. The rush to dispose off stressed assets is also to protect against the higher provisioning norms that take effect in March 2015. The move will spurt recoveries for banks in 4QFY2014 though there could be spillovers witnessed in 1QFY2015 as well.

Infosys signs multi-year application development services agreement with Volvo Car

Infosys bagged a multi-year contract with Volvo Car Corporation to provide application development services to the latterRs.s global operations. Prior to this contract, Infosys has been working with Volvo Cars for rationalisation and integration of its enterprise systems since 2010. Under the new agreement, Infosys will develop applications to support multiple domains, including marketing and sales, customer service, manufacturing, product development, and corporate functions for Volvo Cars. No financial details of the deal were disclosed. We maintain our Neutral rating on the stock.

MSIL tweaks Gujarat project agreement to address investors concerns

Maruti Suzuki (MSIL) has attempted to allay the concerns of minority shareholders which have strongly opposed its move to set up a new manufacturing facility in Gujarat through Suzuki Corporation. The board of directors of MSIL have reassessed the terms of the Gujarat plant and revised the key terms of the agreement to make the deal more tenable for minority shareholders. According to the new arrangement, while the new Gujarat plant will still be a 100% Suzuki subsidiary, the board has attempted to clear two major concerns of investors 1) The entire plant capex will be funded by the plantRs.s depreciation and SuzukiRs.s equity contribution as against plantRs.s depreciation, Suzuki equity contribution and incremental capex cost built in the cost of production earlier and 2) If the contract is terminated, the plant will be transferred to MSIL at book value as against fair value as stated earlier. What this essentially means is that there will be no mark-up on the products sold to MSIL (cost of production at Gujarat will be similar to Gurgaon and Manesar) and therefore will not have much of an impact the margins of the company. Additionally, as a measure of good corporate governance, MSIL board will also seek minority shareholders approval on the deal and will go ahead only if it receives three-fourth majority. While we still believe that undertaking the capex at Gujarat plant through MSIL remains the ideal scenario for minority shareholders of the company, the new terms offer some respite to investors. We expect the stock to react positively to the new announcement when the markets open for trading on March 18, 2014. We recommend an Accumulate rating on the stock with a target price of Rs.1,943.

Ranbaxy Labs gets Supreme Court notice

The Supreme Court issued notice to Centre and Ranbaxy Laboratories Ltd on a PIL seeking cancellation of the companyRs.s license and a CBI probe against it for allegedly supplying adulterated drugs in the country. Agreeing to examine the allegations, a bench headed by Chief Justice P Sathasivam, however, refused to pass any interim order for restraining the company from manufacturing drugs. The court passed the order on a PIL filed by advocate M L Sharma seeking action against the company for allegedly supplying sub standard and adulterated drugs. Sharma had earlier also filed a similar petition which was dismissed by the apex court. The court, however, had granted liberty to Sharma to file fresh petition with additional documents in support of his allegations. In his PIL, Sharma alleged that "Ranbaxy was fined USD $ 500mn by the US Food and Drug Administration (USFDA) for making and selling adulterated drugs". The PIL also sought sealing of all its manufacturing units here, including those in Paonta Sahib in Himachal Pradesh and Dewas in Madhya Pradesh. He alleged that despite Ranbaxy pleading guilty to supplying adulterated drugs in the US and it being fined such a huge amount, the Centre has not taken any action to prohibit or ban the drugs made by the company. As, of now the development will not have any impact on the domestic formulation business of the company as, the matter is still under the court. We remain neutral on the stock.

Economic and Political News

- Hope to achieve revised target for disinvestment: Govt.

- MoEF gives consent to bring projects worth Rs.500cr under PMG

- 8% GDP growth possible by FY2017: Rangarajan

- Economy will grow at 5.5% in Q4: Rangarajan

- Peak power deficit for February at 3.3%: CEA

Corporate News

- KEC International wins Rs.1,200cr orders

- ONGC, OIL buy 10% govt. stake in IOC

- Aiming to reach 3 million units in two-wheeler sales in 201 4-15: Bajaj

- L&T sells 4.85% in L&T Finance for Rs.600cr

- GSKCH to expand product offerings under Horlicks brand