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Indian stock market and companies daily report (March 20, 2013, Wednesday)

Contributed by Angel Broking

Indian markets are expected to open flat to negative tracking mixed positive opening in the Asian markets, with a rejection by the Cypriot parliament of a European bailout plan fueling some uncertainty.

US stocks ended mixed over the course of the day yesterday as the market was weighed by concerns about the situation in Cyprus against upbeat US housing data. In the latter part of the trading day, Cyprus's parliament voted to reject a proposed European Union bailout plan that would tax bank deposits at a rate of up to 9.9%. Meanwhile, the US Commerce Department released a report showing that housing starts edged up by 0.8% to a seasonally adjusted annual rate of 917,000 (Estimate - 915,000) in February from the revised January estimate of 910,000.

Indian markets fell yesterday, as worries of political instability overshadowed hopes that Cyprus could revise a deal to contribute to its bailout. In a dramatic development, the DMK withdrew its support to the UPA Government on concerns over the Sri Lankan Tamils issue. Meanwhile, the RBI monetary policy became more of a non-event amid the political crisis as it cut the repo rate by 25bp to 7.5% (in line with expectations).


Markets Today

The trend deciding level for the day is 1 9,1 09/ 5,778 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,278 - 19,548 / 5,832 - 5,917 levels. However, if NIFTY trades below 19,109/ 5,778 levels for the first half-an-hour of trade then it may correct up to 18,839 - 18,670 / 5,692 - 5,639 levels.


Cyprus votes against tax on bank deposits

The members of parliament in Cyprus rejected the condition over a Euro10bn bailout for the country. Bank depositors were expected to contribute a one-time charge of 9.9% on deposits exceeding Euro100,000 and 6.75% on deposits up to Euro100,000. The European Union plan to recoup about Euro5.8bn from bank depositors was rejected with an overwhelming vote of 36 against, none in favor and 19 abstentions. Post the Cyprus vote, the ECB assuaged some concerns by indicating that it would continue providing liquidity to Cypriot banks to prevent their immediate collapse. We believe that either policymakers in the country or the troika are likely to draw up a more politically palatable agreement to raise Euro5.8bn.

Cyprus had requested for a bailout package in June 2012, owing to the banksRs. mounting losses after being heavily exposed to Greek debt. At its peak, the banking system in Cyprus was eight times the size of the economy. The size of the economy itself is relatively small since it accounts for 0.2% of the total Eurozone output, with real GDP of Euro15bn in 2011. It is the fifth bailout for a Eurozone economy (following Greece, Portugal, Ireland and Spain) and the first that prescribed such conditions for depositors.


RBI reduces repo by 25bp, along expected lines

The Reserve Bank of India (RBI) in its Mid Quarter Monetary Policy Review delivered on expected lines and reduced the repo rate by 25bp from 7.75% to 7.50%. Consequently, the reverse repo rate stands adjusted to 6.50% and the marginal standing facility (MSF) rate and bank rate stand adjusted to 8.50%. Headroom for easing remains Rs.quite limitedRs.. Going ahead, we expect an additional 50bp reduction in the repo rate for the rest of CY201 3.

We believe that the deceleration in economic growth along with the recent moderation in WPI inflation and governmentRs.s moves towards fiscal consolidation have motivated monetary policy to adopt a more growth-supportive stance.

At the same time, we believe that the RBI remains cautious owing to 1) elevated food inflation and correction in administered fuel prices since it has time and again underscored its commitment to anchoring inflationary expectations, 2) divergence between CPI and WPI inflation (by 407bp) compounding the growth-inflation dynamic 3) CPI inflation above double-digits suggesting negative real interest rate for savers, and 4) high current account deficit.

In view of these factors, the central bank has indicated that Rs.headroom for further monetary easing remains quite limitedRs.. We maintain our view of an additional 50bp reduction in the repo rate for the rest of CY2013. We believe that the RBI has maintained a balanced approach in its policy, focusing on addressing risks to growth as well as inflation.


DMK withdraws support, but government stable

The DMK withdrew support to the UPA and even refused outside support to the government yesterday over the issue of Sri Lankan Tamils. The DMK wants India to not only support the US-sponsored resolution against Sri Lanka but also make it tougher. The US-sponsored resolution on alleged human rights violations in Sri Lanka is due to come up at UNHRC in Geneva on March 21. In his statement, DMK president M. Karunanidhi stated that "...a situation has arisen where the alliance will not benefit Eelam Tamils in any way. Despite this, if the DMK continues in the Union government, it will be a grave injustice. So, the DMK has decided to pull out of the government and the UPA".

The DMK has 18 members in the Lok Sabha and its withdrawal reduces the UPA governmentRs.s seats to 232. This could potentially spell a risk to the reform momentum in the economy but the government remains stable. With outside supporters including major parties such as Bahujan Samaj Party (21 seats) and Samajwadi Party (22 seats), taking its strength to above the majority mark of 271 seats, the government faces no threat at this point. The DMK chief also indicated that he would reconsider the decision if their demands are conceded before Friday. In the interim, this political development coupled with global headwinds led markets to react negatively.


2G case: Court summons Sunil Mittal and Ravikant Ruia in excess spectrum case

A special Delhi court examining alleged irregularities in allocation of airwaves when BJP-led National Democratic Alliance was in power, has summoned Bharti Group Chairman Sunil Mittal, Essar Group promoter Ravikant Ruia and former managing director of Hutchison Max (now Vodafone) Asim Ghosh to face criminal charges.

The three executives will have to appear on April 11, the next hearing of the case. The court also took cognizance of the charges filed by the Central Bureau of Investigation (CBI) against former telecom secretary Shyamal Ghosh and three companies - Bharti Cellular (now Bharti Airtel), Hutchison Max and Sterling Cellular (both part of Vodafone India) - yesterday. CBI had not named any executives when it filed the charge sheet in December. Charges are yet to be framed against the seven (individuals and companies) summoned by the court yesterday. The case relates to the allocation of airwaves to telcos for providing mobile telephony services. In 2002, the telecom ministry under Pramod Mahajan introduced the spectrum-linked criteria under which operators could get additional spectrum above the contracted 6.2MHz when they reached a certain subscriber base. We continue to remain Neutral on the overall telecom sector.


BGR refutes media reports about stake sale of BGR-Hitachi JV

According to media reports, L&T-MHI JV is looking to acquire BGR-Hitachi Power JVs and is examining the assets. BGR has two joint ventures with Hitachi: BGR Turbines Company Private Limited for manufacture of 660MW, 800MW and 1000MW -Turbine & Generators and BGR Boilers Private Limited for manufacture of 660MW, 700MW, 800MW and 1000MW super-critical boilers. However, BGR has clarified that the JVs with Hitachi are intact and has denied any such development. We continue to remain Neutral on BGR Energy.


Sadbhav Engineering - Vaishnovi Construction JV bags contract of Rs.245.6cr

The Joint Venture led by Sadbhav Engineering has been awarded Halon Irrigation project/work by Narmada Development Halon Division, Bichhiya District, Mandla for aggregating contract value of Rs.245.61cr. We continue to maintain our Buy rating on the stock with a target price of Rs.157.


Economic and Political News

- Auto industry asks for more rate cuts to revive demand

- Government plans to set up National Power Committee

- IndiaRs.s 2013-14 total food subsidy stands at Rs.1,30,000cr

- Major ports will soon be allowed to fix market-linked tariff


Corporate News

- 2G allocation case: Bharti, Essar to challenge court order

- Asian Paints to acquire 51% stake in Sleek

- Credit Suisse buys 1.56% stake in Emami for Rs.141cr

- NTPC sees land acquisition for Darlipali project complete by SeptemberRs.13

- ONGC ties up with BPCL, Mitsui to set up LNG terminal at Mangalore

- SBI receives capital infusion worth Rs.3,004cr from government

- SAIL plans to borrow Rs.4,000cr next fiscal: CS Verma