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Indian stock market and companies daily report (October 01, 2013, Tuesday)
Indian markets are expected to open in the green tracking positive opening in SGX Nifty which is trading higher by 0.7%. Most of the other Asian markets are also trading in the green.
US markets declined on Monday as concerns over government shutdown intensified with the lawmakers wrangling over the passage of emergency spending bill. While the US senate has rejected a bill that would have financed operations until mid-December, the bill passed by the Republican-dominated House of Representatives, has called for a one-year delay in the implementation of the President Obama's landmark health care reform bill. Concerns over government shutdown resulted in markets ignoring positive economic data such as improved growth in manufacturing activity in Chicago during September and a rise in Chicago purchasing managers index for September to 55.7 from 53.0 in August. European markets too fell on Monday due to concerns over possible shutdown in US.
Indian markets too reacted negatively to the ongoing developments in US. The markets remained weak throughout Monday tracking weak Asian and European markets.
The trend deciding level for the day is 19,433 / 5,755 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 19,545 - 19,764 / 5,791- 5,846 levels. However, if NIFTY trades below 19,433 / 5,755 levels for the first half-an-hour of trade then it may correct up to 19,215 -19,102 / 5,699 - 5,663 levels.
CAD during 1QFY2014 surprises positively, at 4.9% of GDP
During 1QFY2014, the Current Account Deficit (CAD) came in at USD21.8bn (4.9% of GDP) as compared to USD18.2bn (3.6% of GDP) in 4QFY2013 and USD17.1 bn (4% of GDP) in the corresponding quarter of the previous year. This is lower than market expectations of a deficit amounting to USD23bn owing to higher-than-anticipated invisibles. Excluding the USD7.3bn increase in gold imports during the quarter as compared to 1QFY2013, the CAD would translate to 3.2% of GDP.
The trade deficit worsened to 11.3% of GDP (USD50.5bn) in 1QFY2014 as compared to 9.0% of GDP (USD45.6bn) in the previous quarter and 10.2% of GDP (USD43.8bn) in 1QFY2013. This can be attributed to a 1.5% yoy decline in merchandise exports along with import growth of 4.7% yoy.
Invisibles reported 7.2% yoy growth with net inflow of USD28.7bn, higher than USD27.5bn in the previous quarter and USD26.8bn in 1QFY2013. Amongst its components, net services exports came in at USD16.9bn aided by a decline in service imports even as exports moderated. Net outflow on account of primary income stood at USD4.8bn led by the USD5bn outflow of investment income. Transfers came in at USD16.7bn, flat on a yoy basis.
The capital account witnessed inflows to the tune of USD20.5bn similar to last quarter's level supported by banking capital and FDI inflows. Net FDI inflows surged by 70% yoy to USD 6.3bn even amidst FII outflows of USD225mn. The outflow of FII investments was mainly led by debt outflows after the US Fed indicated the possible tapering of quantitative easing. Net overseas borrowing by banks increased by 57.5% yoy to USD4.7bn from USD3.0bn in 1QFY2013. On the whole, there was a drawdown of foreign exchange reserve amounting to USD346mn during the quarter.
We expect the CAD to narrow significantly during 2QFY2014 led by export growth so far in July and August 2013. The CAD is expected to narrow meaningfully to 3.8% of GDP in FY2014 from 4.8% in FY2013. We expect the moderation to be driven by improvement in external demand resulting in pick-up of exports, curtailing of imports particularly of gold and exports of software services benefiting from INR depreciation.
The focus of policymakers is likely to remain on financing of the CAD gap. In this regard, the government has hiked import duty on gold thrice this year to 10% and the RBI has linked gold imports to exports. To attract capital flows in the economy, the government has liberalized FDI caps in some sectors, increased FII limit of investment in government debt, permitted public sector financial institutions to raise quasi-sovereign bonds for long-term infrastructure needs etc. Higher shortterm rates by the RBI are also expected to attract debt-related flows in the economy. At the same time, the RBI has opened a concessional window for banks for swapping FCNR(B) deposits and raised overseas borrowing limit for banks to 100% of unimpaired Tier I capital and the borrowings swapped at a concessional rate of 100bp below the market rate.
U.S on the brink of government shutdown
Just hours remain for a U.S. Congress deadline to pass a stop gap measure failing which a federal government shutdown is imminent. The Republicans and Democrats appear unwilling to renege on their terms and break the impasse before the deadline.
The Republican-controlled House of Representatives on Sunday passed a measure that ties government funding to a one-year delay of President Barack Obama's landmark healthcare restructuring law. It would fund the government through December. But the Senate Democrats are poised to reject it. If a stop-gap spending bill for the new fiscal year is not passed before midnight on Monday, government agencies and programs deemed non-essential will begin closing their doors for the first time in 17 years. In a government shutdown, spending for functions considered essential, related to national security or public safety, would continue along with benefit programs such as Medicare health insurance and Social Security retirement benefits for seniors.
The next big political conflict is estimated to come up by mid-October to raise the government's borrowing authority. A failure by the Congress to raise the USD 16.7 trillion debt ceiling would compel the United States to default on some of its payment obligations. The event would have an adverse fall out for the global economy. In 2011, the debt ceiling was raised in a deal that simultaneously reduced deficit in the economy by USD 2.1 trillion.
Infosys bags contract from RBS
Infosys and IBM has won a 30mn euro (Rs.2,535cr) contract to develop the computer system for the UK-based bank Williams & Glyn's. The bank (Williams & Glyn's), which was dormant for about 30 years, is being revived by UK-based lender the Royal Bank of Scotland Group Plc (RBSG). The bank is part of the RBS Group and is scheduled to launch operations by 2015. According to media reports, the new bank will have 314 branches located mainly in the north-west England and it is scheduled to be floated on the London market in late 2015. However, it is not clear on how the job to develop the state-of-the-art system for the 314 branches will be divided between Infosys and IBM. The acquisition of Switzerland-headquartered Lodestone Holding by Infosys in October last year has strengthened its consulting and systems integration capabilities and increased its global presence particularly in continental Europe, Latin America and Asia Pacific. We maintain our Neutral rating on the stock.
CTB shareholders approve merger with Apollo Tyres
In a major step ahead towards completing the takeover of US based, Cooper Tire and Rubber Company (CTB), CTB shareholders approved the proposed merger with Apollo Tyres (APTY) with more than 74% majority. A positive response from the shareholders clears the path for APTY to complete the merger process and expects to close the transaction by the end of the year. However, hurdles still remain for APTY due to opposition from workers at CTB's joint venture in China and US labor issues which could hamper the deal. We remain watchful of the developments on this front. Post the acquisition; the combined entity will be the 7th largest tyre company in the world with combined revenues of US$6.6bn. We maintain our Neutral rating on the stock.
Economic and Political News
- Industry should invest more in R&D to compete globally: Minister of State for MSME K H Muniyappa
- Tamil Nadu govt reduces power cut for HT units
- Gujarat tops with 35% share in completed realty projects across India: Assocham
- Companies free to choose CSR activities: Pilot
- Glenmark gets USFDA nod for skin infections cream
- CERC to hear RPower's plea on Tilaiya UMPP on October 15
- Mundra compensatory tariff : MahaVitaran bats for RoE cut by Tata Power arm
- MCA seeks SFIO probe status on Tata-Unitech deal
- Lanco Infratech to sell minority stake in thermal power plant
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