Reports » India
Indian stock market and companies daily report (September 05, 2013, Thursday)
Indian markets are expected to open in the positive territory tracking a positive opening in SGX Nifty and most of the Asian markets.
The US markets closed moderately higher, posting positive gains for second consecutive session. The strength emerged as stocks continued to recover from the sell-off that was seen last Tuesday. Positive sentiment was also generated by news that major automakers reported double digit growth in U.S. vehicle sales in the month of August. The Commerce Department released a report which said that trade deficit widened to $39.1 billion in July compared to a revised $34.5 billion deficit in June which still represents the narrowest U.S. trade deficit since October of 2009. European markets too ended the day in green relieved slightly on Syria attack concerns, since with the U.S. Congress still on recess, a U.S. strike would not come until next week at the earliest.
Meanwhile, Indian shares rebounded on Wednesday after falling for 4% the day before. INR recovered to 67 after falling to 68.60 earlier in the session, RBI relaxed some of the recent curbs on the outward investments imposed last month. Currency recovery came in as noted economist Raghuram Rajan took over as the 23rd RBI governor on Wednesday.
The trend deciding level for the day is 18,456 / 5,409 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 18,724 - 18,880 / 5,499 - 5,550 levels. However, if NIFTY trades below 18,456/ 5,409 levels for the first half-an-hour of trade then it may correct up to 18,300 - 18,032/ 5,358 - 5,268 levels.
Change of guard at the RBI, slew of measures announced
In his first address as the RBI governor, Dr. Raghuram Rajan has unveiled a slew of measures to restore confidence. His first monetary policy statement is expected on September 20, 2013 as against the original date on September 18. We believe that the policy review is rescheduled in light of the Federal Reserve's policy meeting during the same period is likely to determine the direction for markets and capital flows.
The governor emphasized at push for more international settlements in rupees and further liberalization of our financial markets. The RBI will offer a concessional window for banks to swap FCNR dollar deposits mobilized for a minimum tenor of three years and over, at a fixed rate of 3.5% per annum for the tenor of the deposit. It has also decided that the current overseas borrowing limit of 50% of the unimpaired Tier I capital will be raised to 100% and the borrowings mobilized under this provision can be swapped with Reserve Bank of India at the option of the bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market. These schemes are open for banks until November 30.
To protect savings for households, the RBI is expected to introduce Inflation Indexed Savings Certificates linked to the CPI to retail investors by November 2013. This is a positive step as CPI inflation has continued to remain elevated and negative real interest rates have brought down savings from almost 37% of GDP in FY2008 to 30.8% of GDP in FY2012.
Some of the measures aimed at liberalizing financial markets include enabling exporters/importers to re-book cancelled forward exchange contracts to the extent of 50% for exporters (from 25%) and 25% for importers, introduction of cash settled 10 year interest rate future contracts and examining introduction of interest rate futures on overnight interest rates.
In addition, the governor roughly indicated that new bank licenses are likely to be announced around January 2014. He also stated that the RBI is expected to shortly free bank branching for domestic scheduled commercial banks without permission of the RBI. Over a medium-term, he also underscored the need to reduce banksRs. requirement to invest in government securities in a calibrated way when government finances improve.
Lok Sabha passes Pension Bill
The Lok Sabha yesterday passed the Pension Fund Regulatory and Development Authority Bill 2011. The Bill is aimed at creating a regulator for the pension sector. The foreign investment cap for the sector is linked to the same in the insurance sector and once that is passed, the ceiling would be raised from 26% to 49%. At present the FDI limit is capped at 26%. The Pension Bill has been stuck in Parliament since its introduction in 2005 post which it lapsed and was reintroduced in 2011. The bill seeks to empower PFRDA to regulate the New Pension Scheme which provides subscribers options like equity, bonds and corporate debt to invest in. The bill is likely to channelize investment in the economy and thereby benefit infrastructure development.
Wipro bags US$125mn Deutsche Bank contract
Wipro is understood to have bagged a multi-year contract from Deutsche Bank valued around US$125mn (~850cr). According to media reports, as a part of the five-year contract, Wipro would primarily provide application maintenance services to Deutsche Bank even though there will a small component of application development services work as well. This is the second major client win for Wipro in the banking, financial services and insurance (BFSI) space in the past three months. In June, Wipro had bagged a large IT outsourcing contract worth ~US500mn from Citigroup, the tenure of the contract was also for five years. The recent wins in the BFSI space are a major uplift for Wipro which derives ~26.5% of its overall revenues from this vertical. However, its exposure to the BFSI space is somewhat low as compared to its large peers such as TCS and Infosys. In January 2011 when Wipro decided to restructure the management by doing away with the joint CEO model, the company had made it clear that BFSI as well as Healthcare are going to be two major thrust areas. Owing to recent sharp rum up in the stock price of Wipro, we maintain our Neutral rating on the stock.
NMDC analyst meet update
We attended the analyst meet held by NMDC after its 1QFY2014 results. The key takeaways from the meet were:
- It sold ~4.0mn tonnes of iron ore during July- August 2013.
- It aims to sell atleast 30mn tonnes (including 2.8mn tonnes of exports) for FY2014. We conservatively model 28mn tonnes (+6.9% yoy) considering the weak demand environment and difficulties in raising offtake.
- It indicated that it can raise export volumes if government cuts export duty or railway freight on exported iron ore is lowered (unlikely in our view).
- Despite increase in steel prices, it is not expecting any changes in iron ore prices in the near-term.
We believe NMDC could surprise with higher than our estimated volumes of 28mn tonnes in case it increases its exports. We maintain our Buy rating on the stock with a target price of Rs.143.
IPCA Labs SEZ Indore facility gets USFDA nod
US Food and Drug Administration (USFDA) following an inspection, has found acceptable the IPCA Labs oral solid dosage formulations manufacturing facility situated at Pharmazone SEZ Indore, Madhya Pradesh. This will enable the company to commercialise oral solid dosage formulations in the US market from this manufacturing facility. Ipca Laboratories in an earlier in November 2012 had during the course of the internal quality assurance review, had noticed a few nonconformances at the said manufacturing unit and had voluntarily referred these to the USFDA. Consequently, the company decided that till the issue is resolved to the satisfaction of the USFDA, no dosage formulations manufactured at this manufacturing unit will be commercialized for the US market.
Management had earlier guided that once the approval is received, the facility would cater to the US generic market and potentially post sales of US$100mn in the next 2-3 years. Management expects the revenue from Indore SEZ to start from 4QFY2014. For FY2014 and FY2015, we have build in a revenues of Rs.51cr and Rs.200cr revenues from this facility, and hence upgrade our sales forecast by 1.5% and 6.7% respectively. Consequently the EPS of the company stands upgraded by 1.7% and 7.6% respectively during FY2014 and FY2015 respectively. Since the stock has witnessed a strong up move on back of the same, we retain our neutral stance on the stock with a upgraded target of Rs.724.
Economic and Political News
- Govt may slap anti-dumping duty on a bulk drug from EU cos
- Electricity price on bourse slides to Rs.2.05 per unit in Aug
- RBI eases overseas investment norms for Indian corporate
- Honda to increase output capacity by 30% in India
- Tata Motors to go ahead with investment of Rs.3,000cr
- Indian private debt placements up 11% in April-June quarter
Stock Market Forum
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