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Indian stock market and companies daily report (September 07, 2012, Friday)

Contributed by Angel Broking

The Indian markets are expected to open in the positive tracking SGX Nifty and Asian markets which are trading higher in opening trade.

The US markets closed higher on Thursday. with traders reacting positively to the outcome of the European Central Bank (ECB)'s meet coupled with a batch of upbeat US economic data. European Central Bank President Mario Draghi outlined the central bank's highly anticipated bond purchasing program. The Labor Department's report which showed a bigger than expected drop in first-time claims for unemployment benefits in the week ended September 1st added to the positive sentiment. The Institute for Supply Management's report showed that the pace of service sector growth accelerated by more than anticipated in August. European markets too ended positively owing to the ECB's announcement.

Meanwhile the Indian markets ended the day marginally ian the green. The markets which opened in the red remained range-bound till afternoon, but gained momentum in the post afternoon trade in anticipation of positive announcements by ECB President. Markets shed some of the gains before the close of the day.

Markets Today

The trend deciding level for the day is 17,353 / 5,239 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,412 - 17,477 / 5,260 - 5,282 levels. However, if NIFTY trades below 17,353 / 5,239 levels for the first half-an-hour of trade then it may correct up to 17,288 - 17,229 / 5,217 - 5,196 levels.

ECB agrees to unlimited bond buying programme to preserve the Euro

The European Central Bank (ECB), in its monetary policy meeting on September 6, 2012, agreed to launch unlimited bond purchases to lower borrowing costs for struggling Eurozone countries. The bank decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in order to restore investor confidence in the survival of the euro. Earlier in August, ECB chief Mario Draghi had announced that he would do 'whatever it takes' to preserve the euro.

Strict and effective conditionality is a necessary condition for countries signing up for OMT, with the euro zone's rescue fund and the IMF involved in designing and monitoring the programme.

Further, in their monetary policy meetings The ECB and Bank of England (BoE) both decided to keep their key policy rates unchanged at 0.75% and 0.5% to counter any risks emanating from inflation. The BoE also voted to continue with its programme of asset purchases totaling £375 billion, financed by the issuance of central bank reserves.

Following the ECB announcement to address the Euro crisis, stocks in the U.S. and Europe soared and the euro witnessed a 2 month high.

Sun Pharmaceuticals: Announces recall of two batches of nimodipine in the US

Sun Pharmaceutical Industries has announced a nationwide recall of nimodipine capsules 30 mg due to crystallisation of the fill material. The product is being manufactured by Maryland, US based Pharmaceutics International, Inc for Sun Pharmaceutical Industries and marketed in the US by Caraco Pharmaceutical Laboratories.

According to the company, the revenue loss on account of the same would be negligible. The company has already commenced the recall as a precautionary measure due to the presence of crystals of nimodipine within the capsule solution of this lot as identified by a customer complaint. No adverse events have been reported at this point of time. We remain Neutral on the stance.

Hero MotoCorp to lower production in September to avoid inventory pile-up

Hero MotoCorp (HMCL) has decided to lower production by 15% -18% for the month of September as compared to the first five months of FY2013 to avoid inventory pile-up. As per the media reports, HMCL will produce a total of 4.48lakh units against the production average of 5.25lakh units in YTD FY2013. The flagship model Splendor is likely to see the maximum impact of the production cuts as reports suggest that HMCL plans to produce a little over 1.20lakh units of the Splendor in September 2012. Wholesale average dispatches of Splendor to dealers dropped to 1.73lakh units in August 2012 from 2.2lakh to 2.4lakh units April 2012.

We believe that the production cuts by HMCL is on the expected lines because the company has seen its inventory pile up to 5-6 weeks from the average levels of 23 weeks due to slowdown in retail sales since the start of FY2013. HMCL has been aggressively pushing up inventory at the dealer end over the last few months in anticipation of improvement in demand. However, with no signs of pick-up in demand and early indications of slightly lower festival demand compared to previous year HMCL has resorted to production cuts. Nonetheless, the management remains optimistic on the company's prospects over the long run and plans to introduce 8 -10 new product launches and variants every year. At '1,792 the stock is trading attractively at 11.8x FY2014E earnings. We maintain our Buy rating on the stock with target price of ?2,428.

Vedanta Resources to shut Lanjigarh Refinery

Sterlite Industries associate (30% stake), Vedanta Aluminium has announced closure of its 1mn tonne alumina refinery at Lanjigarh in Odisha from December 5 on account of non-availability of bauxite. The unit has already incurred financial losses of over '2,500cr. The plant is currently operating at an utilization levels of 20-30 per cent. The company faces bauxite supply issues despite the Supreme Court (in 2008) cleared bauxite mining in the Niyamgiri Hills in Lanjigarh subject to approval from the Ministry of Environment and Forests. However, the Ministry has not given its clearance so far. As a part of restructuring of Vedanta Goup companies' Vedanta Aluminium will be fully transferred to the merged entity Sesa Sterlite. We do not expect significant impact due to closure of this refinery as current aluminium price of US$1 900/tonne, it would continue to make losses as per our estimates. We maintain our Buy rating on Sterlite with a target price of '115.

JSW Steel reports moderate steel production numbers for August 2012

JSW Steel reported robust growth in steel production for August 2012. Crude steel production grew by 15% yoy to 0.76mn tonne. Flat rolled products' production grew by 6% yoy to 0.51mn tonne and long rolled products' production grew by 19% yoy to 0.15mn tonne during the month. JSW Steel stated that the company has achieved crude steel production of 3.58mn tonnes in the first five months of FY2013 (+ 22% yoy). At the current price level, we maintain our Neutral view on the stock.

Economic and Political News

- 10 Miners justify delay in coal mining before IMG

- Government may explore tax regime tweak

- Plan panel suggests steps to boost ailing power projects

Corporate News

- IDBI, OBC cut interest rate on home loans by 0.25%

- GAIL signs MoU with UPSIDC

- TCS reappoints Mahalingam as CFO