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Indian stock market and companies daily report (September 17, 2013, Tuesday)
Indian markets are expected to open largely flat tracking flat to negative opening in almost all the Asian indices, ahead of the U.S. Federal Reserve's policy meeting.
The US markets rose on Monday, after former Treasury Secretary Larry Summers took his name out of the running to head the Federal Reserve. This news generated early buying interest, as Summers was seen as likely to take a more hawkish approach to monetary policy. Summers decision was seen by some as paving the way for Fed Vice Chairman Janet Yellen, who is perceived to be the most dovish candidate. On the economic front, a report from the Federal Reserve showed that industrial production rose by slightly less than expected in the month of August to 0.4% mom. The Federal Reserve will begin its 2-day meeting today, to discuss monetary policy. Investors will be watching for Wednesday's announcement, to see if the Fed will begin to taper its stimulus measures.
Meanwhile, the domestic markets erased early sharp gains to end largely unchanged on Monday after government data showed India's wholesale inflation unexpectedly rose to a six-month high of 6.1% in August as compared to 5.79% in July 2013, mainly due to the soaring food prices. However, investors will now look forward for the first monetary policy decision by the new RBI chief Raghuram Rajan on 20th September, 2013.
The trend deciding level for the day is 19,808 / 5,865 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 20,021- 20,299 / 5,932 - 6,024 levels. However, if NIFTY trades below 19,808 / 5,865 levels for the first half-an-hour of trade then it may correct up to 19,530 - 19,318 / 5,773 - 5,706 levels.
WPI inflation at 6.10%, a six-month high in August 2013
The Wholesale Price Index (WPI) based inflation touched a six-month high at 6.10% for August 2013 as compared to 5.79% in the previous month and 8.01% in August 2012. Higher food and fuel inflation are seen to be the main drivers of the pick-up in inflation.
Primary articles inflation has inched up to 11.72% in August 201 3 as compared to 8.99% in July 201 3 and 11.23% in the corresponding period of the previous year. This can be attributed to the rise in food inflation which came in at 18.2%, a 3-year high as compared to 11.9% in the previous month. The rise in prices of perishables like vegetables & fruits and eggs, meat & fish has put pressure on food inflation. In particular inflation in vegetables has come in at 77.81% as against 10.08% in August 2012. Amongst food grains, inflation in cereals remained high at 14.35% as compared to 17.17% in July 2013 while pulses remained in deflation territory for the second consecutive month declining by 14.40%, aided by a high base.
Other constituents of primary articles, ie non-food articles, witnessed deceleration in inflation during August 2013 to 1.06% from 5.51% in the previous month while minerals remained in deflationary territory and declined by 7.21% as compared to 2.38% in July 201 3.
Inflation in fuel and power picked up for the fourth straight month reflecting higher petrol, diesel and ATF prices. The overall fuel and power index witnessed doubledigit inflation at 11.34% as compared to 11.31% in the previous month and 8.74% in August 2012. The mineral oils index surged to 15.81% in August 2013 from 5.62% in the corresponding period of the previous year, similar to 16.01% in July 2013, owing mainly to rise in prices of administered fuels like diesel and LPG.
The rise in international oil prices has made India's basket of crude dearer. Further we believe that the expected increase in domestic diesel prices to reduce underrecoveries on fuel is likely to push up the fuel index further in the near-term. The release of suppressed inflation is also likely to impact overall headline inflation through second-round effects.
Manufactured articles inflation came in at a muted 1.90% in August 2013, almost a 4-year low. It compares with 2.81% in July 2013 and 6.36% in the corresponding period of the previous year. Manufactured food inflation decelerated for the sixth straight month and eased sharply to 1.70% from 5.04% in July 2013. Core (non-food, non-fuel) inflation also eased to 2.0% from 2.3% during July 2013 and 5.8% in August 2012 as it continues to reflect weak pricing power.
As far as the RBI's monetary policy is concerned, we know that macro-stability has taken precedence over growth considerations. In this context, we believe that the outcome of the U.S Fed's FOMC meeting on September 17-18 and its subsequent impact on domestic capital flows and exchange rate movements are likely to be important determinants for domestic monetary policy action.
L&T has bagged various orders worth ~Rs.1,793cr
L&T's metallurgical and material handling business has bagged various orders worth Rs.550cr. The business has secured a major order for engineering, procurement and construction of coal handling package at Singrauli in Madhya Pradesh from Northern Coalfields, a subsidiary of Coal India. In the power transmission and distribution segment, it has secured orders worth Rs.118cr from Power Grid Corporation for supply, erection, testing and commissioning of transmission towers. The company has bagged additional orders worth Rs.1,125cr from various ongoing projects of heavy civil and water and renewable energy businesses. We continue to maintain our Buy rating on the stock with target price of Rs.1,002.
Ranbaxy Labs: Mohali unit under import alert
After the problems at Ponta Sahib and Dewas, the USFDA has issued import alert on its Mohali unit. Mohali, being a new plant, manufacturing wasnRs.t at full scale there, but most of the new drugs by the company were slated to be actually manufactured there. The company was issued Form 483, which was issued for Mohali. This means there were certain manufacturing practices which the USFDA had already pointed out and the company had time to comply with the problems USFDA had bought up.
However, since Ranbaxy could not comply to with those issues the 483 has now converted to an import alert. While the Ponta Sahib and Dewas, are out of the trouble with the USFDA decree, but the Mohali plant is crucial for its future growth, as in the last three years company has made filings from Ohm and Mohali. According to the company, the filings from Ohm and Mohali total around US $6bn of brand value at present and these new facilities were expected to contribute more than 75% of the business even after Dewas and Paonta Sahib were free from issues over a five years down the line.
Further, given that sometimes, the import alters as seen in the case of Ranbaxy Labs, can take longer time to resolve, the import alter could be a huge setback for the company, as now company has only Ohm labs to service its US business. While, we await more clarity from the Management on the exact impact on the financials esp. the OPM's, the company, given the set back will trade at huge discount to its peers, and hence we reduce our target multiple of 1.4 x EV/sales at a huge discount of around 50-60% to its near comparable peers like Cipla and Lupin. Hence, after the fall witness today the stock has little left in terms of the decline fundamentally. Hence we are Neutral on the stock.
Economic and Political News
- August WPI at 6-month high at 6.1%
- Peak power shortage in August 2013 narrows to 2.7%: CEA
- Railway freight earnings up by about 8% in Apr-Aug
- States asked to shift to specific tax rates of petrol, diesel
- US FDA tightens regulatory noose on Indian drug firms
- ITC ties up with RP Group to manage hotels in India, Dubai
- Lupin Receives FDA Approval for Generic Ambien CR Extended-release Tablets
- Polaris dilutes entire stake in US subsidiary
- Strides's injectible unit Agila gets US FDA warning letter
- Titan launches 'skinnRs. fragrance line
- TVS Motor forays into men's scooter with Jupiter launch
- Zydus launches diabetes treatment drug Lipaglyn
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