Sensex, Nifty readying for the next upmove: Wednesday closing report

Only a close below 6,505 for Nifty may create a short downturn

The Indian benchmark managed to close Wednesday in the positive. The morning session opened with market moving up but soon it fell due to lower forward guidance by Tata Consultancy Services (TCS), the country’s largest software company. This pulled down most frontline software stocks as well.


The BSE 30-share Sensex opened at 21,873 and moved in the range 21,782 and 21,896 and closed up at 21,833. On the other hand the NSE 50-share Nifty opened at 6,530, then moved between 6,506 and 6,541 before closing the day at 6,524 (up 7 points or 0.11%). The NSE recorded volume of 61.94 crore shares.


Among the other indices on the NSE, the top five gainers were Metal (1.97%); FMCG (1.09%); MNC (0.97%); Finance (0.90%) and Nifty Midcap 50 (0.63%) while the top five losers were CPSE (2.26%); IT (2.19%); PSE (1.47%); Energy (0.63%) and Realty (0.37%).


Of the 50 stocks on the Nifty, 33 ended in the green. The top five gainers were Tata Steel (4.61%); Hindalco (4.31%); Ambuja Cements (3.26%); PNB (2.38%) and Asian Paints (2.27%). The top five losers were TCS (3.97%); ONGC (3.29%); M & M (2.92%); Coal India (2.86%) and Tata Power (2.52%).


Of the 1,546 companies on the NSE, 735 companies closed in the green, 710 companies closed in the red while 101 companies closed flat.


Credit rating agency Standard & Poor's (S&P) Ratings Services on Wednesday said that Indian companies are improving their credit profile by selling equity and assets, or using free operating cash flows to reduce debt. The quest to improve credit profiles comes after a weak economy and high interest rates have adversely impacted their cash flows, while companies are also refocusing on cutting debt after years of fast expansion. S&P also said that infrastructure companies with high leverage are also considering selling assets or stakes in subsidiaries to cut down on their debt levels.


Among the Sensex, TCS was the biggest loser today, falling 3.84% to close at Rs2,040.95. The Tata group company said that the March quarter is typically slower for them than the December quarter due to seasonality and fewer days. It however, has reaffirmed that the FY15 revenue growth would be higher than FY14, led by improvement in discretionary spending in the US and market penetration in Europe.


US indices closed in the positive on Tuesday. U.S. housing starts fell for a third straight month in February, but a rebound in building permits offered some hope for the housing market as it struggles to emerge from a soft patch. The Commerce Department said on Tuesday groundbreaking slipped 0.2% to a seasonally adjusted annual rate of 907,000 units.


A two-day meeting of the Federal Open Market Committee (FOMC) for monetary policy review ends today, 19 March 2014.


Consumer prices in the US rose slightly in February because of higher food and housing costs, but overall inflation remained quiet, according to the latest government figures. The consumer price index increased by a seasonally adjusted 0.1% last month, the Labor Department said.


Except for NZSE 50 (up 0.37%), Nikkei 225 (up 0.36%) and Jakarta Composite (up 0.33%) all the other Asian indices closed in the negative. Taiwan Weighted was the top loser which fell 0.49%.


Japan's trade deficit exceeded estimates in February. The 800 billion yen ($7.9 billion) shortfall reported by the finance ministry in Tokyo today. Imports expanded 9% from a year earlier, and exports rose 9.8%.


Malaysia cut the lower end of its economic growth forecast for this year, predicting inflation will hurt household spending amid an uneven global recovery.


Gross domestic product may rise 4.5 percent to 5.5 percent in 2014, after climbing 4.7 percent last year, the central bank said in its annual report released in Kuala Lumpur today. That’s wider than the Finance Ministry’s previous range of 5% to 5.5%. Inflation may be between 3% and 4% this year, from a rate of 2.1% in 2013, it said.


European indices were showing mixed performance while US Futures were trading marginally higher.


FY15 to be better than FY14 on revenue growth for Tata Consultancy Services

Unless there is much volatility in the rupee, margins can be maintained within its guided range of 26%-28% for Tata Consultancy Services, according to Nomura in its research note

Tata Consultancy Services (TCS) was the biggest loser today, falling 3.84% to close at Rs2,040.95. TCS said that the March quarter is typically slower for them than the Dec quarter due to seasonality and fewer days.


FY15 will however, be better than FY14 on revenue growth for TCS. The company should report USD revenue growth of 16% in FY14F. Nomura in its research note forecasts that there will be better growth outlook for smaller verticals, while larger verticals like BFSI/retail are likely to grow closer to the company average. Telecom vertical growth will likely be driven by better penetration in Europe, rather than a structural improvement in demand.


Nomura, in its research note, adds that the company has not seen any cancellations or ramp-downs or any deterioration in the outlook lately.


The company is looking for a margin decline of 40-50bps, largely on account of investments in new geographies and it believes that unless there is much volatility in rupee, margins can be maintained within its guided range of 26%-28%. 3QFY14 EBIT margins were at 29.7%.


Nomura continues to see strong USD revenue CAGR of 16% and EPS CAGR of18% over FY14-16F at TCS. The research note concludes by saying that it continues to prefer TCS over Infosys within its ‘Buy’ rating stocks.


Acute shortage of iron ore fines

With more steel capacity coming on stream, the iron ore shortage will only increase. CARE Ratings suggest a control on iron ore exports

With the curb on illegal mining in two major iron ore producing states (Karnataka and Goa accounting for more than 35% share of the domestic production), India witnessed a significant decline in its iron ore production from the peak of about 218 million tonnes per annum (mtpa) in FY10 to about 135 mtpa in FY13. In line with the fall in iron ore production and with no new development of mines, availability of lumps in the domestic market also declined. Exports also plummeted to a decadal low of about 18 mtpa in FY13, as compared to the peak of about 117 mtpa achieved in FY10. Despite having ample resources, the scarcity situation has led to a vibrant debate on the government’s policy regarding iron ore exports and the distribution and allotment of existing and new mining assets. Both, the steel makers (for banning exports) and the private miners (against exports ban) hold a completely contrarian view regarding iron ore exports.


Overall, there is a shortage of iron ore and mining industry can do a lot better both with domestic steel manufacturers and export opportunities, points out CARE Research in a research note.


Gauging the need for utilising fines, steelmakers in the last 3-4 years have taken corrective steps to make themselves capable of using the low grade iron ore fines. These players are in the process of significantly increasing their sintering and pelletisation capacity, observes the research note.


According to CARE Research, sintering and pelletisation not only helps steelmakers in utilising the inferior grade fines, but also helps them in improving the quality of steel as well. Further pelletisation also helps steelmakers in transferring low grade iron ore fines in a much cleaner and efficient manner. Going ahead CARE Research expects significant pellets and sintering capacity addition. Sintering and pelletisation capacity is likely to increase from about 60 and 54 mtpa as recorded in FY13 to about 80 and 92 mtpa respectively during the next 3-4 years.


CARE Research believes these beneficiation plants are already facing acute shortage of iron ore fines for optimum utilisation of their existing capacity. Going ahead, with further increase in steel making capacity, the demand–supply gap for iron ore is only likely to widen, which additionally supports the argument to curtail iron ore exports.


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