The Sensex is likely to touch 19,600 and the Nifty 5,880 before a fresh decline starts
We mentioned in yesterday's market closing report that for a day or two we may see a small rally. The Sensex opened with an upward gap of 55 points to hit 19,280 and after a volatile morning made an intra-day high of 19,431.56. This is the lowest intraday high since 29 November 2010. For a major part of the trading session, the Sensex traded just above the previous close of 19,224.21. However, massive selling in the closing session saw the Sensex crash to an intra-day low (19,003). Then a ferocious rally helped it recover as much as 350 points. The Sensex closed at 19,196.34, down 27.78 points, based on adjusted closing figures, and the Nifty fell 8.75 points to close at 5,754.10.
This was the sixth day in a row that the indices have closed in negative terrain. However, the market had fully recovered by the closing minutes and a short rally may well be underway. If that happens, expect the Sensex to touch 19,600 and the Nifty 5,880 before a fresh decline starts.
In the morning, the key indices were sluggish, on mixed global cues, fluctuating within positive territory. There was pressure on IT, realty and technology stocks. The choppiness continued in the post-noon session and the indices remained range-bound. However, the trend was reversed in the closing session and the market closed flat.
The market breadth was tilted in favour of the gainers today. The Sensex ended with 16 advancing stocks against 14 in the negative list, while the Nifty had 36 gainers and 14 losers. The broader indices underperformed the Sensex with the BSE Mid-cap index declining 0.67% and the BSE Small-cap index 0.87%.
The prominent sectoral gainers were BSE Bankex (up 1.24%), BSE PSU (up 0.49%) and BSE Auto (up 0.37%). The losers were led by BSE Realty (down 2.74%), BSE IT (down 1.60%) and BSE TECk (down 1.27%).
The top Sensex performers were Hindalco Industries (up 3.46%), Bajaj Auto (up 3.42%), State Bank of India (up 2.51%), BHEL (up 2.35%) and Reliance Communications (up 2.07%). Jaiprakash Associates (down 2.62%), TCS (down 2.58%), Infosys Technologies (down 1.98%), Jindal Steel (down 1.69%) and Reliance Industries (down 1.62%) ended at the bottom of the table.
Domestic passenger car sales jumped by 28.91% to 1,48,681 units in December 2010, compared to 1,15,337 units in the same month in 2009, according to the figures released by the Society of Indian Automobile Manufacturers. Motorcycle sales in the country grew by 27.13% to 7,53,358 units last month, from 5,92,589 units in the same month in the previous year.
Markets in Asia closed mixed on Tuesday. Japan plans to buy bonds issued by Europe's financial aid fund, helping the eurozone nations cope up with the debt crisis, which threatens to spread further within the region. The move follows China making a similar commitment. However, the floods in Australia put pressure on banks and insurance companies.
The Shanghai Composite rose 0.47%, the Hang Seng surged 0.99%, the Straits Times gained 0.38%, the Seoul Composite was up 0.36% and the Taiwan Weighted advanced 1.29%. On the other hand, the Jakarta Composite declined 0.67%, the KLSE Composite lost 0.04% and the Nikkei 225 ended 0.29% lower today.
Back home, reeling under the impact of rising interest and input costs, India Inc is likely to ask finance minister Pranab Mukherjee not to further withdraw the stimulus in his forthcoming budget. Issues concerning rising borrowing costs, infrastructure bottlenecks and the urgency of achieving double-digit growth are likely to figure in the customary pre-budget consultation meeting of the minister with captains of Indian industry on Tuesday.
Foreign institutional investors were net sellers of equities worth Rs1,138.78 crore on Monday. On the other hand, domestic institutional investors were net buyers of Rs1,018.54 crore.
After experiencing a decline, Reliance Industries (down 1.62%) (the flagship company of the Mukesh Ambani-led Reliance Group) is likely to regain 60 million standard cubic meters per day (mmscmd) of natural gas output from its eastern offshore KG-D6 fields by April, according to oil regulator DGH (Directorate General of Hydrocarbons). Reliance has seen its natural gas output fall to 50-52 mmscmd during recent times from over 60 mmscmd achieved in mid-2010 due to reservoir complexities.
State-run BHEL (up 2.35%) is understood to have emerged as lowest bidder in two projects of Rajasthan Rajya Vidyut Utpadan Nigam, worth Rs12,200 crore for providing the engineering, procurement and construction (EPC) services for the projects.
The two projects, being set up at Chhabra and Suratgarh in Rajasthan, are of 1,320MW each and the RRVUNL had floated a tender through international competitive bidding (ICB) route.
Education solutions firm Educomp Solutions (up 2.33%) has formed a joint venture with US-based Zeebo and Lakshya Digital to sell devices with educational content in India. The partners will make an initial investment of $4 million towards the JV firm.
The devices, when connected to a television, will offer educational content to school-goers and would work using 3G services. The devices would be available in India in the later half of the year, priced below Rs 5,000. Apart from partnering with schools for selling the devices, the JV will also tie-up with telecom operators and retailers for pushing the devices in the market.
Expect IT to zoom if Infosys’ sequential growth is above 7%, ups it dollar revenue guidance for the year above 26%, and gives positive vibes on IT budgets and discretionary spending
Expectations are high on Q3 results and all eyes are focused on information technology, particularly Infosys, which is traditionally among the first to announce its performance. The sector generates special interest because of some important factors like volume growth, (broad-based is better than concentrated), pricing trend (that is not expected to improve), revenue growth in discretionary spend areas (positive expectations), the deal pipeline (and size), net hiring (has been going up), utilisation and attrition. Attrition, which was upwards of 20% for the IT sector in the September quarter, is expected to come down to below 18% for the December quarter.
Strong dollar revenue growth is expected from Tier-1 companies. However, it may not be as strong as it was in the September quarter. TCS, Wipro, Infosys and HCL Technologies are expected to post 5-6% quarter-on-quarter growth.
The banking, financial services & insurance, and retail verticals will probably continue to lead demand revival, while telecom and manufacturing may remain subdued. (The four verticals make up 80% of the business of Indian IT companies.)
The rupee appreciation is expected to play spoilsport. Motilal Oswal says in its preview of the IT sector, "In 3QFY11 the rupee appreciated about 3.3% sequentially and this is expected to play a key role in a 30-50 basis points drop in margins for top-tier companies. Companies like Infosys and TCS have a near 40 basis points EBIT sensitivity to a one percentage point change in the rupee/dollar. We expect no revival in HCL Tech's EBITDA margins, though it has maximum upside on margins due to levers like utilisation, SGA (selling, general and administrative expenses) and the employee pyramid." However, not everybody is expecting a margins drop.
There are no real hopes of any price increase this quarter. Headcount additions are expected to be strong.
Infosys Technologies (Q3)
Infosys, India's second largest IT company by sales, had given guidance for dollar revenue growth of 3.4%-4.4% quarter-on-quarter, but most expect it to produce one of the strongest figures among Tier-1 IT companies at more than 6%. Margins are expected to appreciate a bit; volumes could be higher by more than 6%. Infosys will probably manage margins by controlling SGA expenses. CLSA believes that the absence of visa costs should drive a positive surprise on margins.
It is expected to upgrade its dollar revenue guidance (24-25% in 2QFY11). However, this upgrade may not be very aggressive given that fourth quarter (March) revenues usually tend to decelerate over the December quarter. Rupee EPS guidance could be revised upwards of Rs 120 (currently at Rs 117).
HCL Technologies (Q2)
HCL's infrastructure management segment is expected to give good returns. Forex losses may be behind it from this quarter onwards.
Like Infosys, TCS is expected to grow more than 6% (revenue in dollars) quarter-on-quarter with a 6% plus volume growth. Motilal says, "TCS' continued cost aggression over the past six quarters leaves it with limited cushion for margin upsides."
Revenue growth is expected at around 5.5% at the higher end of its guidance. Watch out for impact of promotions on IT margins, attrition and the next quarter's guidance.
Even though large-cap IT stocks look fairly valued at 20-23 times their one-year forward earnings, there is a lot of interest in them at the moment because of the belief that there is an upside for their earnings. The two biggest risks for the sector continue to be the significant rupee appreciation and a sudden fall in US growth rate.
Thrissur: India's current economic growth would continue for at least 15-20 years and rural India would be the new engine for a double-digit growth, reports PTI quoting chairman of the ICICI Bank KV Kamath.
Delivering the third VO Abraham Memorial lecture on "The Dawn of the Indian Decade: 2010-2020' here last night Mr Kamath said that this would be India's decade.
India would also emerge as the largest contributor to the global workforce and global innovations in the current decade, he said.
The shares traded at the Bombay Stock Exchange (BSE -100 index) was at $28 billion in 1995, shot up to $84 billion in 2000 and $170 billion in 20l0.
The net profits over the transactions were which was $3 billion in 1995, rose to $4 billion in 2000 and $20 billion in 2010, he observed.
Despite the global recession, the country's per capita income has gone up to $1,000 from $500 during the past five years, which is a tremendous achievement, he said.
India is poised for another steep change in the decade based on domestic drivers and growing global relevance, Mr Kamath said, adding that key priority should be given for infrastructural development-roads, rails, power, ports, airports and other basic factors.