Prakash Kumar

 

 

IT – Q3 earnings have opened with Infosys and TCS coming up with stellar numbers resulting in around 15% jack up of stock price. Re-rating of technology as a pack is happening as BFSI and North America are rebounding. Caveat to this growth story are an appreciating rupee and tax holiday era nearing close for the sector.

 

Rate sensitive – Realty, Cement and Auto the so called rate sensitive sector had seen normalcy in term of demand coming back in Q3. Numbers are expected to be beyond guided estimations and major portion of this expectancy is already factored in the price. Potential upside for the DLF’s and Unitech as also the TELCO’s and Marutis needs to be looked at with rising commodity prices and credit policy addendums.

 

Reliance and ONGC – Two behemoth houses from the Oil & Gas space with varied strength and weakness and together accounts for around 20% weightage on the index. RIL is locked in a bitter court case with brother ADAG, and outcome of this case will have telling impact on RNRL, RCOM, RelPower either way. Last quarter global crude prices were on an upward spiral – which traditionally should have positive impact on bottom line of Reliance and ONGC (san subsidy burden). For the current Jan-2010 series, actually market will wait for these two results before either taking out the 5300 resistance or breaking the 5150 support. A cash disbursement of 12k crores towards subsidy burden was distributed to Oil marketing companies of which IOC is the biggest beneficiary – but this is a drop in the desert. More needs to be done by the Oil ministry and Finance ministry to stem the rot here.

 

FPO (Engineers India Ltd & NTPC) – Does not make a real finance sense why EIL should be locked in 20% circuit on Day-1 and adds another 15% on Day-2 of its FPO announcement. Fundamentally, nothing has changed in this counter to warrant such a rise – but that is market for you. Same response is missing from a much stronger NTPC which filed its FPO brochure few days back. Investors need to however be very watchful of overdoing these FPO counters. Why would you pay such a high premium in a stock where fundamentally nothing apart from a 10% or so sell by Government has happened? Say, it used to be a 90% Govt. owned company – now it is 80% owned. Operation wise and control wise it is as good or as bad as it was before – but who says market is only based on logic.

 

WPI- Interest rates and Credit Policy – Jan last week is market date with the RBI. Food grain prices have skyrocketed to an extent that people have stopped consuming essentials like Dal. Sugar has never been as bitter as it is now. Liquidity in system is high as exemplified by huge growth in consumer durables, IIP and auto sales figures. Recession at least for temporary has eased out. A CRR hike even if modest 25bps is inevitable. Even a token rate hike is not totally ruled out. Pointers for a knee jerk reaction for a Nifty correction below 5k levels.

 

Disinvestment – Govt. arm of disinvestment has indicated that something is coming in this direction – but there is no clarity on either the portfolios or the nature of disinvestment. Will there be more of FPO or getting good corporate listed remains to be seen. Here to pricing needs to be correct, because government can ill-afford a pricing faux pass as it did with NHPC.

 

Commodity Pricing – No discussion can be complete without the mention of commodity prices. Oil, aluminum, steel and cement are causing nightmares to the growth story. These are also the four pillars where neither government has complete control nor it is immune from global shocks. Realty has started to breathe again and thousand of construction projects from domestic to commercial after a year of downturn are seeing order booking – but the party can be over before it actually starts. A CRR hike along with a rate hike might be the last straw to thwart the growth story. It’s a tough line for RBI to walk this credit policy – either way. Realty will come up with decent number this quarter but whether or not the year ending on March -31 is decent as well remains to be seen.

 

Budget – Budget needs to be a “non-issue” but we all know it is not in an Indian Context. Lot of fiscal imbalance has happened and budget has to show a fiscal prudence which might signify a revisit of increasing some tax and duty namely excise, counter veiling and ad valorem. Tax holidays for evergreen industries is bound to  be revisited and subsidy burden of industries like oil and textile needs to be upgraded. Present, UPA government had the luxury of lot of surplus in previous budgets where it had the opportunity to show largess in terms of cutting taxes and duties s- which it didn’t. This time they have to more likely take the burden of cooling growth at expense of inflation control and fiscal discipline.

 

Traders and Investors –Cautioned to enter market at 5300 levels. Not that we advise to stay away from it – but wait a bit. Macro-economically, India is at a cusp which is looking over priced. Look beyond Nifty Fifty in high value deals rather than joining the bandwagon. Nifty – Fifty is more likely than not expected to be available at far less cost in near future.