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Indian equities may open flat to slightly down yesterday tracking weak overseas markets, but the downside is likely to be limited amid caution ahead of the release of India's November headline inflation data. A series of decisions by the Cabinet late Thursday, including approval of the land acquisition bill, may support investor sentiment but are unlikely to provide a significant or sustainable boost to the market. On the global front, US and Asian markets declined noting the lack of progress by US leaders on reaching an agreement on a debt reduction deal and Japan's weak tankan survey, which reflected increasingly negative business sentiment in Oct-Dec.
Back home, India's annual inflation rate based on the Wholesale Price Index, to be released yesterday, will set the tone for the Reserve Bank of India's mid-quarter policy review next week. The November inflation rate is likely to rise to 7.6% in November from a nine-month low of 7.45% in October. The market ended down on profit booking on Thursday due to caution ahead of the crucial data. On Thursday, the National Stock Exchange's 50-share Nifty ended at 5851.50, down 36.50 points, or 0.6% from Wednesday. The BSE's 30-stock Sensex closed at 19229.26, down 126.00 points, or 0.6%. If inflation data is lower-than-expected, it could give a boost to the indices but market players are sceptical about the gains sustaining. Most believe 5900-5950 will act as the immediate resistance zone for the Nifty.
In case inflation is higher than estimated, the Nifty could test its support of 5800. Investors will also keep an eye on European Union leaders' two-day summit on economic and monetary union in Brussels, which began on Thursday. Among stocks, stocks of telecommunication companies are seen rising as the Union Cabinet on Thursday approved a 30% lower base price for the auction of 1,800 MHz spectrum in four circles that had not received bids in November's exercise due to a high reserve price. Fertiliser stocks may also get a boost after the Cabinet approved the new urea investment policy to incentivise capacity addition in the country. Punjab National Bank, Canara Bank, and Bank of Baroda may find their stocks under pressure as Moody's cut their deposit and issuer ratings outlook to "negative" from "stable" on increased risk from arising from asset quality. Profit booking may persist in ACC and Ambuja Cements, but we believe the downside may be limited. Note that the companies already pay 0.6%-0.7% of sales to Holcim Group and the additional royalty would affect the EPS (earnings per share) incrementally only by 2-3% for both the companies.
The two stocks had risen nearly 2% intraday Thursday on a report that Holcim planned to increase royalty to 1% of sales instead of the planned 2%, but erased gains to end down around 1.8% each on profit booking. ITC may slip further to 280-282 rupees after its weight on the FTSE Global Equity Index Series was drastically cut to 24% from 75% earlier. Weakness may also persist in Hindustan Unilever due to continued concern its royalty payment to UK-based parent Unilever may increase as media reports said Unilever's Indonesian arm had agreed to pay higher royalty.
