>1QFY10 EARNINGS PREVIEW (CLSA)

Set to ‘report’ profit growth

■ In 1Q FY10, we see 5% YoY growth in reported Sensex earnings, after two quarters of de-growth; 4QFY09 earnings decline (7%), was, however, 10ppt below our estimate as autos, banks, metals, petchem and telecoms surprised positively.

■ However, 1Q profits will benefit from a Rs30bn swing in FX related income/expense due to 6% rupee appreciation and change in accounting norm.

■ Adjusting for this and other exceptionals (including Rs10bn capital gains booked by L&T), profits will actually decline 10%YoY.

■ For the CLSA Universe as a whole, inventory gains for oil companies will support overall profit growth of 7%YoY; ex oil & gas, profits will fall 1%YoY.

■ At the company level, we see significant volatility; while 16/74 companies will report >40% growth, 17/74 will see >40% decline.

■ 10/14 sectors will report growth, led by Capital goods (+145%), Oil & gas (+55%), Banks (+28%) and Power (+21%). On the other hand, Property (-66%), Metals (-56%) and autos (-2%) are expected to report YoY decline in profit.

■ At the company level, we see a marginal rise in the number of profit increases – to 68% of coverage universe, from 61% in 4Q.

■ Overall sales growth will continue to slide (-6%YoY, vs -0.2% in 4Q) reflecting weak commodity prices and low sales for property companies.

■ Ebitda margin for the CLSA Univ. ex-oil & gas will fall 187bps YoY, 38bps QoQ, although domestic cyclicals like autos (+141bps), cement (+242bps) and the consumer sector (+184bps) will report margin expansion.

■ However, the extent of ebitda margin squeeze (302bps in 4Q) is clearly reducing.

■ Other income growth is likely to remain steady, but interest costs could see some pick-up, especially in the petchem and autos sectors.

■ We see a meaningful pick-up in earnings from 3Q, as the domestic recovery gathers momentum and the low base too comes into effect.

■ A ‘normal’ budget could trigger a market correction, given high expectations. We would see this as entry opportunities in plays on a 2H investment cycle upturn – banks, capital goods - as well as consumer staples.

To see full report: 1QFY10 EARNINGS PREVIEW

>Gold steady in Asia; still looks vulnerable

Singapore - Gold was slightly higher in a quiet Asian session but traders don't see much incentive to get involved in the short term.

The yellow metal is likely to continue to struggle through the seasonally slow July and August period with lack of consensus on the economic outlook reducing investor interest, said Darren Heathcote, head of trading at Investec in Sydney.

"It's a difficult time for gold at the moment," he said. "I think the next few pieces of U.S. data are key to the market making a decision about where we are on economic growth."

Heathcote said positive data would help equities and undermine the dollar, indirectly supporting gold, with forex market movements still far and away the dominant influence on precious metals.

At 0640 GMT spot gold was at $912.80 a troy ounce, up 50 cents but off its intraday high, responding to a slight weakening in the euro against the dollar. Tocom June 2010 gold was at Y2,737 a gram, down Y8. Spot silver was at $12.83/oz, up 1 cent.

Mitsui Global Precious Metals said in a note that silver didn't enjoy anything like gold's Thursday bounce and was technically still biased downward.

"The chart is pointing the market back to $12, which will provide some fantastic opportunities for industrial users," it said.

Platinum was looking stronger, sustaining itself above the $1,100/oz level with supply-side issues coming to the fore in South Africa, and accelerating auto sales data from China both proving supportive.

Spot platinum was at $1,107/oz, up $1, while Tocom June 2010 platinum finally found some support, rising Y11 to Y3,318/gram.

Spot gold eases on stronger dollar, weak oil

London - Spot gold eased Friday in a sluggish session as the metal tracked the dollar and lower crude oil prices.

Traders said volumes were extremely thin and investors and physical consumers were showing little trading interest. Most said they expected further range-trading in the short term.

At 1041 GMT, spot gold was trading at USD909.20 a troy ounce, down 0.25% on the day. Spot silver fell 1.6% to USD12.617/oz.

Spot platinum was down 0.7% at USD1,097/ton, while spot palladium edged 0.2% higher to USD233.50/oz.

"No one's doing any business," said a spot gold trader in London.

Gold has been caught up in the selloff of equities and other risk assets in the past week. Disappointing economic data have underlined concerns that the global economy may take longer to emerge from recession than markets had been pricing in.

"A lack of confidence in the underlying economy, I think that's what's undermined things this week," said Tom Kendall, a precious metals analyst at Mitsubishi Corp. in London.

While gold is often bought as a safe haven, the metal is unlikely to perform well when growth is poor and consumer spending declines unless there is a flight to safety at the same time, analysts said.

That isn't happening at the moment because the market doesn't appear to be worried about insolvencies at large banks and other financial institutions, said the London-based trader.

The threat of inflation, which buoyed gold in recent months, has also receded. "There's no evidence inflation is anywhere," said the London-based trader.

Platinum and palladium are similarly being pressured by this week's risk selloff, and may drop further in the short term, said Kendall.

The summer months are normally a period of slack demand and Chinese imports have dropped in recent weeks, putting further pressure on platinum, he said.

"I think we could drop another $50 to $100 before we find a bottom."

India gold futures dn 0.3% on INR strength

Singapore - India August MCX gold contract down 0.3% at INR14,445/10 grams as INR extends gains; overseas spot gold nearly unchanged. Investment in gold has remained sluggish in past few days, says Debjyoti Chatterjee of Admisi Commodities; tips contract in INR14,390-INR14,560 range today; adds, to watch U.S. trade prices for further cues.

Source: COMMODITIESCONTROL

>India's sugar output may be hampered, support price .

London - India's sugar output during 2009-10 could be more sluggish than previously expected, and that will support prices in the coming months, the International Sugar Organization said in its monthly report published Friday.

The ISO said it would also mean the country will need to import larger quantities of sugar, reinforcing the groups' forecast for a world deficit.

The ISO forecasts world sugar production to fall short of consumption by between 3 million and 4 million metric tons in 2009-10.

A lower than anticipated recovery in India's sugar output during 2009-10 would further reinforce the ISO's view that the world sugar balance will be in deficit for one more season, the monthly report said. It would also keep the country "firmly in the league of the world's top importers," it said.

"Should poor monsoons materialize, world market prices for sugar will remain supported over the coming months, despite an imminent string of record export volumes emerging from Brazil between now and the end of its Centre-South harvest expected for December," the ISO said.

India's production in 2008-09 fell by 44.5% relative to 2007-08 to 14.7 million tons. Hopes that output rebounds may be dashed by weather predictions of an El Nino pattern forming this year, the ISO said.

"An El Nino weather anomaly in the equatorial Pacific Ocean may lead to a significant weakening of the annual Indian monsoon rains, negatively impacting output growth in the country," the ISO said.

Source: COMMODITIESCONTROL

>Crude recovers; psychological support at USD60/bbl

Singapore - Crude oil futures recovered in Asia Thursday as the market found support near the psychologically important $60-a-barrel mark after falling for six straight sessions.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in August traded at USD60.73 a barrel at 0709 GMT, up 59 cents in the Globex electronic session. August Brent crude on London's ICE Futures exchange rose 60 cents to USD61.03 a barrel.

"When you have falls like what you saw recently, there will be a point when people come (to a stop)," said Ben Westmore, a commodities economist with National Australia Bank Ltd.

"If oil drops below $60 a barrel, we may see buyers coming in simply on speculation."

Calculated from Wednesday's settlement, oil has dropped 16% since June 29, under pressure from the growing oversupply of fuels and a string of negative economic indicators.

According to latest data from the U.S. Department of Energy, distillate stocks rose by 3.7 million barrels, nearly double the expected increase of 1.9 million barrels, while gasoline stocks rose by 1.9 million barrels compared with a forecast gain of 900,000 barrels.

The International Monetary Fund's latest report said the world economy is set to contract by 1.4% this year compared with its April forecast of a decline of 1.3%. The IMF expects growth to improve in 2010.

Still, Nymex crude futures may consolidate for now, Dow Jones technical analysis shows, after falling to 6-week low of $60.01 overnight, even amid the persistent bearish economic outlook.

Daily continuation chart has a negative bias with MACD, stochastics in bearish mode, but hourly stochastic has turned bullish in oversold territory, suggesting that an intraday correction, leading to a rebound, is likely.

Unless there is fresh bearish fundamental news, sentiment now seems to favor a technical correction, Westmore said.

Nymex reformulated gasoline blendstock for August - the benchmark gasoline contract - rose 207 points to 165.40 cents a gallon, while August heating oil traded at 155.44 cents, 165 points higher.

ICE gasoil for July changed hands at $492.00 a metric ton, up $3.50 from Wednesday's settlement.

Source: COMMODITIESCONTROL