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Global markets gather steam 
(Sat, 23 Aug RoundUp) 
The global markets maintained the robust momentum and closed the week on a firm note amid easing concerns over the situation in Ukraine and a fresh bout of merger and acquisition activity in the US discount retail sector. A flurry of positive economic data and the likelihood of no interest-rate hikes have sent positive signals across U.S. and global markets. However, the U.S. Federal Reserve remains concerned over the geo-political tensions and the not so strong unemployment data. Hence, the investors have remained skeptical of the sustainability of the market gains. The U.S. markets were up by 2.1% for the week gone by.

The positive German data supported the European stock rally. Better than expected German private sector growth subsided the concerns about the economy due to Ukraine-related issues. However, the fear over euro zone slipping toward deflation continues to haunt. Nonetheless, the positive signals across global markets and the dovish stance by U.S. Federal Reserve helped boost the European indices and most of them closed the week on a strong note.

However, towards the weekend, with the escalation of tensions over Ukraine, the global markets appeared to be weaker.

Asian markets traded mixed for the week gone by; however, most of them have closed on a positive note. Soft economic data from the U.S. and the delay of the Federal Reserve's stimulus package lifted the Asian markets. While China closed higher by 1.6%, Japan was 1.5% up. Back home Indian markets too closed the week on an encouraging note. Thanks to the global market rally and upbeat U.S. and German data that helped boost heavyweight technology stocks that in turn drove the Indian markets. Moreover, positive comments from the Finance ministry over the implementation of reformist measures raised the optimism further.

Key world markets during the week
Source: Yahoo Finance

Barring realty stocks most sectoral indices in the Indian markets ended the week on a positive note. Auto (up 5.2%), pharma (up 3.6%) and oil and gas (up 3.2%) were the top gainers this week.

BSE indices during the week
Source: BSE
Now let us discuss some of the economic developments of the week gone by.

As reported by the Hindu Business Line, the financial health of the country's iron and steel sector is improving as demand has been inching towards the installed capacity of the industry. It is believed that in the first four months of this financial year, the demand supply situation shifted in favour of the former. Domestic consumption and export volumes stood at 27.6 m as compared to 27.4 m of production volumes; led by larger disposal of inventory of previous months. The same is reflected in the form of higher realizations for steel makers, leading to better profitability. The trend is expected to continue on the back of the key prices of input costs (coking coal) remaining subdued.

In some good news on the policy front, the government seems to moving forward to implement the long delayed Goods and Services Tax (GST). The process of consultation between the centre and the states has moved forward as per a leading financial daily. An agreement has been reached regarding the detailed structure of the taxes that the GST will replace. This was a key stumbling block which has now been resolved. The remaining differences now pertain to the compensation to the states that has yet to be worked out and some legal issues. These are also expected to be resolved over the next few months. The GST will replace service tax, excise duty, central sales tax, state VAT and several local taxes. It will go a long way to remove barriers to movement of goods and services across states and will turn the country into a single market.

As per a leading business daily, the government plans to conduct a restructuring exercise that will, among other things, transfer all the thermal power projects of state run hydropower companies to National Thermal Power Corporation (NTPC). This will be the result of a move to consolidate all government hydropower companies into one large entity. This would mean a transfer of 4,600 MW of thermal plants controlled by hydro firms to NTPC. The latter would in turn transfer 1,400 MW of its own hydropower plants to the new hydropower behemoth.

The government has decided to increase the import duty on sugar from 15% to 25% in order to protect the domestic producers. It may be noted that the domestic producers owe about Rs 150 bn to farmers and were demanding a duty of 40%. While the increase is less than anticipated it is likely to help the producers in a big way as dumping from foreign markets will no longer be feasible now. Until now excessive imports were hurting domestic producers. With the levy being increased the financial health of the domestic producers is likely to improve and they will be in a better position to repay their dues to the farmers

Movers and shakers during the week
Company18-Aug-1422-Aug-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Bayer Cropscience2,2292,56315.0%2658/1378
TTK Prestige3,9204,39012.0%4490/2700
The Indian Hotels819010.9%112/40
Union Bank19922110.7%260/97
Core Education121310.5%28/11
Top losers during the week (BSE-A Group)
Bhushan Steel153124-18.5%504/124
Jaiprakash Associates5552-6.2%90/30
HDFC1,1131,045-6.1%1150/632
Lanco Infratech99-6.0%15/5
Jaiprakash Power1716-5.6%27/11
Source: Equitymaster

Now let us move on to some corporate developments in India Inc.

As per a leading financial daily, two wheeler maker Bajaj Auto has finally reached a wage agreement with its Chakan plant unions. As per the revised wage agreement, the company's management has agreed to hike wages by up to Rs 10,000 per month. As such, permanent employees who have been with the company for five or more years will get a wage hike of Rs 10,000 a month while those who have spent three years or more will be given a hike of Rs 9,500 a month. It must be noted that the agreement has been reached after months of negotiations and intermittent labour unrest that affected production.

With economy picking up growth and purchasing power being on the rise, car loan books of most retail lenders like State Bank of India (SBI), ICICI Bank, Axis Bank and HDFC Bank are increasing. It may be noted that car sales grew for the third straight month in July this fiscal. This growth has come in after a lull of almost two years. The primary reason for rising car sales is the extension of excise duty benefit by the new government until December. It may be noted that SBI has the largest car loan portfolio of about Rs 282 bn followed by ICICI Bank which has a portfolio of about Rs 278 bn. As such, these banks are expected to be biggest beneficiaries.

Kolkata based cigarettes and hotel major ITC has forayed in to e-cigarettes with a launch of two electronic-cigarettes under the Eon brand. ITC has launched the E-cigarettes in Hyderabad and Kolkata which will be rolled out on a pan India basis in phases. The product has been designed in-house but is being manufactured in China. The move is as per the company's endeavor to offset the shrinking sales of its conventional tobacco cigarettes on account of continuous price increase. Unlike the conventional tobacco cigarettes, electronic one release vapor that does not contain tar when a nicotine-laced liquid is heated. Being tobacco-free such products are not subject to regulations of Cigarettes and Tobacco Products Act.

As per a leading financial daily, commercial vehicle manufacturer Ashok Leyland has raised Rs 2.1 bn from sale of a 1-acre property in Chennai posh Boat Club area, which is one of the most expensive residential addresses in the city. The proceeds of the transaction have been fully received by the company. The move is a part of company's strategy to sell non-core assets with an aim to cut debt. In 2013, the company had mobilized around Rs 6 bn by selling its non-core assets including some of its real estate assets.

As per a leading financial daily, Dr Reddy's one of the leading generic player in the US market has come under department of justice (DOJ) of USA. As per the DOJ, the company seems to have violated some provisions pertaining to packaging of drugs. Reportedly, the violations pertain to some provisions of consumer product safety act (CPSA) involving child resistant packaging regulations. However, the company has denied these allegations. In May 2012, Consumer product safety commission (CPSC) had requested some information regarding special packaging on some drugs and the company had provided with the required information. Recently in April 2014, CPSC has sent a letter to the company saying that the company has violated the CPSA and the Poison Prevention Packaging Act (PPPA) and thus seeks civil penalties from the company.

Cairn India has been given the permission to raise the crude oil production from the Rajasthan block by 50% to 300,000 barrels per day. Currently, the production stands at 200,000 barrels per day. It may be noted that the Rajasthan oil block has resource potential of 7.3 bn barrels of oil equivalent. And the estimated cost of the project is Rs 160 bn. Subsequent to getting the environmental approval the stock jumped and touched intra high of Rs 329 today. Getting the nod from ministry of environment was taken positively by the street as it shall help increase the production.

India's third largest private sector lender Axis Bank has proposed to raise Rs 60 bn from bonds for funding its business growth. In a filing with the BSE, the bank has said that the board has approved issuance of long term bonds or non-convertible debentures up to Rs 60 bn on a private placement basis. As per the provisions of Companies Act, the bank will seek the approval of its shareholders is proposed to be obtained by way of Postal Ballot. During the quarter ended June 2014, the company's interest income and net profit grew by 13.9% YoY and 18.3% YoY respectively.

As per a leading financial daily, US department of justice (DoJ) might impose penalty of Rs 2.4 bn on Ranbaxy Laboratories. The said penalty is for violations at its Toansa facility. This facility received import ban in Jan 2014. Reportedly, the specific details of the fine are still awaited. In May 2013, US authorities had imposed penalty worth US$ 500 m due to manufacturing slippages and subsequent import ban on its two formulations facility. Recently Sun Pharma and Ranbaxy had entered into a merger agreement. The transaction is expected to close by December 2014. Post acquisition, Sun Pharma will focus on making all the facilities USFDA compliant.

As per a leading business daily Tata Motors, which is keen to establish itself as a global manufacturer, has been hit by quality related issues of its products. The company plans to redeem its image with the assistance of UK luxury car maker Jaguar and Land Rover (JLR). Tata Motor has approved to develop two global sports utility vehicles (SUVs) with aid from JLR. The two cars are expected to be introduced in 2017 and will be positioned in a premium category having a price range of Rs 16 to Rs 25 lakhs in India. It may be noted that Tata Motors has been exploring synergies with JLR for sharing platforms. But that had been rendered unviable due to costs and positioning problems. However, this move seems that Tata Motors has made sufficient development to optimize and share infrastructure.

Let's talk about a quarterly result released during the week.

Cipla Ltd has announced its June 2014 results. Net sales grew by 13.6% YoY during the quarter. The growth was led by good performance in its domestic and export formulations. Export API declined marginally during the quarter. The operating profits during the quarter declined by 21.4% YoY due to non-recurring income and sharp increase in employee costs. Subsequently even profits were down by 39.3% YoY for the period.

Going ahead, the positive developments with regards to the macroeconomic environment and the geopolitical concerns globally will decide the market momentum for domestic markets. Global markets may continue to oscillate with mix of good and bad news over the Ukraine crisis and the positive economic data. However, investors should not be carried away by these short term gyrations but rather focus on investing in companies with sound fundamentals.
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