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BRICs gain as others falter

Jun 27, 2009

Asian markets gained this week, led by stocks from the consumer goods, technology and financial sectors. This was seemingly on the back of a general optimism that the global economy is witnessing a rebound after last few quarters of extreme credit crunch that tipped the world's largest economies into recession. While the situation there - in developed economies like the US, the UK, Europe, and Japan - remains grim as consumer spending shows no sign of improving, government stimulus is likely showing some impact in the emerging markets of Asia. This week saw the key indices of Hong Kong, India, and China lead the pack of gainers while those in the US, UK, and France saw signs of weakness.

Source: Yahoo Finance

The interesting fact is that, although the prospects of emerging markets look very promising in the long term, these economies (including India's) remain very precarious and it's difficult to see how they hey are going to quickly fill this hole that has been created by the collapse in exports and weakness in domestic demand.

Coming to Indian markets, except on Monday and Friday, trading was mostly lackluster throughout the week. Stocks from the capital gods sector, after last week's drubbing, were again in the limelight this week. The BSE-Capital Goods index soared almost 7% during the week, led by gains in stocks like Punj Lloyd, Suzlon and Voltas. Metal and auto stocks led the losers pack among BSE's sectoral indices. Continued weakness in commodity prices was the reason for the fall in the former. Weakness in Tata Steel on the back of poor FY09 results also hurt sentiment towards the sector's stocks.

Source: BSE

The biggest news of the week came on Thursday, when Nandan Nilekani, the co-Chairman of India's second largest and among the most respected companies, Infosys quit from the company's board. This was after he was called by Prime Minister Dr. Manmohan Singh himself to lead the Unique Identification Authority of India, an estimated Rs 20 bn national project to build India's database of her billion-plus population.

This database will comprise a unique permanent identity number assigned to every resident Indian, and will be created over the next 12 to 18 months. The biggest benefit for us citizens will be that we then won't have to produce multiple proofs of identity, while the country is expected to become more secure.

Overall, in a country where corporate chieftains have never played any key in the governance (despite many being part of the government), Nilekani's appointment is like a breath of fresh air. It also is a hope that the country's governance will see a change for the better. As for Infosys, we need to hear what the management has to say when it comes in front of investors with the company's quarterly results in the second week of July.

Movers and shakers during the week
Company 19-Jun-09 26-Jun-09 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
IVRCL Infra 300 378 26.0% 370 / 57
REI Agro 64 75 17.9% 145 / 36
Apollo Hospitals 513 603 17.6% 570 / 350
Torrent Power 145 169 16.3% 170 / 50
Educomp Solutions 3,076 3,535 14.9% 4,015/1,331
Top losers during the week (BSE-A Group)
Sun Pharma 1,314 1,140 -13.2% 1,540 / 953
Nalco 352 309 -12.3% 450 / 108
Ranbaxy 280 255 -8.9% 557 / 133
Bharat Forge 166 152 -8.5% 276 / 69
Bajaj Holdings 391 363 -7.1% 525 / 210
Source: Equitymaster

The week also saw the two Tata Group behemoths - Tata Steel and Tata Motors - announce their FY09 results. And to say the least, their performance was nothing to be cheerful about. As for Tata Steel, the expectations were already muted what with recession gripping Corus, its overseas subsidiary. Although the company is not going through the best of times, the indication we got from the management is that it is leaving no stone unturned in trying to ensure quick recovery. A large part of it will of course depend on how the European economy shapes up. We are not unduly worried though. The company has enough firepower to ride out the current patch of turbulence. And thus, over the long term, we might have a potential winner on our hands.

Coming to Tata Motors, the gravity of the situation can be gauged from the fact that FY09 saw the company recording its first annual loss in 8 years. And the situation does not seem improving given that the company has announced more job cuts and plant closures at its overseas subsidiaries, Jaguar and Land Rover (JLR). As Ravi Kant, the company's vice chairman has said, "Although domestic demand has started showing signs of revival since January, it is too early to call it a recovery. However medium and heavy commercial vehicle sales continue to be weak." Tata Motors had last posted a loss in FY01, when it experienced a similar demand slump for trucks and its newly launched car 'Indica'.

The IPO of Mahindra Holidays opened this Tuesday to a lackluster response. The fact that the issue was priced at a significant premium to the company's real worth seemingly made applicants nervous. However, when the issue closed yesterday, it had managed to clock in an over-subscription of around 10 times. This was largely due to an oversubscription of 10 times for the portion reserved large and institutional investors. The retail investor portion saw an oversubscription of just around 3 times.

The world economy is expected to contract 2.9% this year as per the World Bank. This is much higher than its March forecast of 1.7% decline, thereby adding to the overall concerns for global investors. Further, the bank has also revised downwards its 2010 global growth forecast to 2%, down from its earlier prediction of 2.3%.

As for India, the fiscal deficit situation remains grim and therefore casts a dark shadow over the country's growth over the next couple of years at least. And as the Indian government plans to raise a record US$ 74 bn to plug this deficit gap, international investors are highly reluctant to fund any of this. In fact, an international bond fund manager recently said, "Indian bonds are surrounded by deep fundamental risks like the deficit, inflation and the huge supply. There's no reason for us to have them in our portfolio."

Thoughts like these could put a spoke in the wheel of the government's reform bandwagon. But then, we believe that these investors are thinking on the right lines. After all, like a company having strained balance sheet is shunned by investors, this can also apply to countries in general. We hope both the PM and the FM are keeping a close tab on this!

P.S.: We have initiated a new series directed to women investors. The series is titled - Women's Weekly - and will be a conduit through which we will provide our views and recommendations on how should women go about managing their finances and invest for a better financial future. Do share it with your friends and family members! Click here to read the second article of this series.

Women readers, you can also take our poll, the Money Mojo, to gauge your economic insight and share your experiences with us!

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