The Indian markets began the week on a strong note with the country's benchmark index, the BSE-Sensex, almost touching the level of 16,000. However, by the end of the week, the index closed lower by over 3% over the previous week. In fact on a week on week basis, Indian stocks recorded their first decline in over a month. There were quite a few concerns looming over stock markets. Some of the key concerns included high valuations, unfavourable global cues, poor monsoon, and high food prices, amongst others. As for the weekly performance of global indices, most of the key Asian markets declined on a week on week basis. The pack was led by China (down 4%) followed by Singapore (down 4%) and Hong Kong (down 1%). Japan, however, managed to record a gain of 1%. On the other hand, stocks from Europe and the Americas managed to record gains during the week. Brazil led the pack with gains of 3%. France, UK, Germany and US followed suit recording weekly gains of in the range of 2% to 3%.
|Source: Yahoo Finance
Coming to the performance of sectoral indices during the week, barring stocks from the oil and gas space, selling activity was witnessed across the board. This time around, stocks from the FMCG space saw some profit booking as the BSE-FMCG index fell by 7% over the previous week. It was followed by stocks from the realty, auto and banking space. While the BSE-Realty index dropped by 6%, the BSE-Auto and BSE-Bankex dropped by 6% and 5% respectively. Smallcap stocks, however, managed to outperform their larger peers as the BSE-Smallcap Index dropped by a marginal 0.2%. The BSE-Midcap index witnessed a drop of about 3% over the previous week. Stocks from the IT and pharma space were also amongst the lower losers as the BSE-IT and BSE-Healthcare indices recorded losses of about 1% each.
Auto sales volumes for the month of July were announced during the week. Two-wheeler major Hero Honda reported a strong 30% YoY sales volume growth during the month. This higher growth has arisen mainly from the semi-urban and rural markets, where Hero Honda has wide network coverage. It may be noted that the company has managed to outperform its peer group over the past few months. To put things in perspective, its rival company, Bajaj Auto reported a 1% YoY decline in sales volumes for the month. The key reason for the same would be its focus on urban areas.
Coming to numbers of four-wheeler majors, Tata Motors reported a jump of 18% YoY in volume sales. While the company's passenger vehicle sales in the domestic market grew by 17% YoY, its CV segment saw a 27% YoY growth. Further, sales of light commercial vehicles saw an increase of 44% YoY during the month, while sales of medium and heavy commercial vehicles were up 6% YoY. On an overall basis, growth was supported by new launches, access to finance and low interest rates. However, it may be noted that the company's exports during the month plummeted by 34% YoY.
As compared to its peer group company, Ashok Leyland put up a poor performance. The company recorded a 35% YoY drop in its domestic sales during the month. While passenger vehicles witnessed a sharp decline of 48% YoY, exports fell 28% YoY. Further, the goods segment reported a 28% decline in volumes sales. However, on a sequential basis, total sales grew by 2% while exports saw a 3% increase. It is believed that the company's management has taken price hikes and is launching new models.
Moving on from news from the auto space, IT majors, TCS and Wipro, amongst others, are believed to be in the race for an outsourcing contract of up to Rs 25 bn from the Indian Railways. The railway authority plans to procure a human resources management system and other modules for integrating and automating its payroll, accounting and pension functions. The Indian Railways employs around 1.6 m people and aims to have a centralised system for the management of its staff. It is believed that organisation will spend around US$ 1.5 bn over the next two to three years for the technology and plans to have a model on a build-operate-transfer (BOT) basis. It may be noted that the Indian IT companies are vying for various projects from the government on account of the slowdown in IT spends in the developed markets.
Further, a leading business daily also reported that Infosys is pursuing around 12 to 15 deals amounting to US$ 1 bn in the current quarter on the back of a likely revival in outsourcing business momentum. In addition, it is believed that the company is also looking to acquire companies having revenues of about US$ 450 m to US$ 500 m in order to enable it to diversify its client base beyond the traditional BFSI segment and boost its growth. The company is also planning to expand into new markets like Middle East, South and Latin America, India and China so as to protect its volumes.
Movers and shakers during the week
Inflation, as measured by the wholesale price index (WPI), stayed in the red for the week-ended July 25 at -1.58% as against -1.54% in the previous week. While the primary articles index was up by 0.4%, prices of manufacturing products fell by 0.1%. Prices of fuel, power, light and lubricants remained unchanged over the previous week. Negative inflation implies that the average wholesale price level was lower during a given week, than it was in the corresponding week a year ago. The WPI based inflation was 12.53% during the corresponding week a year ago.
Coming to economic news, the past week witnessed a lot of concern with respect to poor rainfall. It is believed that monsoons in India were 64% below normal in the week ending August 5. This is the second consecutive weekly dip. It may be noted that this is a crucial period for oilseeds and sugarcane, and as such has indirectly led to high prices. Rainfall in cane-growing Uttar Pradesh was about 80% below normal, while Maharashtra, a major producer of sugar and cotton, saw about 90% shortfall. The soybean-producing central part of India got a negligible 1% of the normal rainfall.
Poor monsoons are likely to negatively impact agricultural output. Lower agricultural produce will in turn lead to higher food prices. With more than 60% of the population dependent on agriculture and allied activities for their livelihood, the Indian economy has still not decoupled a great deal from the growth in agriculture. Poor rainfall is not only expected to pinch the consumers' wallet with an increase in food prices, it will also have an adverse impact on economic growth.