Aug 14, 2009|
A zigzag week comes to an end
The Indian markets continued their volatile trend as alternate bouts of gains and losses were seen throughout the week. However, on a net level, India's benchmark index the BSE-Sensex ended the week higher by about 2%. Similar to last week, the market movement was driven by various factors - the drought situation, global markets and FII activity amongst others. As for global markets, gains were largely seen in stocks from the Asian region. However, the Chinese markets were the top losers, ending the week lower by about 7% as compared to the previous week. The pack of gainers was led by Singapore (up 3%), Hong Kong (up 3%) and Japan (up 2%). As the US and European markets were still trading at the time of writing, we have taken their respective closing prices as of 13th August 2009. On that basis, Brazil (up 1%), UK (up 1%) and US (up 0.3%) ended the week on a positive note.
|Source: Yahoo Finance; ^ As of 13th August 2009
Coming to the performance of sectoral indices during the week, barring stocks from the FMCG space, buying activity was witnessed across the board. Stocks from the realty space emerged as the top gainers this week. The BSE-Realty Index ended higher by about 8% over the previous week. Stocks from the metal and oil & gas space followed suit as the BSE-Metal and BSE-Oil& Gas indices ended higher by 5% and 3% respectively. Stocks from the smallcap and midcap spaces saw some action during the week as well. The BSE-Smallcap and BSE-Midcap indices ended higher by about 4% and 3% respectively. Amongst the lowest gainers were stocks from the PSU, IT and capital good sectors. While the BSE-PSU index ended higher by 1%, the BSE-IT and BSE-Capital Goods indices ended higher by about 2%.
Coming to corporate news, during the week the Society of Indian Automobile Manufacturers (SIAM) reported that automobile companies recorded a 21% YoY growth in automobile sales during the month of July. A total of 941,118 vehicles were sold during the month. This growth was largely driven by sales of cars and utility vehicles, which increased by 29% YoY while sales of two-wheelers increased by 20% YoY. On the other hand, sales of medium and heavy commercial vehicles dipped by 8% YoY. This was, however, much lower as compared to a year on year drop of around 35% since April. Few key reasons for the strong growth in passenger car segment were new product launches, drop in vehicle loan costs and a low base effect of last year. According to SIAM, all the segments would witness a smooth ride during the year. The key growth drivers will include low interest rates and new launches.
Moving on from news of the auto sector, during the week, a leading business daily reported that major biscuit manufacturers are considering price hikes and cost-cutting measures in light of the weak monsoon season. Also, the fact that high sugar prices are impacting companies cannot be ignored. The price of sugar, which is a key input for these companies, has risen by over 40% since January 2009. Sugar prices are expected to further increase on account of lower monsoons coupled with an already lower sugar production. It may be noted that sugar accounts for nearly 12% to 20% of the overall input costs of biscuit companies. According to the management of biscuit major ITC, the focus would be on greater control and cost-cutting measures, as the company would not be able to pass on the full increase in sugar prices to consumers. The price increases are likely to be in the range of 3% and 6% in the long term. In addition to high sugar prices, the price of wheat is expected to rise due to lower monsoons.
During the week, realty major, DLF bagged the metro rail project from the Haryana government for its townships in Gurgaon in consortium with IL&FS. The metro link will be called 'DLF MetroRail, Gurgaon' and is estimated to require an investment of around Rs 9 bn. DLF will hold around 26% stake in the consortium, while the balance will be held by IL&FS. The consortium has been awarded the project for a concession period of 99 years on a build and operate model. It is believed that the 'DLF MetroRail, Gurgaon' will be connected to the Delhi metro. The projected is expected to be completed in next 30 months. DLF plans to float a special purpose vehicle (SPV) for the project, which will raise around Rs 7 bn in the next 6 months. This is a rather surprising move by the company considering that it was looking to focus on housing and commercial projects and exit from non-core businesses such as wind power amongst others.
As per the provisional data issued by Ministry of Commerce and Industry, inflation as measured by the wholesale price index (WPI) has fallen sharply to a negative 1.74% for the week ended August 1. The RBI has clarified that the fall in inflation is on account of high statistical base same period last year (inflation of 12.91% P.Y) and not on account of demand contraction. The price of food article, in fact, has risen by 10.2% compared to same period last year and 0.2% compared to a week earlier, prompting government to take some measures towards supply shortages in farm products.
Moving on to economic news, during the week the Centre for Monitoring the Indian Economy (CMIE) revised its FY10 GDP growth forecast downward to 5.8% from its earlier estimate of 6.6%. The key reason for the downward forecast is the poor monsoons. As such, the agency expects crop production to fall by about 5% and the overall agriculture to decline by 2% YoY during the fiscal. It may be noted that the CMIE had earlier estimated the agriculture industry to grow by about 2%. As far as individual crops are concerned, it expects a 9.5% fall in rice production and also sugarcane to be significantly affected as the major sugarcane growing regions of Uttar Pradesh have witnessed a significant drop in monsoon showers. It may be noted that agriculture accounts for nearly 18% of India's GDP.
The IIP (Index of Industrial Production) numbers were announced earlier this week as well. As reported, India's industrial production grew by 7.8% YoY during the month of June 2009 as against a 2.2% growth recorded during the month of May. This sharp rise in June was on account of higher demand for consumer goods and increased mining activity. Output of consumer durables such as home appliances, for instance, rose by 15.5% YoY during the month.
Goldman Sachs, one of the leading financial institutions in the world, is of the view that economic gains from industrial activity (i.e., rise in industrial production) will mitigate the negative impact of poor rains. Believing that financial conditions have eased, the institution is of the belief that the same will help in lessening the impact of the agricultural sector, which has been impacted due to poor monsoons. However, we believe that the erratic monsoons could impact demand over the next few months. This is also by taking into consideration that rural demand, which accounts for more than half of India's domestic consumption, has been largely impacted in the past when monsoons have been weak. And the impact is felt on industrial production as well.
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