FIIs shop in India this week - Views on News from Equitymaster

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FIIs shop in India this week

Sep 19, 2009

Recording their consecutive weekly gain, the Indian markets were one of the top gainers amongst key markets worldwide. The benchmark index BSE-Sensex ended the week higher by around 2.9%. Lesser worries about the shortfall of monsoon and high FII inflows (net investment of Rs 53 bn during the week) are believed to be the key reasons for the same. In fact, the net FII inflow on Friday i.e. September 18 itself stood at about Rs 27 bn. As far as global markets are concerned, most of the Asian markets ended the week lower, while the Americas and Europe recorded gains. Leading the pack of gainers was Brazil, which recorded a gain of 4%. UK, France and US followed suit recording gains of 3%, 2.5% and 2.2% respectively. Singapore, China and Japan ended the week on a negative note, down by about 1% each.

Source: Yahoo Finance

Coming to the performance of sectoral indices in India, barring stocks from the oil & gas space, buying activity was witnessed across sectors. The pack of gainers was led by auto stocks, with the BSE-Auto Index ending higher by about 8%. It was followed by stocks forming part of the metal and IT sectors. While the BSE-Metal Index ended higher by 7%, the BSE-IT Index ended higher by 4%. Amongst the lowest gainers during the week, were the BSE-FMCG, BSE-PSU and BSE-Healthcare indices which ended lower within a range of 1% to 2%. The BSE-Oil & Gas Index ended the week lower by 1.5%. However, during the previous week, this index ended higher by about 5%.

Source: BSE

Coming to corporate news, during the week a leading business daily reported that GSK Plc, the parent company of GSK Pharmacueticals is in talks with Indian pharma major Dr.Reddy's for acquiring a 5% stake in the latter. The size of the deal is likely to be pegged at US$ 150 m and could be inked in two months. As per the terms of the deal GSK Plc may acquire fresh shares of Dr.Reddy's which will impact the promoters shareholding marginally. In addition, it may reserve the right of first refusal should the promoters decide to sell their stake in the future. It must be noted that both these companies had entered into an agreement earlier this year for marketing branded generics in the emerging markets leveraging on GSK's brand and Dr.Reddy's marketing and distribution network. This development also highlights the increasing interest of global innovators in generics given that their research pipelines are drying up and that the generics market is growing at a faster rate than the overall pharma market.

The stock of textile major Raymond ended the week higher by about 24%. This was mainly on account of the company's plan to foray into the business of real estate development. Initially, the company plans to use 15 to 20 acres of its land in Thane to develop affordable housing. It will evaluate its future plans based on the response to the project. It may be noted that quite a few textile companies in India have forayed into the real estate sector. The reason behind the same has been on account of these firms shifting their facilities from bigger cities and towns to interiors (low cost destinations) over time. Textile majors such as Bombay Dyeing, Century Textiles and Alok Industries all have a presence in the real estate sector now. However, the main concern here for Raymond is of it entering an unrelated business which has its own share of risks and concerns.

During the week, a leading business daily reported that India's largest CV manufacturer, Tata Motors is looking to de-leverage its balance sheet and bring its debt to equity ratio to a more reasonable level. It is believed that the auto company is looking to raise a little over US$ 400 m (approximately Rs 20 bn) through GDRs. In fact, Tata Motors is believed to be in talks with a few merchant bankers to do the needful this month itself. The debt level on Tata Motors' books reached a high level after it took a US$ 3.2 bn loan to acquire Jaguar Land Rover. As such, this GDR fund raising plan is aimed at lowering the pressure on its balance sheet to a certain extent. However, it is likely that the current round of funding may not suffice and that it may have to resort to either stake sale in subsidiaries or further fund raising or both to make its balance sheet healthier.

Moving on to news from the telecom sector, the multi-billion dollar tie-up between MTN and Bharti Airtel is likely to face another hurdle over the next few days. As per a leading business daily, South Africa's labour federation COSATU is trying to halt the tie-up between the two telecom majors. On the flip side, it is believed that the treasury wants a deal. The key reason why this federation is putting pressure on the government for not allowing this transaction is the fear of job losses.

Movers and shakers during the week
Company11-Sep-0918-Sep-09Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Bharat Forge213 287 34.9%294 / 69
Jet Airways257 319 23.8%475 / 115
P&G Hygiene1,194 1,405 17.6%1,446 / 650
Indian Overseas Bank95 111 17.0%118 / 38
HCC109 127 16.4%132 / 29
Top losers during the week (BSE-A Group)
GVK Power & Infra50 46 -7.6%51 / 10
Bosch4,256 4,029 -5.3%4,400 / 2,675
Indiabulls Fin. Serv.196 187 -4.8%226 / 78
Apollo Hospitals578 550 -4.7%625 / 350
United Phosphorus169 164 -3.1%186 / 65
Source: Equitymaster

India's wholesale price index (WPI) came in a tad below the zero mark in the year to September 5 at 0.08%. This was little changed from the previous week's fall of 0.12%. In fact, the general consensus is that the figure is likely to turn positive in the coming weeks. This is not very surprising considering that crude prices have rebounded from their lows and that deficient monsoons have hampered crop production thereby inflating food prices. The food articles index rose 14.8% in the year to August 29 and the CPI over the last year has stayed stubbornly high. It may be noted that the RBI has revised its WPI forecast for the end of FY10 to 6% from 5% predicted in July. If that turns out to be true, the likelihood of RBI putting the brakes on its expansionary monetary policy cannot be ruled out.

Deficient monsoons this season has lowered crop production in the country as a result of which food prices have been escalating upwards. It is obvious that the government has a tough task on its hands since raising interest rates may further hamper growth of the Indian economy which has already been impacted by the global recession and poor monsoons.


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