Nov 7, 2009|
World markets stage a recovery
After witnessing a dreadful previous week, key markets worldwide staged a positive performance this week. India's benchmark index, BSE-Sensex, which fell by about 5.4%, last week, ended higher by about 1.6% this week. As for global markets, China led the pack of gainers (up 5.6%). This was on the back of speculation that the government will extend stimulus measures to strengthen the economic recovery. Following China were the Brazilian and US markets, recording gains of 4.7% and 3.2% respectively. France and the UK markets followed suit, ending the week higher by 2.8% and 1.9% respectively. Japan was the sole loser amongst the key markets, recording a weekly loss of 2.4%.
|Source: Yahoo Finance
Coming to the performance of BSE indices, PSUs stole the limelight this week. Recording a strong weekly gain of 4.7%, the BSE-PSU index was the top gainer. It was followed by BSE-Realty (up 4.4%) and BSE-Metal (up 4.1%). Gains in PSUs were seen on account of the Indian government firming up plans towards the divestment plans of certain PSUs (more on this below).
Amongst the major underperformers were stocks from the FMCG, IT and capital goods spaces. The BSE-FMCG index was the sole loser this week, ending lower by 1.6%. The BSE-IT and BSE-Capital Goods indices ended higher by about 1% each.
Moving on to the institutional activity this week, the foreign institutional investors (FIIs) and the mutual funds invested a total of Rs 11 bn this week (net amount). While the net investments from the FIIs stood at a figure of around Rs 7 bn, mutual funds invested a net of Rs 4 bn (not including Friday's transactions as data was not available at the time of writing).
Moving on to corporate news this week, L&T won a massive order worth Rs 70 bn from Maharashtra State Power Generation (Mahagenco) for manufacturing turbine generator units. Considering the average size of orders that the capital goods and engineering companies have been winning over the past few years, this Rs 70 bn order seems quite a large one. This comes in just a few weeks after L&T won a Rs 40 bn order from Jaypee Industries for supercritical equipments. This is a significant step for the company considering that it has been a major player and thus, had been focusing on the power transmission and distribution (T&D) side of the power sector in the past. But by the looks of it, now it seems as if the company is focusing on generation side to fuel its growth going forward. At the end of September 2009, the company's engineering and construction segment had an order backlog of Rs 799 bn.
Stocks forming part of the cement sector were not favoured by the investors this week. The key reason for the same is concerns over overcapacity. While the demand story remains intact, the fast pace of capacity expansion is what has been concerning investors. As per reports, cement prices, which started softening in select regions during the month of August this year, are expected to fall by another 10% over the next few months. The reason behind the same would be the disparity between the demand and supply. In addition, as the demand during the second half of the year is expected to be lower than in the first half, cement prices are likely to feel the pressure in the coming months. India Cements and Ambuja Cements were amongst the top losers amongst stocks forming part of the BSE 'A' group this week.
As mentioned above, gains in PSUs were seen on the back of the Indian government firming up the divestment plans for PSUs. The government announced that it would make it mandatory for at least 10% of the equity of all profit-making public sector firms to be held by the public. In addition, it also plans to list unlisted companies. However, these unlisted PSUs will need to match certain criteria such as - having a positive net worth, no accumulated losses and three consecutive years of positive bottomline figures. PSU stocks such as RCF and MMTC were amongst the top gainers this week.
Auto major, Maruti Suzuki reported strong sales numbers for the month of October. The company reported an increase in sales of 32% YoY in October. This was led by a 21% YoY growth in domestic volumes. Exports (which form a very small contribution to the overall volumes) grew at a rollicking pace of 159% YoY. The company's A3 segment took the cake this month as it grew by a robust 63% YoY. The A2 segment, from where the company gets majority of its volumes from, also performed strongly, growing by 18% YoY. Going forward, while sales of similar magnitude are not likely to be sustainable, Maruti is well positioned to achieve a strong double digit growth for the entire fiscal.
Movers and shakers during the week
|Top gainers during the week (BSE-A Group)
||462 / 115
||89 / 25
||318 / 64
||39,091 / 9,125
||1,335 / 480
|Top losers during the week (BSE-A Group)
|Indiabulls Financial Ser.
||222 / 81
||615 / 336
||179 / 79
||111 / 50
||1,440 / 596
Moving on to matters relating to the Indian economy, during the week, a leading business daily reported that bank credit growth has fallen to single digits for the first time in the last decade. Growth in credit disbursements until October grew at a poor rate of 9.7%, as against a 29.7% growth during the same time last year. While poor credit appetite amongst retail customer has been cited as the main reason, lower corporate borrowing, particularly from oil companies has been attributed as a reason for the same. This development does render the RBI's credit growth target of 18% for FY10 (revised downwards from the 20% target set earlier) as unachievable.
Coming to international news, while the world is expecting green shoots in the IT industry, particularly relating to the increase in IT spending, the CEO of the world largest IT firm, Microsoft thinks otherwise. Steve Ballmer (CEO of Microsoft) recently reiterated that the global economic slowdown has reset the world to a new once in a lifetime low. As such, he is of the belief that while growth will continue, it would be at a very slow and steady pace and not as a quick recovery. In fact, Mr. Ballmer even doubts the global IT spending to ever attain its pre-downturn peaks. However, in our eyes, the prospects of the Indian IT firms look much brighter considering that the demand for outsourcing will only be on the rise in the coming years.
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