The past week was a mixed one for global stock markets. While most of the world's markets ended the week in the green, all markets in Europe closed the week in the red. Expectations of improved corporate earnings in the developed markets offset concerns over sovereign debt crisis in the Europe and China's anti-inflation measures. The biggest gainer of the week was India (up 2.2%) while the biggest loser was France (down 2.5%). The BSE-Sensex gained 2.2% during the week and rounded off 2010 with gains of 17% for the whole year. In Asia, barring China (down 1%) all markets closed in the positive territory. In Europe, UK and Germany were down 1.8% and 2% respectively, while the US closed the week with a marginal gain.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India - barring stocks from the energy sector, all stocks closed the week in the positive. Pressure was seen on oil & gas stocks due to the uncertainty surrounding deregulation of fuel prices. Due to this BSE-Oil & Gas index closed the week down 0.3%. The best performing index of the week was BSE-Consumer Durable with a gain of 4.1%.
Smallcap stocks were also in favour this week with the BSE-Smallcap index gaining 3.4%. BSE-Realty (up 3.3%), BSE-Banking (up 2.8%) and BSE-FMCG (up 2.8%) indices made up the remaining top five performers of the week. Amongst the worst performing indices, BSE-Capital Goods and BSE-PSU indices gained 1.4% each while BSE-Power and BSE-Metals indices gained 1.9% each.
Moving on to key corporate developments during the week - The
auto sector has been performing well. In recent months it got a further boost, buoyed by the festival season and people's willingness to spend. Encouraged by strong demand, auto manufacturers have been launching models across different categories. While this is expected to lead to a further volume growth, we expect the margins of auto manufacturers to be impacted. This is due to the fact that auto manufacturers are spending heavily on branding building. During the past six months, advertisement spending by auto manufacturers has increased by 20% YoY. In fact the market leader, Maruti Suzuki has increased its advertisement budget by 30% YoY for the month of December. In may be noted that margins of auto companies are already under pressure due to higher input costs.
In other news from Maruti, the company to take advantage of the strong demand and to regain its lost market share is planning to launch seven models over the next 2-3 years. It may be noted that since the arrival of new players Maruti's market share has fallen from 52% last year to about 44% as of now. One of the reasons for the loss of market share is that the company has been facing capacity constraints. This resulted in prolonged delivery schedules for some models and a dormant small car portfolio. To rectify the situation, the company has taken a decision to start its two greenfield production lines in Manesar ahead of schedule. This is expected to ease capacity constraints and provide some cushion on a temporary basis. Moreover, Maruti is exploring various options like expanding in other segments such as sedans, utility vehicles and SUVs so as to tide off competition.
In news from the Pharma space, Sun Pharma has stated that it plans to expand the research facility of its subsidiary Taro. The company recently won a lawsuit after three years of legal battle which allowed it to acquire Taro. During this period Sun Pharma was not able to invest in its subsidiary. But this is now going to change. However, Sun Pharma has not given out any specific amount which it plans to invest. Taro spends about 10% of revenue or US$ 35 m on research and development. This number is likely to rise. Sun Pharma expects to spend around US$ 100 m a year over the next couple of years on expansion of its Indian manufacturing capacity.
Sun Pharma during the week also received tentative approval from USFDA for an Abbreviated New Drug Application (ANDA). This is a generic version of Boniva, Ibandronate Sodium Injection, 1 mg(base)/ml, packaged in 3 ml Single-dose Vials. Annual sale in US for this is approximately US$ 70 m. Ibandronate Sodium Injection is indicated in the treatment of osteoporosis in postmenopausal women.
In news from the power sector, NTPC will be taking over 3,000 odd acres of vacant land from Patratu Thermal Power Station (PTPS) in Jharkhand. The company plans to set up 1,320 mw of thermal power generation capacity at an investment of Rs 66 bn on this land. It may be noted that earlier, NTPC wanted to take over the entire power station along with the land and existing thermal generation units from Jharkhand State Electricity Board (JSEB). But now the vacant land at PTPS will be transferred to NTPC on which the new generation units will be built through a JV. NTPC will take a 74% stake in the proposed company while JSEB will hold 26% in lieu of land at PTPS.
NTPC had earlier helped JSEB in renovation and modernizing the PTPS plant. But the generation dwindled. Subsequently, JSEB wanted to strike a deal with NTPC for jointly running the plant. But the power major did not agree to the proposal and wanted to take over the plant. However, this time they faced opposition from the employees of the plant who did not agree to the proposal.
In economic news,
food inflation for the week ended December 18 touched a 10-month high of 14.4% as vegetables, particularly onion prices, soared. This sharp rise was in spite of a high statistical base last year. While last year shortages were fuelled by the supply constraints due to drought, this time perishables like vegetables, fruits, milk, fish, meat and eggs have accelerated inflation coupled with rise in fuel prices. Fuel inflation also registered a rise to 11.6% during the week from 10.7% in the previous week primarily due to petrol price hike of Rs 3 per litre from December 15. With the consistent increase in food inflation, the RBI will be under pressure to raise key policy rates.
In another development relating to broader economic data, India's fiscal deficit for the first 8 months of FY11 came in at 48.9% of the full-year target. Proceeds from the government's disinvestment plans and telecom auctions seem to have helped keep the deficit number within the estimated levels. It may be noted that in February 2010, the government had forecast a fiscal deficit of 5.5% of GDP for FY11. Having said that, going forward the rise in crude oil prices are expected to increase the subsidy burden of diesel and widen the fiscal deficit.
While the gains in Indian indices may have been on the back of upbeat corporate earnings expectations, investors need to be wary of the impact of higher input prices and interest rates on the same.