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Global markets start the year on weak note
Sat, 4 Jan RoundUp

Stocks began the new-year by catching their breath after a historic rally that saw major world indices set dozens of highs throughout 2013. For the week, global stock indices were mixed. For the full year of 2013, the US markets rose 26.5%, their best showing since the late 1990s. Economic data released this week were largely positive, with global manufacturing gathering strength, US consumers feeling more upbeat and both the US labor and housing markets continuing to recover. However, the US markets ended the week marginally down by 0.1%.

US manufacturing activity grew in December at its fastest pace in 11 months, as the HSBC Markit US manufacturing purchasing managers' index rose to 55.0 from 54.7. Eurozone manufacturing activity expanded faster than it has since mid-2011, with Germany and the Netherlands leading the way. The rate of growth in Japanese manufacturing was at a seven and a half year high. All the major European Indices ended the week in the red.

The Indian equity markets started the week on a negative note. The losses were negligible and similar price action repeated during the following two trading sessions. However, on Thursday, during the first half, the Nifty surged, but failed to sustain itself as the bears struck back and dragged it substantially lower from early morning highs of the day. This was followed by a weak opening on Friday but modest recovery towards the fag end of the session pulled the index up. The Indian markets finally closed the week down by 1.6%.

Key world markets during the week
Source: Yahoo Finance

Majority of the sectoral indices ended in the red with Capital Goods (down 4.6%), Power (down 3.3%) and Oil and Gas stocks (down 2.7%) witnessing maximum selling pressure. The small cap stocks outperformed the broader market recording gains of 0.6% during the week. Stocks from IT (up 0.9%) and pharma (up 0.3%) sectors were the only gainers for the week.

BSE indices during the week
Source: BSE

Now let us discuss some of the economic developments of the week gone by.

2013 year-end closed on a pessimistic note with respect to car sales that witnessed 5% to 7% fall in the month of December. Higher interest rates, rising fuel prices and subdued economic conditions restricted passenger car sales growth during the year. Despite discounts and freebies, car sales volumes diminished from 1.94 lakh units in December 2012 to 1.84 lakh units in December 2013. Barring Maruti Suzuki and Hyundai Motor India which posted single digit growth, all other players failed to post a positive growth. Moreover, the testing times for passenger vehicle segment are expected to continue for the next 3 to 6 months. Even strong players and outperformers like Mahindra & Mahindra faltered on account of hike in excise duty on SUVs and diesel prices. Market sentiments continue to play spoilsport despite all the efforts made to control the inventory. While the auto industry continues to post negative growth due to sluggishness in economic activity, the automakers are hopeful of recovery, though an immediate turnaround is a little unlikely.

In order to counter the rising input costs and freight charges, steel manufacturers are set to hike prices by Rs 1,000-1,500 per tonne from this month. The hike in prices may act as a deterrent to growth in an already slow market. As per the industry sources, almost all steel makers are likely to follow JSW Steel that announced a hike in steel prices by around Rs 1,000 per tonne. Post the hike, the price of hot rolled coil, the benchmark steel product is likely to shoot up to Rs 39,500 a tonne from Rs 37,500 per tonne earlier. It is important to note here that it generally takes 1.6 tonnes of iron ore to produce a tonne of steel. Barring Tata Steel and Steel Authority of India Ltd (SAIL), domestic steel makers mainly source their iron ore requirements from National Mineral Development Corporation Ltd (NMDC). Earlier, the steel makers had hiked the price in September by up to Rs 2,500 per tonne. However, due to subdued demand, they had deferred another hike even as NMDC raised iron ore price by Rs 100 a tonne and the railways imposed a peak session charge from October. However, a further hike of Rs 200 a tonne in December by the NMDC has impacted them and hence the prices may be hiked.

The Reserve Bank of India (RBI) has permitted banks to lend upto Rs 1 lakh against collateral of gold jewellery. In such loans, the lending period should not be more than a year and interest chargeable monthly will become due for payment along with principal at the time of maturity. As per RBI guidelines, banks should prescribe a minimum margin to be maintained on these loans and accordingly fix the loan limit by factoring the market value, price volatility and the interest income to be earned during the tenure of the loan. Such an account would be classified as non-performing if the prescribed margin is not maintained. RBI had in May 2013 imposed restrictions on banks and non-banking financial companies in extending loans against gold coins, gold ETFs and mutual funds.

Movers and shakers during the week
Company27-Dec-133-Jan-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Financial Tech17122330.2%1198/102
Multi Commodity45257326.7%1479/238
Core Education192218.8%325/13
Ashok Leyland171914.2%28/12
Gujarat Fluoro23525910.2%360/190
Top losers during the week (BSE-A Group)
Adani Enterprise272249-8.6%288/126
Gitanjali Gems7569-7.5%650/48
Adani Power4037-7.5%68/29
Mahindra and Mahindra965900-6.7%1026/742
Source: Equitymaster

Now let us move on to some more news from the corporate world.

Coal India has missed its production and sales target for the nine month period ended December 2013 (9MFY14). The company had set a production target of 335 million tonnes for the April-December 2013 period, but the output fell short by 15 million tonnes. On the other hand, the company fell short on its sales target of 354 million tonnes for the same period by 13 million tonnes. As per the company, the production was adversely impacted by the strong heat-wave conditions during summer and heavy monsoon rains. The other factors that hit production were workers' strike, impact of Cyclone Phailin as well as law and order problems in certain areas. The company is likely to miss its annual production target for the financial year 2013-14 by 17-18 million tonnes.

Tata Motors has reported its vehicle sales numbers for the month of December 2013. The company's sales were down by 42% YoY during December 2013 as compared to the same month during the previous year. It sold a total of 37,852 vehicles in December 2013 as compared to 65,582 vehicles in December 2012. The huge fall in the sales numbers is mainly on account of decline in the company's commercial vehicles segment which fell by about 46% YoY in the domestic market. Its exports also declined by about 27% YoY during the month. It may be noted, the industry, is plagued with declining sales for some time now, on account of the economic slowdown. Total domestic passenger car sales, declined by about 35% YoY in December 2013 for the entire industry.

BHEL has upgraded its 200 MW thermal power plant in Uttar Pradesh. As a result the rated output of the thermal power plant has increased to 216 MW and even the working life of the machine has been extended by 15-20 years. The renovation and modernization work has been carried out at Obra thermal power station, an Uttar Pradesh government enterprise. It may be noted that BHEL has been reporting poor financial performance in the last two quarters. In 1HFY13, its sales fell by 19%. Even its margins have halved due to higher expenses arising from provision for doubtful debts and other provisions related to contractual obligations and liquidated damages. Also, merger of HPVP with BHEL has led to one time loss. However, the company is hopeful of winning orders in the 13th five-year plan that should commence in FY15.

Glenmark Pharmaceuticals Ltd has been slapped with a patent infringement case by US-based Cephalon Inc over plans to sell generic version Treanda, a drug used for the treatment of leukaemia in the US market. Glenmark Pharmaceuticals Ltd and Glenmark Generics Inc, USA have confirmed that Cephalon Inc has filed a patent infringement suit on 26 Dec 2013 in the US District Court for the District of Delaware seeking to prevent Glenmark from commercialising its Abbreviated New Drug Application (ANDA) for Bendamustine Hydrochloride product. The complaint has been filed against Glenmark trying to commercialise the product before the expiry of patent which is a generic version of Treanda. It must be noted that Bendamustine is indicated for the treatment of patients with chronic lymphocytic leukemia. This is a Para IV filing made by Glenmark and the suit filed by Cephalon is part of the Para IV filing process.

Gas Authority Of India Ltd. (GAIL) India has received environmental approval for setting up a 220 MW gas based power plant. The State Level Environment Impact Assessment Authority of Maharashtra has given clearance to GAIL's gas based power project at Raigad in Maharashtra. The project is expected to cost about Rs 10.3 bn and electricity generated will be sold to Maharashtra's state electricity board. The project would be located at GAIL's existing LPG recovery plant at Raigad and would use natural gas or imported LNG as its fuel. It may be noted that, GAIL had earlier appointed a consultant for detailed feasibility report for the project. And as per the study, the proposed project would require about 1 million standard cubic meters per day of natural gas to generate 220 MW of electricity.

The present government has been taking steps to infuse energy in the country's economy by clearing regulatory hurdles. But its sustainability will be reinforced by the outcome of the General Elections next year. Overall, investors should not take their investment decisions based on specific events or short term developments. Rather, the focus should be on stocks of companies that have good fundamentals, a sound management and available at reasonable valuations.

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