Global Financial Markets Rally at the Start of the Year

Sat, 6 Jan RoundUp

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Global stock markets ended the final trading week of the year on a positive note. US Benchmark index Dow Jones crossed 25000 during the week to touch a record high. Strong corporate earnings, commodity price hikes have been the contributing factors for this record run.

Also, the recent tax amendments favoring US corporates passed by President Donald Trump has been appreciated by investors.US stocks ended the week higher by 2.3%.

European indices were also on the rise with technology stocks leading the way. Oil companies also rallied on back of rise in crude oil prices.

Stock markets in Asia also followed global sentiments. Japanese Index Nikkei touched 23,000 for the first time since 1992. The gains were mainly attributed to improvement in its domestic economy. Japanese stocks finished higher by 4.2% for the week.

Key World Markets During the Week

Back home, Indian share markets ended the week marginally higher. The government gave the GDP growth estimate of 6.5% for FY18. This is lower than FY17 GDP growth rate of 7.1%. Growth in the first half of FY17 was hampered by the after effects of demonetization and GST. The situation is likely to improve in the second half of the fiscal year. Metals, consumer durables and capital goods led the rally for the week. The Indian stock market ended the week higher by 1.1%.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by

In the news from the banking sector, as per an article in the Economic Times, the government has provided Rs 75 billion of fresh equity to six stressed public-sector banks (PSBs) in order to help them meet the prescribed regulatory requirement.

The six banks include Bank of India, IDBI Bank, UCO Bank, Bank of Maharashtra, Dena Bank and Central Bank of India. These banks have received equity through preferential issue of shares from the government with two of them informing stock exchanges about the development.

The government, as a part of its Indradhanush Plan to revitalise state-owned lenders, had proposed to infuse Rs 700 bn out of Budgetary Allocations in them. However, so far, it has infused Rs 518 bn in public sector banks (PSBs).

In October, the government also announced the recapitalisation plan to inject Rs 2.11 trillion into public sector banks over a period of two years. This move was mainly aimed at resolving the long standing non-performing assets (NPA) problem of PSBs. It is expected to shore up the capital of state-run banks, spurring them to clean up the bad loan mess and revive lending.

In the news from the GST space, the government is suspecting that the composition scheme rolled out for small businesses is being misused as there is been noted a leakage of tax revenues.

As per the news, for July-September, around 10 lakh entities had opted for the composition scheme under GST, where only the turnover details have to be disclosed and tax is paid at a flat rate. Of these, only 6 lakh have filed returns till December 25.

The transition to goods and service tax (GST) is a tough one. However, if implemented properly, the tax will reap huge benefits for such businesses in the long run. Also, the tax regime will aid India's tax revenues to a greater extent in the coming future. This augurs well for the country that has one of the lowest tax revenue as a percentage of GDP compared with other countries.

The higher tax revenue receipt will help bolster the country's financials and also provide further ammunition for the government to spend on social welfare and providing additional infrastructure to its citizens.

In order to capture the above revenues, the government should monitor the leakage of tax revenues and ensure efficient compliance of GST. It needs to be seen how this pans out.

In the news from the economy. Extending the trend of growth, manufacturing activity in India accelerated at a swift pace in the month of December to hit 5 year high. This came on the back of improved operating conditions and strong production.

The substantial inflow of new orders too underpinned the expansion in manufacturing sector. However, Goods and Services Tax (GST) continued to exert upward pressure on manufacturers' cost burdens in December.

Reportedly, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI)-a composite single-figure indicator of manufacturing performance- rose to 54.7 in December from 52.6 in November, indicating a healthy growth in manufacturing sector since December 2012.

The reading signaled an expansion for the fifth consecutive month, remaining above the no-change mark of 50.

On the price front, rising input costs continued to spark cost pressures on manufacturers and to pass on their cost burdens, firms raised output charges for the fifth month in succession. Further, the inflation rate rose to a 10-month high, but was modest and weaker than its long-run series average.

In news from automobile sector, as per an article in The Economic Times, a surging stock market, year-end stock clearance offers and improved consumer sentiment on the back of a broader economic revival pushed up sales of passenger vehicles in December.

Maruti Suzuki reported an 11.4% expansion in sales at 118,560 units in the last month of 2017, continued to be driven by compact cars and utility vehicles.

At Honda Cars India, annual sales rose 15% to 178,755 units in 2017, compared with 156,107 units in 2016.

Only, Mahindra & Mahindra (M&M) was among the automobile companies that reported sales on Monday to post a drop in monthly sales. The company's volume fell 7% to 15,543 units in December.

Two-wheeler makers also seemed to have fared well with TVS Motor reporting a nearly 38% increase in sales at 247,630 units in the past month.

With demonetisation and transition to GST behind them, industry experts expect the momentum in the market to continue through the fiscal year.

Movers and Shakers During the Week

Top Gainers During the Week (BSE Group A)
Company	29-Dec-17	5-Jan-18	Change	52-wk High/Low
VIDEOCON INDUSTRIES	19.65	24.80	26.2%	110/12
LANCO INFRATECH	1.35	1.70	25.9%	5/1
JINDAL STEEL & POWER	204.95	239.30	16.8%	252/73
RELIANCE POWER	50.25	58.65	16.7%	65/35
RELIANCE NAVAL & ENGINEERING LTD	49.25	57.20	16.1%	73/34
Top Losers During the Week (BSE A Group)
JAIPRAKASH POWER	9.52	8.28	-13.0%	10 / 4
MCLEOD RUSSEL	205.00	192.05	-6.3%	248/141
BPCL	518.70	487.50	-6.0%	550/400
RELIANCE COMMUNICATIONS	36.22	34.05	-6.0%	42/10
GMR INFRA	22.45	21.25	-5.3%	24/12

Source: Equitymaster

Some of the key corporate developments in the week gone by

In the news from the engineering sector. As per an article in a leading financial daily, Larsen & Toubro's (L&T) construction arm - L&T Construction has bagged orders worth Rs 14.5 billion across various business segments.

The Smart World & Communications Business Unit has secured an order worth Rs 8.6 billion for the implementation of 5 Million Smart Meters.

Reportedly, the scope involves Design, SITC and O&M Support of Advanced Metering Infrastructure (AMI) Solutions for 5-Million Smart Electricity Meters with GPRS-based communication modules for the states of Uttar Pradesh and Haryana.

Further, its Power Transmission & Distribution Business has bagged orders worth Rs 5.7 billion from both international and domestic customers.

The business has secured an order from Chamundeshwari Electricity Supply Corporation, a Karnataka Government undertaking, for turnkey execution of power distribution system to strengthen works in several subdivisions of the Mysuru area.

Notably, diversification continues to help L&T negotiate and get better terms and margins for projects. Apparently, this is because it is less desperate to win orders as compared to a company which are present in only a couple of sectors. Its reputation, extensive technical prowess, and large skilled workforce have enabled L&T to command a certain premium from customers and vendors alike.

Whether, further addition to these new projects provides a cushion to its profitability will be an interesting thing to watch out for going forward.

Meanwhile, in power sector, NTPC share price recorded its highest ever quarterly generation of 67,781 million units in the three months ended 31 December, indicating a recovery in electricity demand.

NTPC's total installed capacity reached 51,383 MW with the commercial declaration of 4,415 MW capacity during the current financial year.

The company has also generated 912 million units from its solar and wind stations during the current financial year. This is three times its renewable generation during corresponding period of last year.

Moving on to news from energy sector. As per a leading financial daily, the government is reportedly mulling a proposal to split GAIL (India) with the marketing operations spun off into a separate company.

The plan is being discussed in the petroleum ministry as the Centre is unhappy with the state-run player's performance in building a pipeline network in addition to a possible conflict of interest in its role as the infrastructure provider as well as a carrier.

Natural gas transmission and marketing are the core businesses of the PSU, which has also diversified into petrochemicals and renewable energy.

Last year, GAIL earned over 70% revenue from marketing operations, while over 40% of the profit came from natural gas transmission. The discussions come at atime when the government is working on completing ONGC acquisition of Hindustan Petroleum Corporation to bolster both the entities.

Moving on to news from pharma sector. Dr Reddy's Lab share price plunged during the week on fears that clearance for the company's injectables unit in Duvvada, Andhra Pradesh, may get delayed from the US Food and Drug Administration (USFDA).

USFDA had issued a warning letter for the company's unit in 2015. The unit was issued an establishment inspection report in which the US regulator did not clear the unit but pointed out areas of concern that the company needed to address.

The total filings of abbreviated new drug applications (ANDAs) for generic drugs rose to 1,292 in FY17 from 852 in the previous year. While, faster approvals expedite the commercialisation of product pipelines of domestic pharma companies spurring growth. At the same time however, it has raised the intensity of competition resulting in pricing pressures. The price erosion has been further compounded by a consolidation among US distributors and the decline in the number of products going off-patent over the past few years.

Moving on to news from telecom sector. Idea share price continued to rally and finished up by 10.67% on the BSE after the company unveiled a plan to raise up to Rs 67.50 billion ahead of its merger with Vodafone India.

The board of Idea Cellular approved raising about Rs 32.5 billion from entities under the promoter Aditya Birla Group(ABG) and constituted a committee to evaluate potential routes for raising further capital of up to Rs 35 billion.

The fund infusion was necessitated by the fact that Idea needed to expand its product offerings and strengthen its telecom infrastructure.

The entry of Reliance Jio Infocomm Ltd in September 2016, with free services for almost seven months and cheap tariffs later, has eroded margins and impacted the revenue of rivals.

Meanwhile, Bharti Airtel share price  entered into a strategic alliance with Samsung to bring a range of affordable 4G smartphone options to customers. The partnership is part of Airtel's 'Mera Pehla Smartphone' initiative, under which Airtel aims to partner device manufacturers to build an open ecosystem of affordable smartphones.

And here's an update from our friends at Daily Profit Hunter...

The Nifty 50 Index traded the week on a volatile note. After opening on a flattish note on Monday, the index plunged nearly 100 points for the day. The selling pressure continued until mid-week, setting a low of 10,405. But the bulls came to rescue on Thursday, where the index recovered some of its losses. Finally, on Friday, the Nifty index opened gap up and rallied strongly to touch a fresh life-time high of 10,566. However, it ended the weekly session marginally up.

Last week, we saw the index breaking out of an important resistance level of 10,500, which could possibly act as a support now, according to the change of polarity principle . This week, it slipped below this level, but recovered immediately to touch a new life-time high. This indicates that the 10,500 level will be a big hurdle for the bears.

So will the bears challenge the 10,500 level in the coming week or can we see the bulls maintaining the momentum?

Let's track it... You can read the detailed market update here...

Nifty 50 Index Hits New Life-time High

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