India fizzles while the world sizzles

Sat, 8 Jan RoundUp

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The first week into the New Year was a good one for all the key global stock markets, barring India. As you can see from the chart displayed below, the Indian markets were the sole losers this week with its benchmark index, the BSE-Sensex, posting a loss of 4%. Most of the losses in the Indian markets occurred on the last trading day of the week. This was largely on the back of concerns relating to the high inflation numbers and a possible hike in interest rates going forward.

Coming to the rest of the world, Asian stocks led the pack of gainers this week with Japan, Hong Kong and Singapore recording gains of about 2 to 3%. The UK, Chinese and US markets recorded gains of about 1% each.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India - the past week saw all the sectoral indices end on a weak note. Stocks from sectors that are more sensitive to the interest rates - auto, banking and realty - were the ones under most pressure this week. Leading the pack of losers were stocks from the auto space. The BSE-Auto Index dropped by a whopping 7% this week. Real estate and banking stocks followed suit with their respective indices, the BSE-Realty and BSE-Bankex falling by about 7% each.

Being a volatile week, defensive stocks were amongst the top performers this week with the BSE-Healthcare, BSE-FMCG and BSE-Power indices falling by about 1 to 2% only. The overall top performer was the BSE-Oil & Gas Index which declined by 0.8% only.

Source: BSE

Moving on to key corporate developments during the week - Auto sales numbers for the month of December 2010 were announced this week. And the broader picture looked good. Sales picked up for most companies (that released their numbers) during the said month. This was largely a result of year-end discounts and promotions apart from buyers; anticipation of price hikes in the New Year. Talking about specific companies, the passenger vehicle (PV) volumes for Tata Motors were up 28% YoY during the month. Sales of Nano were up around 60% YoY, though on a low base. M&M’s PV volumes also showed a 28% YoY growth during December. Maruti Suzuki reported a 17% increase in sales volumes for the month. Coming to the two-wheeler manufacturers, Bajaj Auto reported a 10% YoY increase in sales, while Hero Honda reported a 33% YoY rise. TVS Motor’s sales volumes shot up by a strong 42% YoY.

During the week, there were reports of Tata Steel inking a joint venture (JV) agreement with Japan based Nippon Steel Corporation. The JV would be setting up a Rs 230 bn steel plant for producing auto grade steel. The facility is expected to be operational in a period of three years. Tata Steel will be holding 51% stake in this venture. The plant is being set up to cater to the growing demand for steel from the Indian auto industry. The plans are to source steel from Tata Steel's Jamshedpur plant while the technology would be sourced from Nippon. As per the company, the chairman of the joint venture company will be nominated by Nippon while the managing director would be nominated by Tata Steel.

Moving on to news from the FMCG sector, Dabur completed the acquisition of the US based personal care firm, Namaste Group for US$ 100 m (approximately Rs 4.5 bn) in an all cash deal, this week. It may be recalled that Dabur had announced in November its acquisition of Namaste Laboratories LLC and its three subsidiary companies - Hair Rejuvenation & Revitalisation Nigeria Limited, Healing Hair Laboratories International, LLC, and Urban Laboratories International, LLC along with its South African arm. The acquisition marks Dabur's entry into the fast-growing US$ 1.5 bn ethnic hair care products market in the US, Europe and Africa. This acquisition is expected to help the company consolidate its position in the African markets.

In other news from the sector, GlaxoSmithkline Consumer Healthcare (GSKCH) officially announced an entry into India's oral care market through its global toothpaste brand 'Sensodyne'. The company seems to have aggressive plans for this brand as it is targeting to make it into a Rs 1.5 bn brand over a period of five years. It may be noted that Sensodyne is the biggest brand of GSKCH globally and is worth about US$ 750 m. The Indian toothpaste industry is expected to be sized at about Rs 19 bn over the next three to five years. The market is currently ruled by Colgate, which has about half the market share. This is followed by HUL's Pepsodent and Close Up brands. Next comes Dabur's Dabur Red and Babool.

The stock of engineering major, L&T was in the news this week as the company announced its intentions of being divided into nine independent companies. As per the company’s chairman, each of these nine entities will be like an independent company having its own business, management and board of directors. He hopes that at least 75% of these would be ready to be listed by 2012, should the management choose to get them listed. The nine companies would be formed by each of the nine business units - power, hydrocarbon, machinery & product, switchgear, heavy engineering, infrastructure, building & factories, metals & minerals and electrical business. The idea behind the restructuring is to allow ease of managing. Presently, only one chairman looks after the entire gamut of over 64 businesses. We believe that this idea seems good, but keeping in mind that transition should be smooth and successful. This we say considering the large sized of the company as well as scale of operations. The plan for restructuring has already been approved by L&T’s board and is in the process of being implemented.

Movers and shakers during the week

Company	31-Dec-10	07-Jan-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Jain Irrigation	210	223	6.4%	264 / 147
Gujarat NRE Coke	64	67	5.4%	85 / 52
Indian Hotel	95	99	4.8%	118 / 86
Marico	120	125	3.9%	153 / 96
Mundra Port & SEZ	143	148	3.3%	185 / 115
Top losers during the week (BSE-A Group)
Yes Bank	310	271	-12.7%	388 / 226
JSW Steel	1,175	1,033	-12.1%	1,400 / 970
Bajaj Auto	1,486	1,317	-11.4%	1,665 / 830
Chambal Fertilisers	89	79	-11.2%	105 / 54
Ambuja Cement	144	128	-10.6%	167 / 98

Source: Equitymaster
Moving on to economic news - due to pick up in global recovery, India's exports grew by 26.5% in November 2010 on a YoY basis to US$ 18.8 bn. This makes India well on its way to achieve its target of US$ 200 bn in exports for the fiscal. The total quantum of exports for the past eight months now stands at about US$ 140 bn. During the previous year’s comparable period, the figure stood at US$ 111 bn. But, the widening trade gap continues to be an issue due to high oil prices, leading to an increase in the import bill. Oil imports have increased over 21% during this period. On an overall basis, imports were higher by 24%. This led to a trade deficit of US$ 81.6 bn. This is expected to increase further and be in the range of US$ 120 to US$ 125 bn.

Containing the fast rising food inflation numbers continues to be a worry for India. During the week ended December 25, India's food inflation figure rose to 18.3% as compared to 14.4% during the previous week. The key reason for this hike was the higher onion and milk prices. Further, fuel inflation also climbed to 11.6% and was at similar levels of last week. As for inflation measured through the wholesale price index, it rose to 7.5% in November as compared to the last year’s figure. In the preceding month, the figure stood at 8.6%.

As per the Prime Minister's Economic Advisory Council (PMEAC), inflation figure close to levels of 4% (WPI) is considered as comfortable. And therefore considering that the inflation figure is showing no significant signs of cooling down, a significant hike in interest rates can be a possibility in the future. As per the PMEAC, the rate hike by the RBI will depend on the price behaviour during the months of December and January.