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Global stock markets rise on positive cues
Sat, 14 Feb RoundUp

The major global stock markets witnessed gains in the week gone by. Among the European markets, stock markets in Germany were up 1.1% while markets in France were up by 1.5% during the week. The gain in the European stock markets was mainly on the back of slight improvement in the Eurozone economy and positive outlook on Greek debt deal. Growing corporate earnings and the announcement of more stimulus from the European Central Bank to boost growth in the region have also led to the turnaround in investor sentiment.

The stock markets in US were up by 1.1% during the week, boosted by the oil rebound that pushed US energy stocks higher. Oil prices increased to over US$ 60 a barrel for the first time this year.

The positive mood spilled over to major Asian stock markets as well. Stock markets in China and Japan witnessed gains of around 4.2% and 1.5% respectively during the week. This was mainly on the back of reports of a new cease-fire agreement between Russia and Ukraine, Sweden interest rate cut and hopes regarding the Greek debt deal.

Back home, the Indian stock markets ended the week on a positive note on account of better than expected results reported by some of the blue chip stocks. Positive global market cues and stable inflation data also boosted investor sentiments.

Key world markets during the week
Source: Yahoo Finance

The BSE-Sensex closed the week with 1.3% gains, led by stocks in the pharma and power sector while realty stocks and oil and gas found themselves at the losing end. In the coming week, events like Budget announcement will determine the direction of the stock markets.

BSE indices during the week
Source: BSE

Now let us discuss some of the key economic and industry developments in the week gone by.

As per the data released by the Central Statistics Office (CSO) for month of January, consumer prices stood at 5.1% in January 2015. This compares to previous month's 4.3% after the base year was changed from 2010 to 2012. The retail inflation was 5% under the old series. Further, the index of industrial production (IIP) rose by just 1.17% in December (as compared to 3.9% growth in the preceding month). The Industrial growth slowed in December 2014 due to poor performance of the mining sector and sub-par manufacturing. This is in contrast to national income numbers that suggested that the economy was in good health and manufacturing sector was in much better shape.

As per the financial daily, the big pharma companies US have urged the government to change its policies on intellectual property rights (IPR), which are believed to be not in line with the global norms. Reportedly IPR issues for the drugs in India have long been under various discussions, though both countries are now working over the matter to resolve the differences.

The government has received 69 requests from central and state public sector units for allocation of 36 coal blocks. The 36 coal blocks, which contain more than 10 bn tonnes of reserves, have been kept for state and central government companies that have steel and power plants. While 35 blocks are reserved for the power sector, one has been allotted for a state-run steel plant. The blocks can discharge plants generating at least 40,000 MW of electricity.

As per Society of Indian Automobile Manufacturers (SIAM) data , domestic car sales have grown by about 3.14% YoY (year on year) in January 2015. Of the 17 car manufacturers in the country, less than a third reported an expansion. It must be noted that likelihood of withdrawal of excise duty benefits had inflated sales at for most of auto makers in the previous month. The van sales in January 2015 have declined by about 6.93% YoY. However, there has been a considerable growth of 36.81% YoY in the sales of heavy, medium and light commercial vehicles during the month. Further, domestic two wheeler sales for the month witnessed a growth of 1.07% YoY. While motorcycle sales declined by 5.85% YoY, scooter sales were up 25.30% YoY. Weakness in the two-wheeler sales brought down the overall automotive market sales growth to 1.66 % YoY. While Maruti Suzuki and local units of Hyundai, Honda, Toyota and Nissan managed to clock positive growth, other players like Mahindra & Mahindra, Tata Motors and the Indian subsidiaries of Ford, General Motors, Volkswagen and Fiat, posted lower sales.

Movers and shakers during the week
Company6-Feb-1413-Feb-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Pipavav Defence 51 65 27.4% 74/33
Suzlon Energy 17 19 15.0% 37/10
Sun TV 382 436 14.1% 488/299
Emami Ltd 898 1,019 13.5% 1045/426
Bharat Forge 1,058 1,186 12.1% 1209/349
Top losers during the week (BSE-A Group)
J&K Bank 135 111 -18.3% 200/106
Future Retail 139 117 -16.0% 152/78
Apollo Tyres 213 183 -14.3% 249/114
Jet Airways 474 425 -10.5% 544/204
Oil India Ltd 548 503 -8.3% 669/440
Source: Equitymaster

Now let us move on to some of the key corporate developments of the week gone by.

Titan Company is in advanced negotiations to invest Rs 1.87 bn in online jewellery retailer Carat-Lane for 15% equity stake. The agreement is to be signed in a few weeks with Carat-Lane's current valuation at about Rs 12 bn. Titan has four business divisions which include watches & accessories, jewellery, eyewear and precision engineering. Jewellery business accounts for 80% of the company's topline and this joint venture would give Titan an access to new age brand and customers whereas Carat-Lane is to gain from Titan's experience in marketing.

ONGC and other state-run employers may have to pay about Rs 109 bn in fuel subsidy. Reportedly, the Finance Ministry has agreed to pay less than one-third or Rs 50 bn by way of cash subsidy out of the Rs 159 bn of revenue losses fuel retailers incurred on selling LPG and kerosene at government-controlled rates in October-December. In the first half of current fiscal, fuel retailers IOC, BPCL and HPCL had together lost Rs 511 bn in revenue on selling fuel below cost. ONGC's cost of production is around US$ 40 per barrel.

Let us now take a look at some of the quarterly results that were announced this week.

Hindalco has announced its results for the quarter ended December 2014 recently. The company reported a 7.5% YoY growth in profits during the quarter while topline has grown by 18% YoY. Higher realisations and volumes led to this strong growth in revenues. The company has been facing the issue of shortage in coal supply, hence finding it difficult to ramp up production for new aluminium projects. As such, it was looking for faster resolution of this matter. As reported by a business daily, the company has placed bids for 15 coal blocks in the latest round of auctions.

Tata Chemicals's has reported standalone sales growth of 13% YoY, while growth in net profits was even better at 38.5% YoY. Operating margins also improved and was attributed to the better performance of the consumer and chemicals businesses. On a consolidated business, the company's sales were up by 5% YoY. The company reported a net profit of Rs 2.3 bn as against a net loss of Rs 159 m in the corresponding quarter last year. According to the management, global soda ash demand continued to be positive, while realizations also improved across geographies. Further, the restructuring exercise at Kenya was completed and the operations there reported profits.

Tata Steel Ltd has reported a 69 % year on year (YoY) decline in the net profits. This was mainly due to raw material shortage that curtailed domestic production. Further, a flood of cheap imports in the international markets driven by the slowdown in China and a devaluation of the Russian rouble pressured steel prices and adversely impacted profitability of the company in its European and Indian operations. As per the management, the European steel demand continued to recover in 2014 and should improve modestly again this year. Lower steel prices also led to an 8.5% YoY drop in consolidated net sales.

Going ahead, the Indian markets will continue to look for cues from global events as well as the budget announcement. Investors would be best served if they focus on the long term and invest only in fundamentally strong companies trading at attractive valuations.

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