The world stock markets closed the week on a strong note. Asian stock markets with the exception of India were up. The stock markets in Europe and US were also up on the news that the Eurozone finance ministers have finally approved the terms of a second rescue package for Greece which should avert the risk of a Greek default next month and positive economic data coming out of the United States.
The Indian stock markets were down by 2% during the week as investors booked profits on renewed worries about rising oil prices and the country's widening fiscal deficit. This was the first time in 2012 that the markets closed lower for the week. But not before gaining 18% from the start of the year till the end of last week. Foreign funds have helped drive the rally, investing more than USD $5 m so far this year.
Amongst the other world markets, Japan (up by 4.4%) led the gains followed by China (up by 3.5%). The European stock markets also posted gains for the week with France (up by 2.2%) followed by Germany.
Most of the sectoral indices registered losses during the week with realty (down by 7.3%) being the biggest losser followed by banking (down by 5.2%). FMCG was the biggest gainer (up by 0.9%) followed by IT sector
Let us now take a look at key developments during the week. In news from power sector, Cabinet Committee on Economic Affairs is like to take a decision on imposition of 19% import duty for power generation equipments for projects above 1,000 megawatts. At present, for projects below 1,000 megawatt, 5% duty is paid and for those above 1000 megawatt duty paid is almost nil. The committee is expected to take a final call in the next 15 days. This declaration may bring in good news for domestic equipment manufacturers like Bharat Heavy Electricals (BHEL), Larsen & Toubro (L&T) and Bharat Forge. The approval will not be favourable for power producers like Reliance Power that depend heavily on imported equipment.
In the corporate world, there was important announcement form Coal India. The company will be incurring an additional burden of around Rs 65 bn annually. This will be mainly because of 25% hike in the employee wages. The wages have been increased from Rs 8630 per month to Rs 15,713 per month. Coal India has signed a pact called the National Coal Wage Agreement- IX. The pact is likely to benefit around 370,000 workers of the mining firm and would be effective from July 1, 2011.
Auto company Hero MotoCorp has signed a technology sharing agreement with US based motorcycle manufacturer, Erik Buell Racing. Under this Hero would buy technology from them but there would not be any profit sharing or change of ownership. Hero is initially looking at sourcing technology for premium bikes but may later extend it to their bikes in normal range too. The new bikes would be launched in 2013. We may note here that hero MotoCorp earlier had a technology pact with Honda Motors which was ceased some time ago.
Tata Steel is looking at increasing its borrowing limit by 25% to Rs 500 bn to partly finance its ongoing expansion. For this, the steel company is seeking approval from the shareholders. We may note here that presently Rs 400 bn is sanctioned by the shareholders but the company feels that this sum is not adequate for its planned activities. These include setting up of a 6 m tonne per annum steel plant at Kalinganagar in Odisha and addition of 2.9 m tonne per annum in its Jamshedpur plant. The company's total production capacity is expected to reach 10 m tonne per annum. Out of a planned capex of US$ 2.5 bn, the steel company will be spending US$ 800 m on its new plant in Odisha and US$ 400-500 m on its Jamshedpur plant. On its European operations, it is likely to incur US$ 600m.
We will now discuss the other important corporate events that took place over the week.
Ashok Leyland has announced plans to launch light commercial vehicles (LCV) in the next couple of years. LCVS account for 57% of the total commercial vehicle segment in India and are expected to witness robust demand in the coming years. The new vehicles will be produced under their joint venture with Nissan. As per management, they would be launching new vehicles in the LCV category every six months. The Indian auto major's Dost, a 2.5 tonne LCV has already sold more than 5000 units till date.
In the banking space State Bank Of India (SBI) has stated that it will be issuing fresh shares to the Indian government. The shares to be issued on preferential basis will raise Rs 79 m for the PSU bank. This will result in the stake of government rising to 2.5%. SBI's Tier-1 capital would also improve to 8% up from 7.47% as at September end. For this, the bank will be seeking an approval from shareholders. Earlier too the bank had rights issue in 2008. However, the government had contributed in the form of bonds and not cash at that time.
On the macro-economic front, inflation based on the all India Consumer Price Index stood at 7.65% in January, as per the first nationwide retail inflation data released by the government earlier during the week. While food and beverages reported a moderate rate of price rise of 4.11% YoY in January, the inflation numbers for fuel and light, and clothing, bedding and footwear segments were in double-digits. The Prime Ministers Economic Advisory Council (PMEAC) painted a disappointing twin deficit (fiscal and current account deficit) picture for the economy and wrote a hard prescription. It wants the Centre to raise excise duty and service tax rates by 2%, decontrol diesel prices and reduce subsidies to cut the fiscal deficit.