It was a mixed week for global stock markets. The US stock markets ended the week higher by 0.6% as strong economic data overshadowed growth concerns in China and Europe. It appeared to have allowed investors discount the impact of federal spending cuts (referred to as sequester). As per the economic data, the US manufacturing activity expanded in February 2013 at the fastest pace in 20 months. Among the European stock markets, the stock markets in Germany gained 0.6% over the week. However, the stock markets in France ended the week lower by 0.2%. The data out of Eurozone was disappointing with region's unemployment rate at 11.9% for the month of January 2013. The final reading of Markit's purchasing-managers index (PMI) also suggested that the euro zone remained in contraction territory in February.
Among the major Asian stock markets, China (up 2.0%) and Japan (up 1.9%) led the gains boosted by positive economic data from US. China's manufacturing grew at its slowest rate in five months in February. This was because of weak demand and shut down of factories for the Lunar New Year holiday. The economic data from Japan suggested slight improvement in unemployment but a decline in business investment. However, there was some optimism as Japan's prime minister nominated a new central bank chief known to support deflation fighting economic strategies.
It was an eventful week for India as was announced. The Budget disappointed markets and the Indian equity markets led the losses and ended the week down by 2.1%. In another key event, HSBC Markit manufacturing Purchasing Managers' index (PMI), rose to 54.2 in February, after falling to a three-month low level in January.
Now let us discuss some of the key economic developments of the week gone by. The much awaited Union Budget did not bring any big bang announcement. On the positive side, it suggested that fiscal profligacy would be kept under control. The Finance Minister stated that the fiscal deficit in 2012-13 would be around 5.2% of GDP, marginally lower than the earlier estimate of 5.3%. For 2013-14, the fiscal deficit target has been set at 4.8% of GDP. At the core of the FY14 budget is the real GDP growth of 6.1-6.7 % and a nominal GDP growth of 13.4 %.Further, in the budget, the finance minster has proposed stake sale of various government companies, in order to achieve Rs 540 bn of divestment target. This includes companies like Hindustan Zinc, where the government is currently holding little stake. The other companies which can see government stake sales are Coal India, Indian Oil Corporation and NHPC. Reportedly, the FM has decided to use a part of the share sale proceeds towards Indian Railways to finance its capital expenditure and also to infuse an equity capital of Rs 140 bn into public sector banks during 2013-14.
Result season continued for the companies with quite a few declaring their numbers for the quarter ended December 2012 during the week.
Pharma major Ranbaxy has announced its results for the fourth quarter of the financial year 2012 (4QCY12). The company has reported a 29% year on year (YoY) decline in the sales. This was on account of Lipitor exclusivity in 4QCY11, which is not present in this quarter. It is important to note here that in November 2012 the company had voluntarily recalled its cholesterol lowering generic of Lipitor from the U.S. market. This was after it discovered contamination with tiny glass particles in certain lots of 10mg, 20mg and 40mg doses of the drug. On a like to like basis, the company has registered double digit growth in the topline. The operating margins for the quarter declined to 1.9% (from 20.9% in 4QCY11). Apart from high margin Lipitor exclusivity, the operating profits were impacted by some exceptional expenses incurred during the quarter. The company has reported a net loss of Rs 4.9 bn as compared to a loss of Rs 29.8 bn in 4QCY11. The losses were lower due to a lower amount of exceptional losses this quarter.
Castrol India Limited announced its results for the quarter ending December 2012 (4QCY12).Net sales for the quarter declined by around 1% YoY. The net profits for the quarter, however, grew by 10% YoY thanks to effective cost control measures. As per the management, the gross margins for the quarter also improved on account of better product mix, stable rupee and softening base oil price. For full year (CY12), the net sales registered a growth of 4% YoY while bottomline declined by 7% YoY. The management has said the year 2012 was a challenging year with no growth in the lubricant market. The raw material costs during the year increased by 8% YoY mainly on account of devaluation of the Indian Rupee. However, the company has been able to maintain gross profits through a combination of premium product mix and better sales realization. As per the management guidance, the next few quarters are likely to remain challenging.
The energy sector witnessed a key development as the Government offered Abu Dhabi National Oil Company (ADNOC) a host of investment opportunities in the refining and petrochemicals sector, in partnership with Indian Oil Corporation Ltd and Oil and Natural Gas Corporation Ltd. The move is likely to attract a huge chunk of foreign direct investment (FDI) into India. United Arab Emirates (UAE) is the world's fourth-largest oil producer and holds the fifth-largest gas reserves globally. As per the recent talks between Indian and UAE officials, there is a possibility of national oil companies from the two sides coming together to set up mega petrochemical complex worth over Rs 250 bn. Besides, Indian firms will also be interested in pursuing exploration and production opportunities available in the UAE.
Moving on to other corporate developments during the week, steel sector major Steel Authority of India Ltd (SAIL) has lined up investments of Rs 103 bn to double its captive iron ore capacity to 45 m tonne. The biggest chunk of the investment, approximately amounting to Rs 65 bn has been earmarked for the Company's Rowghat mine in Chattisgarh and Gua mine in Jharkhand. The Rowghat mine is critical for serving the captive needs of SAIL's Bhilai Steel Plant. Production is expected to start within the next 2-3 years. However, Rowghat is an area prone to Maoist threats. The Union Government has agreed to deploy five battalions of CRPF and BSF personnel to counter any possible security threats. Approximately Rs 30 bn has been earmarked for investments in the Gua mines, where SAIL plans to set up a 4 m tonne pellet plant and a 10 m tonne benefaction unit to cater to the needs of IISCO Steel Plant at Burnpur.
In a key event from the banking sector, State Bank of India (SBI) raised interest rates on term deposits by 25 basis points. The bank will increase interest rates on all fixed deposit schemes, from one year to 10 years, by 25 basis points. As such, interest rates which were earlier 8.5% on all these maturity baskets will be a uniform 8.75% with effect from March 1, 2013. The move is likely to set off a chain reaction among other banks. As per the management, the decision to hike rates is not a pointer to higher home loan rates. It has been taken to manage the issue of loan growth outstripping growth in advances. As a result of this trend, the surplus liquidity of the bank has been adversely impacted.
Now that the much awaited Budget announcement has been made, the focus will shift back to global economic events. The aviation stocks will be on watch as India's regulatory body on foreign investment meets on Wednesday to consider a proposal by AirAsia Bhd to invest in an airline joint venture with the Tata group. On the global front, a host of central banks will meet next week on policy issues.