World markets in upbeat mood

Sat, 6 Mar RoundUp

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The world markets ended positive this week with the exception of China. The release of US Nonfarm Payrolls Report, which showed that the unemployment rate stood at 9.7% down from 9.8% in the previous week, provided confidence in the improved job environment. Further, sentiments in Europe were upbeat after European leaders expressed confidence in the austerity measures by Greece to pull the country out of its debt crisis. Greece approved a package to save about US$ 6.5 bn in budget cuts. In India, the sentiments were buoyant as the markets expressed confidence in the Union Budget measures extending the market rally. A combination of these factors ensured that world markets ended upbeat this week.

India ended the week higher by 3.4% over the previous week. The top gainer this week was France, up by 5.4%, followed by Germany, UK and Brazil, which gained 5%, 4.6% and 3.5% respectively. Japan was up by 2.4% while US was up by 2.3%. Singapore and Hong Long closed the week with a gain of 1.4% and 0.9% respectively. The only loser of the week, China was down by 1.2%.

Source: Yahoo Finance

Moving on to the sectoral indices in India - all indices closed in the green this week. Leading the pack were stocks forming part of the metals, realty and small cap index. While the BSE-Metal ended higher by 7.1%, BSE-Realty index ended higher by 6.9%. BSE-Small Cap index ended higher by about 5.4%. The worst performing stocks were part of the IT, PSU and Oil & Gas index. BSE-IT was up by 1.1% while BSE-PSU and BSE-Oil & Gas index were up by 1.2% and 1.8% respectively.

Source: BSE

Indian IT major Wipro has entered into a 7 year strategic agreement with the US based insurance firm Main Street America Group for software solutions. As per terms of the deal, Main Street will engage with Wipro for applications, development, maintenance and quality assurance. Wipro will supplement Main Street's IT organisation in its aim to support its present and future business needs. However, the size of the deal has not been disclosed. It must be noted that Main Street provides commercial, personal and surety insurance products to individuals, families & small businesses in 24 states of the US. We believe that this is a positive for the company and will further enhance its revenues from its application, development and maintenance business. It must be noted that this service offering accounted for around 29% of Wipro's total revenues during 3QFY10 and grew by 3% QoQ.

Auto major Ashok Leyland will invest Rs 30 bn in the next three years on various expansion projects. The outlay will go towards product development as well as projects such as the light commercial vehicles joint venture with Nissan and construction equipment joint venture with John Deere. It may be noted that the company had earlier scaled down its capital expenditure plans to Rs 20 bn due to the economic slowdown. This development does not come as a surprise in our view as the demand for commercial vehicles tracks very closely with overall economic growth. In fact, the company has recently announced a 140% YoY increase in unit sales for the month of February 2010.

Tata Steel's European subsidiary Corus has sold its stake in a joint venture which was operating a tar distillation plant in the Netherlands. Corus, along with partner Cindu BV, have sold their stake to the US carbon-compounds maker Koppers Holdings. The rationale behind the move was that tar processing was not a core activity for Corus although the company has tied up a long-term arrangement for tar supply with the new owner. For Tata Steel Europe, the global financial crisis has had an impact on operations. What is more, the demand for steel is expected to remain subdued till the time the developed economies start recovering. Thus, in the short term, the weak steel demand is likely to create cash flow problems for the company which explains the stake sale in the JV.

As per a leading business daily, Ranbaxy is planning to launch the generic version of the Japan-based Astellas' Flomax on March 2 in the US. Flomax reportedly clocked sales of around US$ 2 bn in the US last year. The launch would have come eight weeks before the drug's patent expires in the US. However, the American drug regulator, FDA has denied Ranbaxy the permission to market the generic version of a blockbuster drug in the US. This is a negative development for the company especially given the difficulties on the USFDA front it has faced of late. It may be recalled that the regulator had banned 30 drugs from Ranbaxy's stable in September 2008. Launching the generic version of Flomax on a later day would miss the eight-week marketing exclusivity window. Moreover, another generic drug maker, US-based Impax Laboratories was able to launch the product on time.

Tata Motors plans to launch the Nano in neighbouring countries like Sri Lanka and Bangladesh either this year or in 2011. The company has commenced trial production in Gujarat and is also planning to launch the Nano in an electric version for Europe. As per the company's spokesperson, Tata Motors may launch the Nano in Europe by 2013. With the increase in excise duty, the company is planning to increase prices of the higher versions of the car. However, the company plans to keep the price of the base model of the car at Rs 100,000.

Movers and shakers during the week

Company	26-Feb-10	5-Mar-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Jet Airways	403	492	22.1%	606 / 118
Guj. NRE Coke	73	88	20.1%	98 / 17
Everest Kanto Cylinder	109	125	14.3%	238 / 87
Indiabulls Fin. Ser.	99	112	14.0%	224 / 83
Oriental Bank	274	309	12.8%	312 / 100
Top losers during the week (BSE-A Group)
NMDC Ltd	432	415	-4.0%	572 / 141
BPCL	562	540	-4.0%	658 / 334
IOC	318	307	-3.3%	395 / 192
HCL Tech.	367	358	-2.5%	388 / 92
Rural Elect.	244	238	-2.4%	275 / 77

Source: Equitymaster
Coming to economic news, as per reports, borrowing by US consumers in January rose for the first time in a year. This growth was due to increase in auto and student loans. Consumer credit increased by US$ 5 bn, an increase of 2.4% YoY according to the Fed. This is a positive sign signaling that the Americans are getting back to consumption. Moreover, the better employment scenario boosted confidence in economic recovery.

While positive signs emanating from global economies have boosted markets, we believe that investors must not lose sight of the valuations signals that could hurt their long-term investment returns.