It was an eventful week for the global stock markets. Except for China all the markets ended the week on a positive note. Japan was the top performer followed by India. The other European markets also registered healthy gains. The US stock markets were up by 2.2% during the week. The Dow Jones Industrial Average (DJIA) closed at a record high of 14,397 points. Strong employment data buoyed markets. The US added 236,000 jobs in the month of February as a result of which the unemployment rate came down to 7.7%. It may be noted that this is the 29th month in a row when the US economy has added jobs. As such, there are signs that the economy is strengthening. However we do not think that the recovery is sustainable without critical fiscal measures.
The Indian stock markets also ended the week on a healthy note with gains of 4%. This was one of the best weeks for the markets in the last two years. The Finance Minister's assurance that the government will contain its borrowing to restrict inflation buoyed markets. Also, there are expectations that interest rates might be eased further in the policy review later this month. This further supported the rally.
Amongst the other markets, China (down by 1.7%) was the biggest loser. However, Singapore (up by 0.6%) and Hong Kong (up by 0.9%) ended the week on a flattish note.
Amongst sectoral indices, realty (up by 7.4%) and banking (up by 5.6%) stocks were the top gainers during the week while consumer durables (down by 1.9%) were the sole losers. All the sectoral indices closed the week on a positive note signifying that buying during the week was broad based.
Now let us discuss some of the economic developments of the week gone by. According to provisional data from the Reserve Bank of India (RBI), credit growth for banks was sluggish at the end of 10 months in FY13. So far this fiscal; banks' advances grew around 9.2% YoY, compared with 11.8% in the same period last year. Deposit growth was also around 7.6% YoY compared with 11.7% in the same period a year ago. The RBI has projected deposit growth at 15% and credit growth at 16% for FY13. With regards to new banking licenses, the RBI has said that it would publish clarifications regarding the revised rules on banking licenses on its website. All queries would need to be sent by April 10th 2013, post which clarifications would be issued by the central bank. If everything goes according to plan 2013 could usher in the first set of new banks into India since Yes Bank in 2004.
Let us move on to some news from the petroleum sector. Total plan outlay for petroleum sector is pegged at around Rs 791 bn in FY14. Among the major oil and gas firms, state run Oil and Natural Gas Corporation Ltd (ONGC) is planning to invest over Rs 350 bn in exploration and production of oil and gas in the next fiscal year. The amount is around 4% higher than the capital capex in 2012-13. The proposed expenditure will be funded by company's internal resources. Meanwhile, GAIL has also planned capital expenditure of Rs 75 bn next fiscal, up 11.4% on a year on year (YoY) basis. This includes Rs 44 bn in its core gas transmission and marketing business and another Rs 31 bn on its petrochemical expansion. The planned capex for BPCL is around Rs 35 bn (up 128% YoY), while Hindustan Petroleum Corporation Ltd (HPCL) will be spending around Rs 37 bn (up 17% YoY).
Now let us have a look at few corporate developments of the week gone by. Telecom operator, has started a process to sell up to 25% stake in its DTH (direct to home) TV. The company is expecting a valuation of US$ 800 m. If it sells a 1/4th stake this will amount to US$ 200 m. Bharti Airtel has already signed a non-disclosure agreement (NDA) with at least seven strategic and private equity players for the stake sale. This includes American DTH players such as Comcast and Liberty Global. Private equity players such as KKR, Providence and Bain Capital also seem to be in the running. Bharti's DTH business has pan India operations and 7.9 m customers. The market leader Dish TV has almost double the subscriber base of 15 m while Tata Sky has 10 m subscribers. In 3QFY13 the revenues of the DTH arm of Bharti Aitrtel was at Rs 4.3 bn, EBITDA stood at Rs 147 m with 3.4% EBITDA margin. Average ARPU was US$ 3.4/month for the quarter.
National Thermal Power Corporation (NTPC) is planning to invest Rs 202 bn towards capex in 2013-14. This is less as compared to Rs 209.9 bn set aside as capex for 2012-13. The company plans to utilize its internal accruals towards the entire Rs 202 bn investment. NTPC has installed capacity of about 40,000 megawatt which it aims to enhance to 70,000 megawatt by March, 2017.
India's largest public sector bank State Bank of India (SBI) has raised its credit growth guidance for the financial year 2012-13 (FY13) to 21% from the earlier estimate of 18%. The revision has come on the back of unexpected increase in retail and small and medium enterprises (SME) loan growth in the fourth quarter (4QFY13). As per Chairman Pratip Chaudhuri, the significant surge in advances was on account of the year-end rush as well as lag effect of substantial cuts in lending rates. It must be noted that SBI had slashed lending rates by a little over 100 basis points (1%) during the second and third quarters on retail (auto and home), micro and SME loans. Also, the bank has been aggressively taking over home loans from other banks. SBI's credit grew by about 16.07% year-on-year to over Rs 10,091.1 bn at the end of December 2012. This was in line with the loan offtake for the banking sector.
Time and again the RBI has blamed the government for not sticking to its fiscal consolidation path which made it difficult for the central bank to manage inflation. Higher fiscal deficit increases government borrowings and this increases inflation. As such, the RBI was unable to cut interest rates to revive the investment cycle.
However, the Finance Minister seemed to be keen on curtailing deficit in his Budget speech. Thus, it remains to be seen what the RBI does in its mid quarter policy review scheduled on 19th March. It may be noted that in the last policy review RBI had cut the interest rates (repo and CRR) by 0.25%. With inflation moderating and government adhering to its fiscal roadmap we may well see RBI continuing with its dovish stance.
After a disappointing Budget, the markets gained ground in the last week. Strong global cues andexpectations that RBI would lower interest rates in the next policy review buoyed markets. But investors should not lose sight of valuations or get carried away by short term optimism.