This week global markets grappled with multiple worries. Firstly the crisis in the Ukraine now appears to become a long drawn out affair. Secondly economic data from emerging markets especially China appears to point to fresh worries for investors. Finally, investors will have to contend with the meeting of the US Federal Reserve next week. The Fed will decide on the future course of its tapering program.
These issues certainly weighed down on the US markets this week. The Dow Jones index was down 1.3% for the week. The US markets are expected to take cues from the meeting of the US Fed next week. The recent economic data from the US appears to point to an improving economic situation despite the extreme bad weather that has hampered economic activity.
European indices traded weak as the Ukraine crisis deepened. The referendum in the east European country will introduce fresh uncertainty in the EU. Investors are also worried about poor economic data from China that seemed to suggest that GDP growth in that country be lower than 7% in the last quarter.
The Indian equity markets however, remained shielded from weak economic cues, and just as last week, continued their uptrend on the hopes of a stable government at the centre post the elections, that will kick start the reform process. The Indian equity markets closed 3.3% up for the week..
Many of the sectoral indices ended in positive territory for the week with Realty (up 15.3%), Banking (up 12%) and capital goods (up 11.9%) being the biggest gainers. IT (down 8.7%) and Pharma (down 5.9%) were the only losers for the week.
Now let us discuss some of the economic developments of the week gone by.
The Economic Advisory Council has pegged the Indian economic growth at 5.2% for the final March quarter of FY14. Higher farm output growth is expected to boost the economic growth for the current fiscal. For the following fiscal, the economic growth is expected to pick up to 5.5-6%. Contraction in industrial output and investment slowdown has dragged India's economic growth. For the December quarter the economic growth was reported at 4.7% levels which stood lower than expectations. This has made it tougher for the economy to achieve the government's growth target of 4.9% for the current fiscal.
The wholesale price index (WPI) based inflation fell to a nine-month low of 4.68% in February. However, the core inflation continued to rise, registering a 0.4% increase from 2.8% in December 2013 to 3.2% in February 2014. The steady decline in WPI has raised hopes of the Reserve Bank of India keeping policy rates unchanged in the upcoming monetary policy scheduled on 1st April 2014.
The retail inflation for the month of February has been reported at 8.1%, down to 25-month low. Prior to this, the lowest consumer price inflation (CPI) was recorded in the month of January 2012 at 7.65%. For the month of January 2014, the retail inflation number stood at 8.79%. The inflation has come down mainly on account of easing onion and potato prices. As per CPI data released by the Government, the overall inflation in the food basket, including beverages, has slowed to 8.57 % in February 2014 from 9.9% in January 2014. It is to be noted here that the retail inflation has been easing for three months now. While the industry is demanding a cut in interest rates to support growth, the Reserve Bank of India (RBI) has maintained a hawkish stance to control inflation.
The index of industrial production (IIP) bounced back recording a growth of 0.1% in January. Backed by higher power generation and increased mining output, IIP returned to the growth track after contracting for three straight months. However, the manufacturing sector remained dismal recording a contraction of 0.7% in January as compared to a 2.7% growth in the year-ago period. For the cumulative period April 2013- January 2014, IIP remained static vis-a-vis a 1% growth clocked in the corresponding period last year.
Export numbers for the month of February 2014 came below expectations. The numbers reported a first decline in a period of eight months. And with this, concerns over the future have started to erupt given the strengthening of the Rupee in recent times. As reported by the Business Standard, exports declined by 3.7% YoY to US$ 25.7 bn during the month of February 2014. As for the 11 month period ended February 2014, exports are up by 4.8% YoY to US$ 282.8 bn. Petroleum, engineering, gems and jewellery - which constitute of nearly 57% of the export basket (in February 2014) - reported a decline in trade during the month. India had set an export target of US$ 325 bn for the full year FY14. However, given that the 11 month figure is way below expectations, the chances of meeting the target seem minimal.
Now let us move on to some more developments in India Inc....
India's second largest software firm, Infosys, might need a longer time to get back to an Industry level growth rate, according to Chairman N.R. Narayana Murthy. At an investor conference, he has expressed his displeasure at the problems that the company is facing. As per him, Infosys has not been able to take any advantage of the depreciation of the rupee and that operating margins will remain under pressure in the near term. He expects growth to pick up only towards the end of FY15. He also indicated that the exodus of management talent from the company may not be over by saying that many more resignations could be expected.
As per a leading business daily, Sun Pharma has received an import alert from USFDA (United States Food and Drug Administration) for all products manufactured at its Karkhadi plant in Gujarat. It received an import alert and effectively a ban for all its API (active pharmaceutical ingredients) and formulations that it manufactures at its Gujarat plant. It may be noted that the move comes when its subsidiary, Caraco recently received USFDA approval for marketing of the company's Risperidone, a mental disorder drug. Also that the company has recently recalled over 2,500 drug bottles from US markets after it received customer's complaints. The company's financial impact on the ban of Gujarat plant is yet to be known. The ban is the result of the detention without physical examination of drugs which have not met the good manufacturing practices, according to the USFDA norms. Further, Ranbaxy and Wockhardt are already under the USFDA scanner for numerous import alerts.
The telecom user base numbers were announced for the month of January 2014 recently. On a month on month basis, the total telecom user base grew by 0.75%, as per telecom regulator - Telecom Regulatory Authority of India (TRAI). The share of urban telecom users stood at 59.86% as compared to 60% earlier, thereby indicating the addition largely coming from rural parts of the country. The monthly increase in rural subscriber base grew at 1.17% as compared to 0.47% for urban users. As for the wireless subscriber base, the same increased to 893.3 m as compared to 886.3 m in December 2013. Bharti Airtel added the maximum number of users during the month, adding 2.4 m users to its subscriber base, followed by Vodafone which added 1.78 m users during the month. The two companies had a total market share of 22.5% and 18.16% respectively. Idea Cellular on the other hand added 1.5 m users, while Reliance Communications added 0.4 m users. As for broadband numbers, the telecom regulator reported that top five broadband service providers constitute 82.57% of market share of total broadband subscribers.
In a bid to boost its disinvestment program at the end of the financial year, the government of India, is about to launch an Exchange Traded Fund (ETF), comprising of stocks of public sector enterprises. The ETF will be called CPSE and will trade on the bourses like any other share. It will have a corpus of Rs 30 bn and will be used to sell stakes in PSUs. Initially, 10 PSUs will be part of CPSE. The government has filed the Draft Red Herring Prospectus (DRHP) with SEBI for the launch of the ETF.
Going ahead, global markets are expected to be volatile from the ongoing problems in Ukraine as well as economic concerns about the Chinese growth rate. The US Fed meet will also weigh heavily on global markets. These factors will continue to affect the Indian markets as well, along with the speculation about the election results.