In the week gone by, stock markets around the world witnessed a lot of volatility. Investors were nervous about the possibility of the US Fed raising interest rates in June. Volatility in crude oil prices also kept markets on tenterhooks. The US Dollar surged this week as weak inflation data did nothing to allay fears of the US Fed starting the rate hike cycle. US markets were down 3% this week.
European markets delivered a good performance in the week gone by. The Euro fell against the Dollar and European markets looked beyond worries that Greece may not remain in the Eurozone for long. The European Central Bank's bond buying program has helped European stocks rise for a sixth straight week.
Back home, the Indian markets ended lower due to worries of a rate hike by the US Fed. Investors are also keenly watching for moves on the reforms front. With the Insurance bill being cleared more reforms are the need of the hour.
Now let us discuss some of the key economic and industry developments in the week gone by.
Consumer Price Index (CPI) for the month of February came in slightly higher than expected. The CPI came in at 5.37% compared to previous reading of 5.11%. Increase in the price of food articles, mainly vegetables, was primarily responsible for a high CPI. Rural inflation too inched up to 5.79% compared to earlier reading of 5.34%. According to a leading financial daily, a rise in the inflation might rule out a possibility of another rate cut which could have happened in the month of April.
As per the financial daily, the International Monetary Fund (IMF) expects India's Gross Domestic Product (GDP) to grow by 7.2% this fiscal. Reportedly, it also added the GDP can further grow to 7.5% next fiscal. Structural reforms and policy changes are primarily responsible for the optimism and growth of Indian economy. High investment flow and easing of business environment is expected to bring the change in Indian economy. These estimates have been calculated on the basis of the new methodology which India has recently adopted to calculate the GDP. In the previous year, for the same period, IMF had predicted a growth rate of 5.6% and 6.4% for two consecutive fiscals.
As per the recently released economic data, India's Current Account Deficit (CAD) for three months (October - December) came as per expectations. The CAD of India came to US$ 8.2 bn for three months ending December 2015. The CAD narrowed on the back of an increase in exports; resulting in inflow of funds. On a QoQ basis, the CAD declined from US$ 10.1 bn to US$ 8.2 bn, however, on YoY basis the CAD doubled itself from US$ 4.2 bn.
India's foreign exchange reserves for the first nine months of the current fiscal increased by US$ 16.4 bn. This is much higher than the reading of US$ 1.8 bn recorded last year same period. According to the Reserve Bank of India (RBI), the forex reserves as of December 26, 2014 stood at US$ 320 bn. Factors responsible for the increase in forex reserves are an increase in foreign investments and a decline in current account deficit. Foreign investments increased US$ 52.2 bn while current account deficit declined US$ 26.3 bn. On the other hand, capital account showed a positive movement of US$ 57.6 bn.
Now let us move on to some of the key corporate developments of the week gone by.
India's leading auto firm Maruti Suzuki has recalled 33,098 vehicles. Of this figure, 19,780 units are attributed to Alto 800 and 13,318 units are attributed to Alto K10. The company said that there was a problem in the right side of the door latch. This is the third recall announced by the company since last year. In the past, Maruti has recalled 1,03,311 units of Ertiga, Swift and Dzire to replace the fuel neck.
ITC has decided to increase the price of cigarettes tentatively. The company has increased prices of its cigarettes from 10% to 25% across all its products which when averaged, comes to around 15%. The hike in cigarette prices comes after higher excise duty was levied on tobacco products in the Union Budget. This 15% hike was above the expected hike of 12% to 13%.
Asian Paints has entered into a Memorandum of Understanding (MoU) with the Government of Andhra Pradesh. The company plans to start a factory that would manufacture paints and intermediates in the Vishakhapatnam district of the state. The investment would be Rs 17.50 billion over a period of 12 years. The investment includes the cost of land and the company expects to provide an output of approximately 400,000 kiloliters per year.
ICICI Bank has said that it is going to create a separate department that will take care of the Non-Performing Assets. This decision follows the similar decision taken by the State Bank of India (SBI) last year and encouraging results were reflected in its result of December quarter. NPA of ICICI Bank stood at 3.40% during the December quarter. The department was reportedly shut in 2005 but the bank is planning to re-introduce it again to curtail the NPA problem.
Going ahead, the Indian markets will continue to look for cues from global events like the timing of the US Fed's rate hike as well as the possibility of Greece exiting the Euro. However, investors would be best served if they focus on the long term and invest only in fundamentally strong companies trading at attractive valuations.