It was a negative week for the world stock markets as barring Brazil all other markets closed in the red. This was a combined effect of the Middle East crisis as well as the earthquake/tsunami which hit Japan last week leading to a nuclear disaster. Not surprisingly, Japan was the biggest loser of the week for the second consecutive time, down 10.2%. Brazil the only market to close in the green was up 0.3%.
In Asia, China was down 0.9% while Indian stock market were down 1.6%. Singapore and Hong Kong closed the week down 3.5% and 4.1% respectively. In Europe, UK was down 1.9% while France and Germany were down 3% and 4.5% respectively. US closed the week down 1.5%.
In Europe, Germany and UK were both down by 2.7% while France closed the week down 2.3%. In the Americas, US was down by 1% while Brazil was down by 2%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India, all stocks barring consumer durable closed the week in the red. The biggest losers were auto stocks on concerns of rising raw material costs and an appreciating yen. As a result, BSE-Auto index was down 3.2%. Among the other biggest loser of the week were BSE-FMCG index (down 2.7%) and BSE-IT index (down 2.4%). BSE-Consumer Durable index was up by 1%. BSE-Banking and BSE Midcap was among the other top performing indices of the week down 0.1% and 0.3% respectively.
Moving on to key corporate/economic developments, Tata Motors announced that it is looking to increase prices of its vehicles from 1st April. The entire auto industry has been suffering from rising input cost pressure. As a result, all automobile manufacturers are either raising prices or planning to take a hike in the near future. The price hike which Tata Motors is plans to take ranges from Rs 7,000 and Rs 36,000, depending on the models. In the passenger car segment, prices of Indica are expected to increase by Rs 7,000 to Rs 9,000 while for Vista and Indigo CS, the price is expected to go up by Rs 8,000 to Rs 11,000. On the other hand, price of the company's Sedan Manza is expected to increase by Rs 10,000 to Rs 15,000. In the utility vehicle space, price of Sumo will go up by Rs 13,000 to Rs 15,000 while price of Safari will go up by Rs 18,000 to Rs 29,000. The newly launched Aria is also going to become more expensive with a price increase of Rs 30,000 to Rs 36,000. However, the company's low cost vehicle, the Nano will continue to be available at the current price.
It may be noted that raw material costs make up about 80% of total automobile manufacturing costs. Steel is the biggest raw material component, the price of which has climbed by 30% YoY. Due to this margins of automobile manufacturers have been under pressure. Now these companies have no choice but to pass on this burden to their customers.
In other news from the auto sector, one of the biggest losers of the week has been Maruti Suzuki. This is because post the earthquake and Tsunami in Japan, the yen has appreciated against the Rupee. What this means is that the Indian unit will have to pay more for purchasing parts from Japan. It may be noted that at least 20% of Maruti Suzuki's imports are yen-denominated and the company buys yen worth Rs.36 bn per annum to import parts and pay royalty to Suzuki Motor. The yen has appreciated by 4.8% against the Rupee since the earthquake struck the island nation. However, the impact of the currency appreciation on Maruti's profitability will depend on how long the appreciation continues. On concerns on shortage of parts, the company's spokesperson has said that Maruti has adequate supply of components for the next 3 months. Furthermore, many of the factories which supply parts are located in the southern region of Japan and were not affected by the calamity.
In news from the energy sector, shares of Reliance Industries Limited (RIL) plunged by almost 4% on Friday on concerns of lower gas production. Yesterday, RIL told Directorate General of Hydrocarbons (DGH) that production of natural gas and crude oil from Krishna-Godavari (KG) basin may fall. In fact the gas production from the block is expected to fall to 38 million standard cubic metres per day (mmscmd) in FY12 from the present 50-51 mmscmd. This is contrary to a statement given by DGH last week that the gas output is expected to increase by 30% from the same fields. As per RIL, the production figures released by it are purely provisional and indicative and subject to variations which may emerge during actual operations in the future years. However, it may be noted that recently the company had given a guidance of 43 mmscmd output from the KG D6 block to analysts.
In news from the power sector, post the Japanese nuclear disaster, India may do a rethink on its nuclear policy. As per the spokesperson from Atomic Energy Commission, all of India's nuclear reactor designs will undergo a review. However, Mr Srikumar Banerjee, chairman, Atomic Energy Commission has stated that India will go ahead with its nuclear power plans and will break ground for 8 new reactors this year. It becomes all the more important to pursue alternate sources of energy generation because of the challenges being faced for securing coal for generation of power using thermal sources. As per Moody's Investors Service, coal shortage in India may triple in the next five-seven years.
It is believed that NTPC may be changing its strategy of securing critical fuel supplies. The company has been trying to buy mines overseas outright. But it has not been successfully in countries like Australia, Indonesia and South Africa. Now the company is signing long term coal supply contracts to secure its critical fuel supplies. The company however, will be looking to acquire small stakes in overseas mines to ensure supply security.
NTPC's strategy is similar to that of Tata Power. Tata Power is also buying minority stake in overseas coal mines to secure supply. The company is looking to boosts its power generation capacity by more than eight times in six years. For this the company is buying stakes in mine companies in Indonesia, South Africa and Mozambique, and Australia. The company also plans to diversify its power generation sources with at least 20% of its power generation coming from cleaner, non-coal-based sources such as hydro, gas, wind, solar and geothermal.
In other news, The Reserve Bank has said that it is too early to assess the impact of the natural calamity in Japan on the Indian Economy. However, it is felt that as normalcy is restored, expenditure on reconstruction may provide an opportunity for Indian companies. But substitution of nuclear energy with thermal energy in Japan would exert further pressure on petroleum prices. It may be noted that in the last fiscal, total trade between India and Japan stood at US$ 10.4 bn. India is also the biggest recipient of Japan's official development loan.
The Reserve Bank in its bid to rein in inflation raised its short-term lending and borrowing rates by 25 basis points for the eighth time since March 2010. The short term lending rate (repo) has been increased from 6.50% to 6.75%. On the other hand short-term borrowing rate (reverse repo) has been raised to 5.75% from 5.50%. As per the Finance Minister Mr Pranab Mukherjee the decision to raise key policy rates would help in moderating prices. He also felt that inflation may fall to 7.5% by the end of the month vs. the government's earlier projection of 7%. It may be noted that the overall inflation increased marginally in February to 8.31% from 8.23% a month ago.