Cyprus crisis spooks investors

Sat, 23 Mar RoundUp

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The world stock markets closed the week in the negative with China being the only exception. The Cyprus bailout crisis was a major cause of concern for global investors. It is feared that collapse of the banking system in Cyprus might slow the growth of the Euro economy. However, in the US, strong corporate earnings provided some relief to the falling stock markets. The US stock markets ended the week on a flat note.

Indian markets traded in the red for most part of the week and finally ended lower by 3.6%. This was largely due to political uncertainty arising out of the withdrawal of a key ally from the Union government. The Cyprus crisis too spooked investors.

Source: Yahoo Finance

Amongst sectoral indices, barring FMCG stocks (flat closing), all other indices displayed negative performance led by realty (down by 13%).

Source: BSE

Now let us discuss some of the economic developments of the week gone by. The Reserve Bank of India (RBI) effected another cut in the repo rate in its mid-quarterly review of Monetary Policy during the week. The repo rate has been cut by 0.25% and now stands at 7.5%. Reverse repo thus stands adjusted to 6.5%. The rate cut has been taken with a view to stimulate the country's economic growth. India's GDP growth in the third quarter of the current financial year stood at 4.5%, the weakest it has been in the last 15 quarters.

In news from the banking space, gross NPAs of 40 listed Indian banks increased substantially to Rs 1.8 trillion from Rs 1.3 trillion in December. This implies a 43% increase as compared to the same period last year. Also, loan recasts total Rs 4 trillion, including both within the CDR and outside the CDR. As 25 to 30% of such loans are expected to go bad, the Government has decided to get strict with defaulting borrowers. The Finance Minister has asked the business owners to grow their business so that they can service their debt payments. Non-payment of loans would result in strict action against the defaulters. He also asked banks to recover such loans by taking firm actions.

Moving on to important news form the corporate world, earlier during the week the Government of India announced its decision to offload 10.82% of its stake in Steel Authority of India Limited (SAIL) through a public offer. However, it later revised its original plan of 10.82% stake sale to 5.82% only. The government cited poor market conditions as the reason for this revised target. It is the second disinvestment this month where the government has cut the issue size on account of adverse market conditions that may not help it realize original targets. The offer for sale commenced on Friday and the government mopped up Rs 15 bn from it.

Mahindra & Mahindra (M&M) recently launched an all-electric passenger car, the e-20. The electric car will be produced at Mahindra Reva's production facility at Bengaluru. The car priced at Rs 5.96 lakh is fully automatic and powered by 48 volt lithium ion batteries. These batteries offer a range of 100 km per charge and can be charged anywhere through a standard 15-ampere plug point. Mahindra has added some new technologies into the e2o such as Sun2Car (allowing charge via solar energy), Revive and regenerative braking system that further boost the car's range. The two-door hatchback can seat four adults. The automatic gearbox features three drive modes including 'Boost' for a more spirited driving experience but at the cost of lower range.

Movers and shakers during the week

Company	15-Mar-12	22-Mar-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Pidilite Industries	250	263	5.3%	265/154
Godrej Consumer	747	778	4.2%	812/465
Lupin Limited	610	628	3.0%	628/485
Indraprastha Gas	263	271	2.8%	379/170
GSK Pharma	2,114	2,169	2.6%	2292/1916
Top losers during the week (BSE-A Group)
HDIL	66	47	-29.0%	121/45
MMTC	296	228	-22.8%	822/228
Core Education	61	50	-18.9%	342/46
Reliance Communications	67	54	-18.8%	89/47
Reliance Infra	420	343	-18.3%	613/334

Data Source: Equitymaster
Asian Paints is looking at buying 51% stake in modern kitchen maker, Sleek. The board has approved the transaction. The transaction is expected to help Asian Paints venture into the home improvement space which has huge potential to grow in India. Sleek is a maker and distributor of kitchen and kitchen components. It manufactures and sells wire baskets, cabinets, appliances and accessories. Sleek has 30 showrooms and strong network of 250 dealers spread across the country.

The week gone by witnessed fall in stocks across indices and sectors. Uncertainty in the global environment and lesser FII inflows could continue to have an impact on the stock markets. However, for long term investors, this is not a time to worry but to invest in fundamentally sound stocks available at attractive valuations.