A mixed week for global markets

Sat, 30 Mar RoundUp

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The global stock markets witnessed a mixed performance over the week. The major European stocks ended in the negative. This was on account of a selloff in banks as the leader of Italy's Democratic Party ruled out the possibility of a consensus on a broad coalition government. The stock markets in Germany and France were down by 1.5% and 1.0% respectively. The Euro slumped to a four-month low against the dollar during the week.

However, the US stock market ended in the green (up 0.5%) on the back of a strong economic data and relief after banks in Cyprus reopened following a two-week closure. Barring China (down 3.9%), the major Asian stock markets witnessed gains over the week as they reflected the good news out of the US. The stock markets in China tumbled as new restrictions on wealth-management products led to concern that bank earnings will slow down. The harsher Government measures to cool property prices further added to the concerns.

The Indian stock markets ended the week in the green, up by 0.5%. This was largely due to heavy buying in ICICI Bank, Infosys, Larsen & Toubro, ITC and Oil & Natural Gas Corporation shares amid settlement of monthly derivative contracts.

Source: Yahoo Finance

The sectoral indices ended the week on a mixed note with consumer durables (up 3.9%) and PSU stocks (up 1.6%) witnessing maximum gains while auto (down 1.2%) and Capital goods sector (down 1.2%) led the losses.

Source: BSE

Now let us discuss some of the economic developments of the week gone by. India's current account deficit (CAD) widened from 5.4 % in the July-September quarter to a record high of 6.7 % of GDP in the October-December quarter. This was driven mainly by huge trade deficit, as per a release by the Reserve Bank of India (RBI). An increase in the capital flows helped finance the current account deficit. As per RBI release, the exports growth during the third quarter was muted as compared to the corresponding period last year. However, the imports grew 9.4 %, driven mainly by oil and gold imports.

In news from the power sector, the Power Ministry is planning to approach the Cabinet Committee on Investments (CCI) to consider the gas price pooling mechanism . The move aims to prevent gas-starved power capacities from becoming non-performing assets (NPAs). It may be noted that the new generation capacities of power producers have become unviable for want of fuel. As such, the banks have become increasingly reluctant to lend to power producers. The Power Ministry would take to CCI the availability versus demand for gas, current arrangements in the supply and implications of pooling for the economy and individual power producers. Currently, 33 million standard cubic metres per day (mmscmd) of domestic natural gas is supplied to the power sector. Of this, 23 mmscmd is supplied to power plants linked to the grid and another 10 mmscmd to off-grid plants.

Now let us move to some news from the corporate world. The leading telecom company Bharti Airtel Ltd has raised US$ 500 m through a bond issue . This follows a fund raising of US$ 1 bn earlier in the month. The amount has been raised mostly to pay off high interest loans and fund capex requirements. It must be noted that the Indian telecom sector is currently facing a tough phase. Despite the fact that number of operators came down post the cancellation of 2G licenses by the Supreme Court, the competitive intensity remains high. However, the tariffs still remain at rock bottom levels. Another challenge for the sector and the industry as a whole is government regulations. The regulator and operators have been increasingly at loggerheads over issues related to spectrum auction, spectrum pricing, onetime fees, refarming, etc. The luke warm response to the recently held 2G auction has led the regulator to believe that pricing needs to be made more conducive and attractive for operators.

The Parliamentary Panel has recommended the merger of state-owned steel companies, Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL). The Committee on Public Undertakings, a body of Lok Sabha members has reiterated its proposal stating that the move would help the two companies to acquire global scale and bring down costs of production. SAIL currently has a capacity to produce 14.6 million tonnes per annum (mtpa). It aims to expand capacity to 26.2 mtpa. Vizag-based RINL currently has a capacity of 2.9 mtpa, which is expected to go up to 6.3 mtpa in the next fiscal.

Movers and shakers during the week

Company	22-Mar-13	28-Mar-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Opto Circuits	49	60	23.9%	217/43
Adani Ports & SEZ	126	139	10.1%	162/108
Dish TV	61	67	9.8%	85/52
Bayer Cropscience	1,107	1,205	8.9%	1342/749
Gujarat Fluoro	275	299	8.8%	542/250
Top losers during the week (BSE-A Group)
MMTC	240	199	-17.1%	890/197
Torrent Power Ltd	156	140	-10.1%	218/137
Nalco	36	33	-8.6%	64/33
Eicher Motors	2,763	2,545	-7.9%	3240/1620
Coromandel International	200	185	-7.7%	305/181

Data Source: Equitymaster
Gas Authority of India Ltd (GAIL) is targeting to sell 84.05 m standard cubic meters per day (mmscmd) of natural gas in 2013-14. The company has recently signed a performance Memorandum of Understanding (MoU) with the government and is committed to transmit 110 mmscmd through its pipeline network. The MoU was signed by Oil Secretary Vivek Rae and GAIL Chairman and Managing Director BC Tripathi. The production target is set at 430,000 tonnes of polymers and 1.3 m tonnes of liquid hydrocarbons. Meanwhile, a pipeline project of GAIL has been halted in Tamil Nadu, at the starting point of the project. The project was to link Kerala and Karnataka via Tamil Nadu. However, the government has stated that pipelines cannot be laid on agricultural land.

India's leading passenger vehicle maker Maruti Suzuki is now aiming to increase its presence and market share in the fast growing utility vehicle market. Ertiga MPV, its latest offering in the utility vehicle space has become India's largest selling model in the segment. It is also being exported to Indonesia. The company is now planning to launch new products and variants in the utility vehicle space. It must be noted that Maruti is a leader in the small car market. It enjoys a hefty 50% market share in the domestic car market. However, competition in the small car segment has been increasing. For e.g., companies such as General Motors that have traditionally manufactured big cars have forayed into the hatchback segment.

The week gone by was mixed for global stock markets amidst concerns in the Eurozone and positive data from US. Uncertainty in the global environment and lesser FII inflows are likely to have an impact on the stock markets. However, for long term investors, this is the time to invest in fundamentally sound stocks available at attractive valuations.