All the major global stock markets ended the week* in green with stock markets in China and Hong Kong leading the gains.
As the European Central Bank's €1.1 trillion quantitative easing policy suppresses borrowing costs and cheapens the currency, record amounts of money have been poured into euro -zone equities over recent months. The stock markets in France and Germany were up by around 3.5% and 3.1% respectively during the week*.
Despite not so strong employment report data, US stock markets inched higher (up by around 2%) during the week*. Further, statements by Fed officials to the effect that a rate cut is not totally out of question (if economic reports are strong) supported the positive sentiments.
The stock markets in China (up by around 6% during the week*) seem to be following the movements in the leading global markets. Apart from that, the positive sentiments in the markets could be attributed to national policies such as China's "Belt and Road" initiative that favors infrastructure-oriented stocks and other factors such as loose global monetary policies, low crude prices and privatization of state owned companies. However, at a time when China is facing pressure from slowdown in the GDP growth and lackluster economic data, these gains could suggest creation of a bubble.
Back home, the Indian markets ended higher, up by around 2.2% during the week*. The rise was supported by upgradation of India's ratings outlook by Moody's .However, gains were restricted on account of profit taking especially in the banking and capital goods stocks ahead of the release of IIP data. The gains in the S&P BSE Midcap and S&P BSE Smallcap stocks outpaced the gains in the BSE-Sensex during the week*. Going forward, fourth quarter corporate earnings are likely to influence investors' sentiments.
Now let us discuss some of the key economic and industry developments in the week gone by.
As per data from Centre from Monitoring Indian Economy (CMIE), capital investment announcements in FY15 were up by 80% YoY to Rs 9.9 trillion. This is the highest in the last four financial years, indicating a recovery in the investment climate in the country. Even the private sector has seen a pick-up in capital investments. In the March 2015 quarter, the private sector's share in overall new investment announcements rose to 75% as against a share of 46% in the preceding two quarters. Out of the total of 449 projects announced in the March quarter, 226 projects valued at Rs 1.5 trillion were proposed by the private sector. It is worth noting that a major share of around 40% of the new investments have been announced in the state of Gujarat.
Steel imports to India have increased by a whopping 71% to touch a record high of 9.31 million tonne in 2014-15 compared to 5.45 million tonne last year, putting pressure on the already squeezed margins of domestic firms. Due to rising imports from countries like China, Japan and Russia, domestic steel industry is struggling to retain margins. It is noteworthy that steel imports to India attract duties between 5% and 7.5%. The domestic steel industry has been clamoring for raising the duty to at least 10%.
Real estate bill got thumbs ups with additional amendments implemented by the Union Government. Under the recent real estate bill, the developers of both residential and commercial sectors will have to register themselves with a statutory body and also disclose all the details which include the layout, plan, schedule for development works and status of the project. All the submissions to the statutory body will be subject to approvals. On failure to register, the developers can be fined up to 10% of the project cost and another 10% if the afore said rules mentioned by the Union Government are not met. To keep transparency in financials, the developers have to mandatorily deposit 50% of the money taken by buyers in a project within 15 days to a different bank account.
Automobile sector received mixed sales for the month of March 2015 from the data disclosed by the Society of Indian Automobile Manufacturers (SIAM). Domestic passenger sales group increased by 2.64% or 176,011 units in March compared to 171,491 units recorded last year, same month. On the negative side, sales of motorcycles fell over 5% to 859,521 units compared to 906,901 units recorded last year. Vehicles of all categories witnessed a slight decline of 0.15% from the month of March. However, on fiscal basis, vehicles sales registered a growth of over 7%.
Now let us move on to some of the key corporate developments of the week gone by.
India's largest bus and truck maker Tata Motors and the Tata group's private equity fund -Tata Capital are looking to sell their 90% stake in auto designer Tata Technologies. Tata Motors owns around 70.43% of the unit, while various Tata Group companies including Tata Capital hold a 17.36% stake. The rest is owned by employees of Tata Technologies through stock options. Reportedly, the stake sale by Tata Motors is part of its plan to liberate some capital from its non-core business to invest in its core business within India. Tata Motors plans to launch more than 100 new commercial vehicles until 2018 and two new products every year in the passenger vehicle segment.
Pharma major Cipla has entered into an agreement to acquire 100% stake in Brazil's Duomed Produtos Farmaceuticos Ltd, for about Rs 260 m. The acquisition is part of Cipla's front-end strategy and will expedite its product registrations in Brazil. The transaction is expected to be completed by the end of May 2015. Through its UK-based wholly-owned subsidiary, Cipla (EU) Ltd, the company inked the agreement with the limited liability company in Brazil for a cash consideration of Brazilian Real (R$) 12.9 million.
According to a leading financial source, National Thermal Power Corporation (NTPC), the nation's top power producer, is initiating steps towards its objective of diversifying into transmission and distribution. The company wants to start with offering electricity to consumers around some of its plants and is in talks with three states to trial-run the project. However, the company anticipates a resistance from regional states. NTPC has a capacity of 44,398 MW, or about 17% of the nation's total power generation capacity of 255,012.79 MW. Reportedly, the company is also looking to spend Rs 50-60 bn on acquisitions this fiscal year.
State-owned Oil and Natural Gas Corporation (ONGC) has reversed a seven-year decline in its crude oil production, showing a marginal increase in output in 2014-15. ONGC produced 22.263 million tons (MT) of crude oil during April 2014 to March 31, 2015, up from 22.247 MT in the previous fiscal. Offshore production was higher as compared to onshore production. Reportedly, ONGC is targeting a total of 26 MT of oil production in the next fiscal year.
Going forward, economic data and India Inc's earnings for the quarter ending March 2015 will be the key factors influencing investors' sentiments, unless there are some major triggers from the global markets. Investors would be best served if they focus on the long term and invest only in fundamentally strong companies trading at attractive valuations.
*The returns are from 1st April 2015 to 10th April 2015.