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Global markets close on a weak note
Sat, 30 May RoundUp

Barring Japan stock markets, majority of global indices were down for the week gone by. As per recently released data, the US economy contracted by 0.7% in the first quarter. This is in sharp contrast from the earlier estimate of growth of 0.2%. Even Greece slipped back into recession in the first quarter. Greece's economy emerged from a six-year long recession last year, but since late 2014, the political uncertainty has been weighing on the economy.

Over and above, the US Treasury Secretary Jack Lew on Friday also warned about a possible risk for the world economy if Greece and its creditors miss their June deadlines to make the payment. Greece, which has been stuck in a deep debt crisis since last five years, has to pay back US$ 410 m to the IMF by the end of June. On June 30, Greece's bailout expires, this means it would not be able to call on cash post the expiry of the deadline. European stocks dropped as uncertainty in Greece stays in the spotlight.

Meanwhile, Japan was the only gainer for the weak with the Nikkei remaining at 15-year high levels. The Japanese data on Friday showed signs of bottoming. Decline in Yen is further providing the boost.

Back home, the week was quite volatile for the Indian stock markets. The global and domestic factors influenced the direction of the Indian markets. Eyes are now on the monetary policy scheduled on 2nd June, since there are high hopes of rate cut.

Key world markets during the week
Source: Yahoo Finance

Sectorwise, IT and metal stocks led among the losers, while stocks in the consumer durables and oil and gas sectors were the leading gainers in the pack. The mid cap stocks too witnessed buying interest and ended the week on a positive note.

BSE indices during the week
Source: BSE
Now let us discuss some of the key economic and industry developments in the week gone by.

Power and Coal minister Piyush Goyal announced that 22,566 mega watts (MW) of capacity were generated in power and coal sector in last one year. He stated that there has been highest ever increase in transmission line capacity of 22,100 circuit kilometers and highest ever increase in sub-station capacity of 66,554 MW. The power deficit in the country dipped to an all time low of 3.6%. Reportedly, he also emphasized on the future government plans which include raising renewable energy capacity by more than five times to 175,000 MW by 2022, five ultra-mega power plants totaling 20,000 MW. It is to be noted that state-owned Coal India Ltd produced a record 32 million tons of dry fuel and is looking at producing 100 million tons by 2020.

According to a leading financial daily, Vodafone has sold its 4.2% stake in Bharti Airtel for US$ 200 m. The stake has been bought by Bharti Enterprise, the holding company of Airtel. This step is in accordance with the new norms issued by government of India that bars a telecom operator from holding any kind of stake in competition under unified licences. Consequently, Vodafone has to sell its entire stake in Bharti Airtel. Earlier, upto 10% stake was allowed. Vodafone had picked 10% stake in Airtel in 2005. Part of this was sold in 2007.

Movers and shakers during the week
Company22-May-1529-May-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Dish TV 83 101 22.1% 100/51
Voltas 289 333 15.2% 352/177
Astrazenca Pharma 861 961 11.7% 1245/785
Britannia 2,285 2,548 11.5% 2665/856
Bharat Electronics 3,224 3,582 11.1% 4140/1573
Top losers during the week (BSE-A Group)
Tech Mahindra 655 554 -15.3% 750/465
Jindal steel 136 119 -12.4% 350/118
Adani Enterprise 779 706 -9.4% 804/410
Reliance Infra 447 409 -8.5% 820/392
MMTC 53 48 -8.3% 107/46
Source: Equitymaster

Now let us move on to some of the key sectoral and corporate developments of the week gone by.

Steel Authority of India Ltd (SAIL), the leading steel-making company in India, has decided to join hands with Korean major Posco for setting up a 1.5 mtpa (million tonne per annum) steel plant at Bokaro at a likely investment of Rs 60 bn to cater to the growing demand from the automotive sector. The proposed new joint venture would use Posco's patented Finex technology and would be the first plant to be set up on the Finex technology outside Korea, where Posco has a 1.5 mtpa capacity. SAIL has been scouting for partners to exploit the opportunities to produce high-grade automotive steel and has signed a similar pact earlier this week with world's largest steelmaker ArcelorMittal with the objective of setting up a 1.5 mtpa steel plant at Rourkela in Odisha at an investment of Rs 50 bn. Currently, the stock of SAIL is trading flat.

Vedanta India, which changed the name from Sesa Sterlite last month, is a promoter in Cairn India. Reportedly, it will acquire up to 100 million shares of the company from another promoter Twin Star Mauritius Holdings Ltd. After the acquisition of the shares, Vedanta India's stake in Cairn India will grow from 18.73% to 24.06%. Twin Star Mauritius Holdings held 39.41% stake in Cairn India as of March 2015. Shares of Cairn India ended the trading session up by 0.21% at Rs. 191 per share on the BSE. Vedanta India ended up by 2.34%.

The State-run Corporation Bank has announced that it cut the base rate or minimum lending rate by 25 bps. Accordingly, the new base rate stands at 10%. The new proposed rate will be effective from 1st June 2015 onwards. This step is much in line with the other banking players. During the month, many banks including Punjab National Bank, Bank of Baroda, and IDBI Bank reduced base rate by 0.25% to 10%. State Bank of India, the country's largest lender, had reduced its base rate by 0.15% to 9.85%.

The stock of Nestle Ltd witnessed correction post negative news related to its leading brand Maggi. As per the reports, the Uttar Pradesh (UP) FDA may file case against the company in one week's time. The UP FDA and Maharashtra FDA have raised concerns about high level of lead in Maggi, a Nestle brand which accounts for 80% of noodle market in India. The Maggi brand of products, which includes noodles, sauces, soups and cooking aids, accounts for nearly one-third of the company's total revenues and is the only segment where volumes grew for the year 2014.

Let us take a look at the quarterly results of some of the companies.

India's fifth largest IT firm Tech Mahindra has announced the fourth quarter results for FY15. The company has reported a 39% QoQ fall in consolidated net profit due to higher employee costs and cross currency impact. The company's operating margin declined to 15.2% in the quarter. The topline however, grew 6.3% QoQ in rupee terms.

The stock of Tata Motors witnessed selling pressures post its result announced for the March 2015 quarter. This was due to lower than expected consolidated net profit which the company reported for the fourth quarter ended March 31, 2015. The consolidated net profit for the concerned quarter stood at Rs 17.2 bn as against Rs 39.2 bn for the quarter of last fiscal. This fall was on account of lower than expected operating performance at Jaguar Land Rover (JLR) and mark-to-market (MTM) loss provisioning at JLR. Consolidated revenue however increased by 3.5% to Rs 675.7 bn in the quarter backed by increased wholesale volumes and richer product mix both in the standalone business and JLR.

There has been a lot of activity happening on the global and domestic front. The geo-political tensions are expected to fuel uncertainty across the world including the Indian markets. Over and above, the Indian stock markets will continue to remain vulnerable to FII activity. The domestic earnings season has not been encouraging for most of the companies. All such factors will have strong influence on the direction of the market. However, for investors it makes more sense to look for stocks with strong fundamentals for the long term and they should not be swayed by short term blips in the stock market.

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