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Indian markets lead global weakness
Sat, 6 Jun RoundUp

Barring stock markets in China, majority of global indices were down for the week gone by. Uncertainty over the timing of rate hikes by the US Fed and worries about the negotiations between Greece and its creditors in the Eurozone kept markets on tenterhooks. Better than expected US jobs data has increased chances of a Fed rate hike in September, despite the US economy contracting by 0.7% in the first quarter of the year. After hitting life highs just two weeks ago, the US markets have struggled for direction ever since Fed Chairperson Janet Yellen expressed her views that US markets were overvalued. Data shows that margin debt in the US stock markets have hit a record high of US$ 507 bn.

In Europe, the Eurozone-Greece negotiations have reached a crucial stage. There is still no clarity about the final outcome. Greece has already delayed one payment to its creditors as the negotiations continue. This uncertainty weighed down European markets this week.

Indian markets fared the worst this week after the RBI cut the benchmark repo rate by 0.25%. The markets were hoping for a 0.5% cut. The RBI also stated that it had limited room to cut rates further due to concerns over a deficient monsoon.

Key world markets during the week
Source: Yahoo Finance

Sector-wise realty and banking stocks led the losers this week. The capital goods index was the only one that managed to avoid losses.

BSE indices during the week
Source: BSE

Now let us discuss some of the key economic and industry developments in the week gone by.

Reserve Bank Governor Raghuram Rajan announced the second bi-monthly monetary policy statement. The Reserve Bank of India (RBI) cut the repo rate by 25 basis points (bps) to 7.25%. This takes the total reduction in interest rate to 75 bps in the current year after the previous cuts in January and March. The move was widely anticipated given the RBI's comfort with consumer price inflation and the marked slowdown in industrial growth. However, both CRR (cash reserve ratio) and SLR (statutory liquidity ratio) rates have been left unchanged. It should also be noted that according to the RBI Credit Policy, the inflation is expected to rise to 6% by January 2016.

In a recent development that could pose challenges in the execution of Goods and Services Tax (GST), many state governments have demanded that the Centre should compensate them fully for the loss of revenue in the first five years of GST replacing their taxes. The Union Government has agreed to compensate states fully in the first three years and partially in fourth and fifth year -75 percent in the fourth year and 50 percent in the fifth year. While the states are worried about revenue loss, the Central Government stand is that compensation will be given in phased manner. These concerns are likely to be communicated to the select committee of the Rajya Sabha which is scrutinizing the GST Bill.

Movers and shakers during the week
Company29-May-155-Jun-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
J&K Bank 108 116 7.7% 177/95
Bhushan Steel 56 61 7.4% 463/49
Godrej Cons. 1,050 1,119 6.6% 1,230/790
Britannia 2,549 2,710 6.3% 2,725/874
Gujarat Fluoro. 636 664 4.4% 817/426
Top losers during the week (BSE-A Group)
Adani Enterprises 706 115 -83.7% 804/107
Unitech 14 9 -37.8% 39/7
Jaiprakash Asso. 18 12 -30.8% 90/11
Jet Airways 385 305 -20.8% 544/204
Adani Power 39 32 -19.0% 67/29
Source: Equitymaster

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

India's largest car maker Maruti Suzuki has outperformed its rivals by reporting a rise in sales. The company reported a growth of 13% YoY in domestic sales for the month of May 2015. The company sold 1,02,359 units during the month in domestic markets while its exports grew 20.3% YoY to 12,466 units. The overall growth for the company stood at 13.8% YoY. This is the second consecutive month of double digit growth for the company after reporting a 27% YoY growth in April 2015.

Capital goods major Bharat Heavy Electricals Limited (BHEL) has bagged its largest order amounting to Rs 179.5 bn. The order is from Telangana State Power Generation Corp (TSGENCO) for setting up a 4,000 MW (megawatt) plant at Yadadri. This 4,000 MW thermal power project from TSGENCO is one of the highest orders ever placed in the capital goods sector in India. Earlier this year, TSGENCO had entered into a MoU (memorandum of understanding) with BHEL for construction of new thermal power plants totaling to 6,000 MW in the state. The company stated that all these power plants are expected to commence generation on fast-track basis to meet the state's increasing demand for power.

Oil and Natural Gas Corporation (ONGC) is all set to invest Rs 50 bn in coal bed methane (CBM) blocks. Reportedly the company has so far spent about Rs 510 bn on the four CBM blocks. The company holds some prolific CBM blocks in Jharia, Bokaro and North Karanpura in Jharkhand and Raniganj in West Bengal. ONGC has one of the most prolific CBM blocks in the country and sells CBM gas from existing wells at Parbatpur in the Jharia block at an approved price of US$ 5.1/m British thermal units.

Stock of Nestle India witnessed a lot of selling pressure and plunged by almost 15% amid worries that samples of Maggi noodles have failed to meet food safety norms conducted by many state governments. The company has stopped the sale of the product as of now in the country.

Bharti Airtel the largest wireless service provider in India, has once again approached the global debt market to fund its capex (capital expenditure). The company on Wednesday entered the global bond market to raise $1 bn through a 10-year bond sale programme. For this deal the company has appointed six merchant bankers, which include Bank of America-Merrill Lynch, Barclays, Deutsche Bank, HSBC and Standard Chartered among others. For the quarter ended March 2015, the company had posted a 31% rise in net profit while its African business continued to witness losses.

The stock of Coal India witnessed buying interest this week on account of its production numbers. The company's coal production in May rose by 13% as compared to corresponding period of last fiscal. It was announced that the Ministry of coal will auction linkages to Coal India's production for the span of five years. Meanwhile, the government has also announced that it will resume coal block auctions. The auction is for 10 mines with a total annual production of 13.1 million tonnes to cement, steel and aluminum companies and captive power producers.

Going forward, the markets will be influenced in the short term by the outcome of US Fed's meeting this month as well as the Greece-Eurozone negotiations. Volatility can be expected to remain high. However we believe, investors will be best served if they ignore short term noise and focus on investing in fundamentally strong companies for the long term.

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Jan 18, 2018 03:35 PM