Global stock markets end in red

Sat, 8 Jun RoundUp

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All global stock markets except US stocks ended the week in the red. US stock markets enjoyed a strong finish to the week but proved volatile as investors appeared to struggle with how to interpret economic data-as a driver of profit growth or on the basis of Federal Reserve's policy. At the start of the week, investors appeared to remain focused on whether the Fed would soon allow long-term interest rates to drift higher by tapering its purchases of long-term bonds. Positive economic signals also led to market gains later in the week. Stocks jumped after the US Labor Department reported that employers had added 175,000 jobs in May, slightly above consensus expectations. As such US markets were up by 0.9% during the week.

The European Central Bank lowered its growth forecast for the region. Nevertheless, European markets regained momentum late in the week on the heels of U.S. payroll numbers and market gains. However all the European stock markets ended the week in the red. The stock markets in UK posted the sharpest losses of 2.6%.

The Indian equity markets closed the week in the red with the shares in the Consumer Durable space leading the downfall. The BSE-Sensex was down by 1.7%. The Chinese markets were also down by 3.9% over the week. The Japanese markets continued the swoon that began two weeks ago and neared bear market territory, commonly defined as a drop of 20% or more from recent peaks. The Japanese stock markets were down by 6.5% during the week as the growth map laid out by the Prime Minister of Japan failed to impress investors.

The Indian stock markets witnessed strong buying in the shares of Crisil, Reliance Communication, Bata India, & Mcleod Russel during the week.

Source: Yahoo Finance

Majority of the sectoral indices ended in the red with consumer durables (down 4%), auto (down 2.5%) power (down 2.4%), and Private Sector Units (PSU) (down 1.9%) witnessing the maximum losses. Information Technology (up 1.2%), pharma (up 0.5%) and BSE Small Cap (up 0.3%) were the biggest gainers during the week.

Source: BSE

Now let us discuss some of the economic developments of the week gone by. Indian service activity expanded last month at its fastest pace since February 2013 as burgeoning new orders drove optimism to a five-month high. India's services sector activity expanded in May 2013 and the pace was the fastest in three months. The HSBC/Markit Purchasing Manager's index for the services industry today inched up to 53.6 in May, pointing to a solid expansion in output. It has registered 50.7 in April 2013. A reading above 50 shows that the sector is expanding, while a reading below 50 shows that the output in the sector is contracting. The services sector which accounts around 60% of the India's GDP expanded largely driven by higher levels of new work placed at private sector firms in India.

Indian manufacturing growth nearly stalled in May 2013 as factory output shrank for the first time in over four years, suggesting that the economy remained frail at the start of the new fiscal year. The reading for the factory production sub-index, however, showed output contracted in May from a month earlier as new orders growth slowed to a trickle. The output sub-index fell to 48.6 in May from 50.2 in April.

Now let us move to some news from the corporate world.

Reliance Industries Ltd (RIL) has unveiled an ambitious capacity expansion plan over the next three years. The company will be investing Rs 1,500 bn across its key business verticals. The investments will be pumped in exploration & production of oil & gas, petroleum refining and marketing, petrochemicals, retail and 4G broadband networks. RIL will be scaling up all its major manufacturing sites at the same time. Among its capacity expansion initiatives, the capacity ramp up in its petrochemical capacity from 15 m tonnes to 25 m tonnes per annum is underway and its completion will ramp up the polyester business from 1.4 m tonnes to 4 m tonnes per annum. The polyester filament yarn plant at Silvassa will be commissioned in the first half of CY13 whereas the polyethylene terephthalate (PET) resin plant will commence operations in the second half of the year. RIL will commission two plants manufacturing purified terephthalic acid (PTA) next year increasing its PTA capacity to 4.3 m tonnes a year. The company will also be doubling its paraxylene capacity at Jamnagar over the next 30 months.

TCS iON, a no-frills technology solution to small businesses in a pay-as-you-go model has hit operational snags. The challenges in the two-year-old project could potentially spoil India's largest software exporter's hopes of earning a billion US dollars in sales from iON by 2016. Tata Consultancy Services' revenue in 2012-13 totalled about US$ 12 bn. By offering what it bills as a simple and inexpensive enterprise resource planning software for some 30 m small businesses, TCS aims to go where not many technology services companies have ventured successfully. The product offers software solutions to manage human resources, inventory and basic office applications such as email and website services. Third-party sales partners that TCS works with and industry observers said that customer acquisition has slowed after the initial rush, as promotional activity waned and implementation at some clients took longer than anticipated.

Leading Indian two-wheeler makers Hero MotoCorp and Bajaj Auto have reported their sales figures for the month of May 2013. Hero MotoCorp reported sales of 557,890 units during the month as against 556,644 units in May 2012, a very marginal rise of 0.2%. However, it is worth noting that this is the highest ever monthly sales achieved by the company. On the other hand, Bajaj Auto reported domestic sales of 212,129 units during the month as against 206,751 units in May 2012, higher by 2.6%. However, Bajaj Auto's total sales including exports declined by 5.3% year-on-year from 321,922 units in May 2012 to 304,780 units in May 2013. It must be noted that Hero has launched Hero FinCorp which is its own retail finance firm. This arm will be extended to 450 dealerships across India by March 2015.

Movers and shakers during the week

Company	31-May-13	7-Jun-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Crisil	938	1,160	23.7%	1170/881
Reliance Communication	106	116	9.5%	120/47
Bata India	804	878	9.2%	989/688
Mcleod Russel	295	320	8.6%	387/220
Aurobindo Pharma	170	184	8.3%	205/104
Top losers during the week (BSE-A Group)
Jaypee Infratech	33	28	-14.6%	62/27
Core Education	44	38	-12.2%	345/37
Jain Irrigation	69	62	-10.2%	92/56
Opto Circuits	32	29	-9.5%	166/28
Lanco Infratech	9	9	-8.9%	17/8

Data Source: Equitymaster
In some other news, Dr Reddy's Ltd has called off the deal signed with Japan's Fujifilm Corporation. Both the companies have decided to terminate the memorandum of understanding (MOU), signed in July 2011. As per the MOU, both the companies entered into a joint venture (JV) for generic drug formulations in Japan. However, as Fujifilm has realigned its long term growth strategy for it pharmaceutical segment, both the companies agreed to terminate the partnership. Reportedly, both the companies will continue to explore future opportunities in other pharmaceutical verticals such as API (active pharmaceutical ingredients), contract manufacturing etc. One should note that Dr Reddy's was not generating any revenues from this JV

State-run Steel Authority of India (SAIL) has recorded the best-ever production of saleable steel for May at 1.1 million tonnes (MT), up by 11% over the corresponding month previous year. The production of value added and special steel too surged around 8% during the month against the corresponding month of the last year. Meanwhile, the production of crude steel at 1.152 MT for the month was also the highest. The production of the company is likely to further improve in the coming months as its ongoing Rs 619 bn expansion is getting progressively commissioned.

The global stock markets remained weak as uncertainty clouded the stimulus measures across the world. The Indian markets also remained volatile and ended the week in the red. Weakening rupee played spoilsport reversing some of the gains. The Reserve Bank of India's cautious stance on rate-cuts is further adding to the volatility.