Barring China, Hong Kong and Singapore the world equity markets closed the week on a positive note with healthy gains. The US stock markets were up 3.6% during the week. This was the best ever week for the US stock markets in 2012. As per the Commerce department, the US wholesale stock piles grew by 0.6% in April 2012. This was double of what was reported in March. This indicates increased production and resulting demand for the factory output. Markets reacted positively to it as consensus had priced in a lower growth.
The Indian equity markets too ended the week with strong gains. The markets were up by 4.7%, having registered the best weekly gains of 2012. Hopes of global stimulus and expectations of rate cut spooked markets. Further, declining crude oil prices and government's commitment to help kick start the stalled infrastructure projects buoyed the markets.
Amongst the other world markets, China was down 3.9% during the week. This was despite a rate cut by the Chinese central bank. Apart from China, both Honk Kong and Singapore were down 0.3% each. However, France and UK were up by 3.4% and 3.3% respectively.
All the sectoral indices closed the week in the green except for consumer durables. The capital goods and banking stocks were the biggest gainers having registered gains of 10.9% and 7.8% respectively during the week. Rate cut hopes fuelled rally in these stocks. Realty and power stocks were up by 6.3% and 6.1% respectively as well. However, consumer durable pack was the lone loser having lost 2% during the week.
Let us now take a look at key sector news during the week. After a gap of two months of single digit growth, cement sales volumes in India are expected to reach double digit levels during the month of May 2012. As per a leading business daily, this is expected to be largely driven by robust sales from the two cement majors UltraTech Cement and Ambuja Cements. It may be noted that these two companies along with ACC Ltd control nearly one-third of the cement market in India. While the latest GDP (Gross Domestic Product) data may not be very encouraging, especially for the quarter ended March 2012, it is believed that the strong dispatches of the commodity (especially during the pre-monsoon season) have given the industry such an expectation of double digit growth. For instance, Ambuja Cements reported an almost 12% YoY increase in cement volumes in May this year. UltraTech Cement is believed to have reported a growth of 10.6%. During FY12, the cement sector reported a growth of about 6.5%.
For the full year FY13, the industry is expected to grow by about 8 to 9%. Historically the sector has grown at a pace of about 1.5 times the GDP growth of the country. Going forward, the growth in the sector is expected to remain firm on the back of higher demand emanating from the infrastructure and construction sector.
Now let us take a look at a few corporate events that unfolded during the week. Aurobindo Pharma had a forgettable FY12 wherein issues with the US FDA (for plants unit III and unit VI), lower dossier income and anti-retroviral sales impacted overall performance. However, there has been some relief for the company. The FDA has started approving drugs from Aurobindo Pharma's unit III and is also expected to audit unit VI in July-September. Unit VI especially is a key facility manufacturing cephalosporins (anti-infectives) in the injectables space. It must be noted that the USFDA had inspected the company's unit III and unit VI, both located in Andhra Pradesh, in 2010 and found significant violations of its goods manufacturing norms. The regulator thus issued a warning letter to the company along with an import alert in 2011. Given that unit III is operating at optimum capacity, plans are in place to shift some production to unit VII. Having said that, once the company receives the green signal for unit VI, it will result in a ramp up in performance. From its unit VI, Aurobindo had made applications for a total of 24 drugs in the US.
As per a leading financial daily, Hero MotoCorp has chalked out investment plans to the tune of Rs 25.75 bn. The country's largest two-wheeler maker in terms of volumes will set up two manufacturing units in Gujarat and Rajasthan and also a new research & development (R&D) centre by the financial year 2013-14 (FY14). The first plant would come up at Neemrana (Rajasthan) by the first quarter of 2013-14 (1QFY14). With an investment of Rs 4 bn, this plant will have an initial installed capacity of 7.5 lakh units per annum. The proposed plant in Gujarat will entail an investment of about Rs 11 bn and will have an installed capacity of 1.2 million units per annum by the second quarter of 2013-14 (2QFY14). These investments will take the total installed capacity of Hero MotoCorp from the current 7 million units to 9 million units by FY14. In addition, the integrated R&D centre which is set to come up on a 250-acre plot near Jaipur will entail an investment of Rs 4 bn.
As per a leading financial daily, the Fuel Supply Agreement (FSA) to be signed by Coal India Ltd (CIL) is witnessing a wave of disapproval by power producers. In March 2012, the Prime Minister's Office had asked CIL to sign FSA with power generation companies at a minimum supply of 80% of the total coal requirement. CIL had informed the power producers that only 60% of the coal demand can be met presently and the supply will be scaled up to 80% in the coming years. But the Power Ministry has insisted on a minimum supply level of 65% if CIL is unable to meet the mandated commitment of 80%. Another bone of contention is the penalty clause. CIL has suggested a penalty of 0.01% for failure in the timely delivery of fuel but wants the penalty to be imposed only after three years of signing the pact. Many power producers, including National Thermal Power Corporation (NTPC) do not agree with the clauses introduced in FSAs and have refused to sign supply agreements with CIL. Reportedly, 14 power utilities have inked FSAs with CIL so far.
In some other important economic news, United Nations (UN) has cut the GDP growth forecast of India for 2012. It now expects the country to grow at 6.7% as against the 7.7% growth predicted earlier. Amidst the current economic situation, the world economy is also expected to register a modest growth of 2.5% in 2012 and 3.1% in 2013. Thus, as per UN, the overall growth prospects over the next year appear to be dim.
The Reserve Bank of India (RBI) is likely to announce its credit policy on June 18. While the market players are hoping for a rate cut it would be interesting to see if RBI obliges this time around considering the inflationary pressures prevailing in the economy. However, it may be noted that a drop in crude oil prices has provided some headroom to the RBI for rate cut.