It was a lackluster week for the world markets with majority of the global indices closing in the red. Japan was the only gainer registering a gain of 0.2% on bargain hunting amidst possible undervaluation of shares. China closed on an edgy note as investors awaited the trade surplus/deficit figures from Beijing. US registered its sixth straight loss for the week (down 1.6%) as concerns over economic slowdown intensified. Poor jobs data released last week also impacted the market sentiments to a certain extent. Increasing employment rate has led investors to believe that that the economic recovery in US is stalling. In Europe, France was the biggest loser (down 2.2%), followed by UK (down 1.5%). Germany ended the week down by 0.6%.
Indian stock markets closed the week in the red (down 0.6%). This was on the back of discouraging macro-economic data released on Friday. The IIP numbers declined to 6.3% in April (from 13.1% in the same month previous fiscal) mainly due to poor performance by manufacturing and mining sectors. Declining factory output will increase the pressure on RBI to re-visit the tight monetary policy it has been following to curb inflation. Amongst, other markets Singapore closed the week down by 2.1%. Even Brazil ended the week with a loss of 2.6%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India, stocks from the consumer durables space saw strong buying interest. As a result, BSE-Consumer Durable index was the biggest gainer for the week (up 3.2%). On the other hand, performance of auto stocks was disappointing (down 2%) on the back of raw material pricing pressures, concerns over rate hike and increase in fuel prices. Besides BSE-Auto, the other indices to close the week in the red were BSE-Metals index (down 1.3%) and BSE-Banking index (down 0.7%). Amongst the other best performing indices, BSE-IT was up by 1.5%, while BSE-Realty closed the week with a gain of 0.7%.
Moving on to the key economic developments during the week, after a lean period for the contract manufacturing and research (CRAMS) industry, the scenario is expected to look better over the next couple of years. It may be noted that the domestic market for CRAMS is set to capture a sizeable chunk of the global outsourcing pie by 2012. The size of the CRAMS sector in India was pegged at US$ 3.8 bn in 2010 and is set to touch US$ 7.6 bn in 2012. What is more is that this 41% compounded growth over the next two years will outpace the global outsourcing market, which is expected to grow at a much lower CAGR of 12.6%.
It must be noted that India has many advantages which makes it an attractive destination for CRAMS. Chief among these are large number of USFDA approved plants, low cost advantage and skilled manpower. During 2007-10, the Indian contract research industry grew quickly to around US$ 1.5 bn at a CAGR of 65% but on a small base. There is huge scope for growth as only around 20% of global pharma R&D spend is being outsourced. Further, global pharma majors are under continuous pressure to bring drug costs down, which all the more strengthens the case for outsourcing.
The national coal distribution policy, which is almost three years old, may get overhauled soon. As per the coal minister, the ever growing demand for coal from the power sector has made the mineral's supply very limited to other sectors. The new policy will help to manage the widening demand supply gap and depleting production of Coal India. If coal ministry has its way, then soon a new distribution policy may be in place. It will serve comprehensive coal linkage needs of core and non-core sectors by introducing flexibility in coal supply to meet the growing demands of these sectors and promote energy security.
GAIL, India's largest gas transmission and distribution company, has announced that it has received the board's approval to foray into natural gas-based power generation. The company will set up its first power plant at Uran in Maharashtra and will invest Rs 8 bn for the same. The plant will have a total capacity of around 250 MW. It is also planning to set up power projects of similar capacity in other states like Madhya Pradesh, Uttar Pradesh and Gujarat. Put together, these four plants would require 2.5 m standard cubic metres of gas a day. Since domestic gas supply is limited, gas may well have to be imported by the company. It may be noted that the company is discussing with PTC India to facilitate power trading and is in the process of signing a power purchase agreement with the state power department.
Power major NTPC is planning to set up two 500-MW units under the first phase of its Mouda power project near Nagpur by 2012. This will entail an investment of Rs 57 bn. The first unit will start power generation by March 2012, while the second unit will be functional by September in that year. The work is in two phases and the second phase will involve setting up two 660 MW units at an investment of Rs 85 bn. NTPC will procure coal from the public sector undertaking Western Coalfields Ltd. Further, NTPC would sell 37% of the total power generated to Maharashtra. It must be noted that NTPC's share in the country's generation was 27.4% in FY11, with 17.75% of the national capacity and it has planned capex of Rs 264 bn for FY12. Furthermore, the company is targeting to attain capacity of 128,000 MW by 2032 with 28% of this capacity coming from non-fossil sources.
Bharti Airtel is in talks with five leading operators-Etisalat, MTN , France Telecom (Orange), Millicom and Vodafone-for sharing telecom infrastructure such as towers and fibre in Africa. The company had expanded operations to 16 African countries last year. It has hived off the tower business in all the African countries it operates in into separate companies. The company is attempting a model similar to that of Indus Towers in India, which it jointly owns with its competitors- Vodafone Essar and Idea Cellular. The trio has combined their physical infrastructure assets in this company. Bharti and Vodafone have 42% stake each in this company while the rest is owned by Idea Cellular. The management ruled out immediate acquisitions in Africa since the top priority is to turnaround its existing businesses there. It also said that the company is on track to meet its targets of US$ 5 bn revenues, US$ 2 bn EBIDTA and 100 m subscribers there by the end of FY13. Currently, the loss-making Africa operations have been weighing heavy on Bharti's top and bottom lines. Its operating margins for Africa were at 24% for the year ended March 2011 compared to about 37% margins in India.
UltraTech Cement is planning to set up a 3 m tonnes per annum cement plant in the Jhunjhunu district of Rajasthan. The investment for the plant is estimated to be about Rs 25 bn. The company has signed a memorandum of understanding (MOU) with Rajasthan State Industrial Development & Investment Corporation (RIICO) for commissioning of a railway project in Sikar and Jhunjhunu districts. The cement major will lay a 6 km railway siding from villages Kolida and Beri in Sikar district to the plant site in village Turkani in Jhunjhunu district. According to the agreement between UltraTech Cement and RIICO, the latter will acquire about 67.8 hectares of land in Sikar and Jhunjhunu districts for the railway project.
In other news, India's IIP numbers were announced recently. India's IIP for the month of April increased 6.3% YoY with manufacturing output, which constitutes about 80% of industrial production registering an increase of 6.9%. IIP for FY11 grew at 7.8% as compared to 10.5% in the previous fiscal. It may be noted that the IIP data reported was the first of its kind after the introduction of a new series. This new series has a different base year of 2004-05 with new components and weightings. We believe that the shift towards new series is a step in right direction as the old series was more volatile. The new series is expected to be more accurate and reliable than the old series.
Separately food inflation accelerated to 9% in the last week of May from 8.1% in previous week due to increase in prices of cereals, vegetables and milk. However, with the timely arrival of monsoons, food inflation is expected to ease out in the coming weeks. Nonetheless, fuel inflation remained unchanged at 12.5%.