All the major global stock markets ended the week in the red with Hong Kong (down 2.8%) and Brazil (down 4.4%) leading the pack of losers. The US stock market registered losses (down 1.2%) over the week on account of disappointing economic reports regarding wage growth and drop in consumer confidence. The government spending cuts that kicked in March 1 also weighed heavy on the markets. Going forward, the monetary policy decision by the Federal Open Market Committee will influence US stock markets.
The European stock markets also registered losses over the week, concerned by Mr. Ben Bernanke's comments on a potential tapering of quantitative easing and on account of reports of drop in employment in Euro area. The stock markets in France and Germany were down by 1.57% and 1.57% respectively over the week.
The major Asian stock markets also ended the week in the red influenced by the developments in the global economy and the currency markets. The stock markets in China lost 2.2% over the week on account of slow economic growth and as World Bank cut its outlook for global expansion. It was a volatile week for stock markets in Japan (down 1.5%). The stock markets in Japan saw wild movements on account of growing volatility in global stock, bond and currency markets.
The Indian equity markets also closed the week in the red with the shares in the consumer durables and auto space leading the downfall. The BSE-Sensex was down by 1.3%. The markets after witnessing losses gained 2% on Friday as easing wholesale inflation raised hopes of a rate cut. A lot of factors like sell off in the global markets and global currency movements influenced market movement during the week .
Barring oil and gas, all the sectoral indices ended in the red with consumer durables (down 10.7%), and metal (down 5.5%) indices witnessing the maximum losses.
Now let us discuss some of the economic developments of the week gone by. In order to avoid further worsening of current account deficit (CAD), the government increased the import duty on gold recently, as a result of which the gold imports have fallen substantially. With hike in duty showing the desired results, finance minister P Chidambaram has ruled out any further hike in import duty. Besides hiking import duty, the government had also laid certain restrictions on importing gold like all gold imports for domestic consumption can be made only with 100% cash margin .As a result of these developments, Titan Industries suffered a huge setback with respect to downfall in stock price. The company stated that credit of any kind from suppliers or bullion banks for importing gold for domestic use is prohibited. It further mentioned that this move also affects import of gold through all non consignment routes like gold on lease/loan.
In another key economic development, the government released the data on Index of Industrial Production (IIP) for the month of April as well as for the period April-March 2012-13. In April, IIP grew by a sluggish 2% YoY on the back of growths of 2.8% and 0.7% clocked by Manufacturing and Electricity sectors, respectively as compared to year-ago levels. In the manufacturing sector, only 13 out 22 industry groups posted growth during April. However, output of the mining sector fell by 3% YoY for the month. The cumulative growth in IIP for the period April-March 2012-13 was a mere 1.1% with Manufacturing and Electricity sectors registering aggregate growths of 1.2% and 4%, respectively. The mining sector output declined by 2.4% for the period April-March 2012-13.
Now let us move to some news from the corporate world. The engineering major, state-run Bharat Heavy Electricals (BHEL) is likely to spend about Rs 8.7 bn as one-time expenditure on the proposed amalgamation of Bharat Heavy Plate & Vessels (BHPV) with itself. There will be annual recurring expenses to the tune of Rs 750 m with regard to employee salaries. Further, an amount of Rs 2240 m will be spent towards liabilities arising out of legal cases and excise duty/ service tax and outstanding loans to BHEL worth over Rs 2340 m. This estimated cost will be funded through the internal accruals of BHEL.
In some news from oil and gas sector, Reliance Industries Ltd's (RIL) KG-D6 block partner Niko Resources Ltd said its provend reserves increased by 160%, and that a recent gas discovery in the D6 block off India's east coast could add significantly to future reserves. It should be noted that RIL is the operator of the block with a 60% stake. In the same block, British Petroleum holds 30% and the rest is owned by Niko.
The pharma major Pfizer Inc has reached a US$2.15 bn settlement with Israel based Teva Pharmaceuticals Industries and Sun Pharmaceutical Industries related to patent infringement on its acid-reflux drug Protonix. As per the terms of settlement, Teva and Sun Pharma will compensate Pfizer's subsidiary Wyeth and Takeda for the losses incurred when two companies launched 'at-risk' generic versions of Protonix prior to the January 2011 expiration of the patent for pantoprazole (the drug's active ingredient). The drug acts to reduce the secretion of stomach acids and is used to treat the effects of gastroesophageal reflux disease. As per the settlement terms, Teva will pay US$ 800 m in 2013 and the remaining US$ 800 m by October 2014, while Sun Pharma will make a full payment of US$ 550 m in 2013. Of the total, Pfizer will receive 64% of the settlement and its partner Japan's Takeda Pharmaceutical Co, will receive 36% or about US$774 m from the settlement.
In some news from the auto sector, car sales in May stood at 143,216 units as against 163,222 units in May 2012, a decline of 12% year-on-year (YoY). This is the seventh consecutive month when the Indian car market has witnessed a drop in sales. Amidst these worrying signs for the auto sector, carmakers have been resorting to production cuts. For instance, India's leading passenger vehicle manufacturer Maruti Suzuki had announced closure of all its five plants for eight days in June with the aim to cut down inventory at factories and dealerships as well as for periodic maintenance. It is feared that such production cuts will eventually lead to several job losses.
The global stock markets remained weak as uncertainty clouded the stimulus measures across the world. The Indian markets also ended the week in the red. Going forward, the key events to watch out for will be the monetary policy decision by the Federal Open Market Committee. Besides the movements in the global economy and markets, the Indian stock markets will be influenced by Reserve Bank of India's policy review.