Majority of the markets, barring a few including India and the US, witnessed downfall in the week gone by. The Chinese index saw the steepest correction of 13.3% since 2008 on concerns of strict trading rules as well a string of IPO s hitting the market. The index had more than doubled last year and had been trading in the frothy zone particularly as the economy has been tempering down despite monetary easing measures by the central bank. Among the other Asian markets, the Japanese, Hong Kong and Singapore markets were down by more than 1%. All the European markets also ended the week in the negative territory on fears of a full-blown banking crisis after talks of the euro zone finance ministers broke down.
The US markets were up by 1.2% in the past week even as the Fed assumed a dovish stance saying that it would wait for signs of improvements in the economy and easing of inflation before it raises interest rates.
The Indian markets showed a smart recovery after remaining in the doldrums in the past four weeks. The index posted a gain of 3.4% led by an above-average progress of monsoon until now. Even the US Fed s announcement to gradually raise interest rates helped lift sentiments in the market.
All the stocks, barring realty, were upbeat and have posted gains during the week. Oil & Gas stocks were the biggest gainers. Even the prospects of good monsoon saw the auto and the consumer durable stocks posting gains of over 4% for the week.
Now let us discuss some of the key economic and industry developments in the week gone by.
Despite three interest rate cuts by the Reserve Bank of India (RBI), the benchmark 10-year government bond yields have been stiffening. The bond yield jumped to a six-and-a-half month high of 8.12% before easing to 7.94%. However, the high bond yields are impacting the profitability of banks and impeding them in passing on the rate cuts through lowered lending rates. As per State bank of India, this is an anomalous situation and transmission of lower rates by banks will take time.
In order to encourage project exports, the government has reinvigorated the buyer s credit scheme with interest subsidy to provide financial support to Indian companies that have won construction, infrastructural and consultancy contracts abroad. The current Buyer s Credit under National Export Insurance Account will be infused with more funds so that the Export Credit Guarantee Corporation can enhance the guarantee for loans extended by Exim Bank of India for projects. In the last one year, the Exim Bank has sanctioned $947 m to eight projects in the last one year as compared to sanction of a mere $1 bn for nine projects during the period April 2011 and May 2014.
Now let us move on to some of the key sectoral and corporate developments of the week gone by.
In the wake of Maggi noodles being completely recalled from the markets, competitors have been scrambling to capture market share in instant noodles. ITC, the second largest player which sells Yipee noodles under its Sunfeast brand, has taken the route of direct communication to push the sales. Leaflets are being distributed to the consumers stating Yippee's quality and safety standard assurance. The leaflets state that stringent tests are conducted on their food products at ITC'S NABL (National Accreditation Board for Testing and Calibration Laboratory) and by Food Safety and Standards Authority of India (FSSAI). ITC is also planning to invest Rs 80 bn in Telangana. Out of this Rs 45 bn will be invested in expanding its paperboard capacity by one million tonnes. Currently the firm has a capacity of five lakh tonnes for the same at Bhadrachalam. Further, the company has outlined plans to set up Rs 8 bn food processing facility in Medak district as well as an Rs 10 bn hotel in Hyderabad.
With an aim to increase its presence in the overseas markets, Cipla Ltd is all set to enter Latin America and Eastern Europe to tap into growing demand for generic drugs in emerging markets. The company is aiming to increase its US presence so that a fifth of its sales can come from that market by 2020 as compared to 8% at present levels. Cipla derives nearly half of its sales from India.
In a positive development, Glenmark Pharmaceuticals has been granted final approval by the United States Food & Drug Administration (USFDA) for oral contraceptive tablets. This approval is for the AB-rated generic version of Seasonale by Teva Women's Health. This approval marks Glenmark's 12th oral contraceptive and 2nd extended-cycle oral contraceptive authorized for distribution by the USFDA. The company s sales from the US were impacted in FY15 on account of delays in drug approvals.
Following the 0.25% repo rate cut by RBI earlier this month, HDBC Bank, the country's second largest private sector bank, has cut its base rate by 0.15%. This takes the new base rate to 9.7% per annum which has came into effect from June 15, 2015. This is the second base rate cut in the last three months. In April, the bank had cut its base rate by 0.15% to bring it down to 9.85%.
IDFC has entered into partnership with FSS (Financial Software & Systems) to provide end-to-end payments technology support for its upcoming banking operations this year. This partnership will allow FSS to establish complete payments technology infrastructure for the upcoming IDFC Bank with services ranging from payments processing, card management, reconciliation to payment gateway for e-commerce, and Aadhaar Enabled Payments for financial inclusion. IDFC is likely to start its banking operations by October 2015.
Cairn India has received support from Oil & Natural Gas Corporation for extension of the tenure of Rajasthan oil block by 10 years without any changes in terms and conditions. Cairn India Ltd holds 30 % interest in the Rajasthan block and wants to retain the block even after the contractual deadline of 2020. And for such an extension the approval of ONGC, which is a licence of the block holding 30% interest, was mandatory. ONGC holds the licence to the block and has given its permission for the proposal. ONGC has written to the Oil Ministry saying the licence term should be extended by 10 years on the existing terms and conditions.
Eicher Motors, one of the leading manufacturers of commercial vehicles, in collaboration with Polaris Industries Inc. has launched India's first personal utility vehicle 'Multix'. This launch has thereby created a new category in the automotive segment. The vehicle is specially designed for Independent Businessmen and will be available in two variants with a starting price of Rs 2,32,850. It is equipped with X-PORT- a unique power take off point, which can generate power up to 3 KW (Kilowatt).
The smart turnaround in domestic stock markets on good progress of monsoons is a welcome sign. But the markets will remain susceptible to the Eurozone crisis and uncertainty in rate hikes by the Fed, going ahead. However, investors should not get bogged down by these short term fluctuations but rather focus on investing in good quality stocks with solid fundamentals and strong growth prospects.