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Global markets cautious ahead of Greece talks
Sat, 27 Jun RoundUp

It was a mixed week for global stock markets. The stock markets in China witnessed a sharp sell off (down 6.4%) for the week. The correction highlights the risks of stock market bubble in China on account of purchasing shares on margin or borrowed money from brokers. The decline was driven by managements and controlling shareholders selling massively into the rally.

The US stocks ended the week in the red (down 0.6%). This was despite positive US economic data on consumer spending and existing and new homes sales, on account of concerns regarding ongoing crisis in Greece. While the US GDP contracted by 0.2% during the quarter, the data was better than expected. The timing of higher US interest rates is likely to keep markets on edge.

The stock markets in France and Germany led the gains for the week (up 5.1% and 4.1% respectively) on account of some positive development, if not complete resolution regarding Greek crisis. As far as Greek debt crisis is concerned, 30th June is the deadline for a critical €1.54 bn debt repayment to the International Monetary Fund.

Coming to Indian stock markets, the benchmark indices gained during the week thus shrugging of weak global cues as above normal monsoons eased concerns regarding food inflation and supported hopes for further rate cut. The Sensex gained 1.8% over the week. Mid cap and small cap indices also closed higher, up 1.9% and 1.7% respectively.

Key world markets during the week
Source: Yahoo Finance

All sectoral indices witnessed gains over the week with rate sensitive sectors witnessing maximum gains. The realty sector led the gains (up 6.5%) during the week.

BSE indices during the week
Source: BSE

Now let us discuss some of the key economic and industry developments in the week gone by.

The Reserve Bank of India (RBI) has eased the norms for accessing foreign funds by banks. As per the new norms, banks can borrow from international financial institutions for general banking business without seeking RBI's permission. This flexibility has been provided for international financial institutions of which the Indian Government is shareholding member. RBI has also allowed all non-deposit taking NBFCs to act as sub-agents under Money Transfer Service Schemes (MTSS) without seeking prior approval from it.

Capital market regulator Securities and Exchange Board of India (SEBI) has eased the framework for start-ups in the country to raise capital from the stock market. SEBI has laid a different platform for such companies where they do not have to specify the exact end-use of such funds and resort to traditional metrics to justify the price at which they were selling shares. Further SEBI has also halved the time required between listing and closing of an initial public offering (IPO) to six days as against the current timeline of twelve days. This will be applicable for all public issues coming after January 1, 2016.

The Reserve Bank of India (RBI) has reported concerns for Indian Banks in its Financial Stability Report. RBI stated that a whopping Rs 530 bn exposure of Indian Banks to seven state electricity boards (SEBs) has a very high probability of turning into non-performing assets (NPAs) in the quarter ending September. These loans were restructured in 2012, with a three year moratorium for the principal amount of Rs 430 bn. If the distribution companies fail to pay Interest and/or principal by June 30, these will turn into NPAs. On a separate note, RBI also reported that gross NPAs for steel and iron sector have grown from 4.8% in March 2013 to 7.1% in March 2015.

The retail sales growth for top steel makers in India has witnessed a boost for financial year gone by. The retail sales volume for JSW Steel for fiscal 2015, was up 8% YoY as against the company's overall volume growth of 2% YoY. For Tata Steel Ltd, the branded products, retail and solutions volume grew 10% YoY against 3% YoY overall sales volume growth in India. For the same period, retail volume of state-owned Steel Authority of India Ltd (SAIL) grew 2% YoY against a 3% YoY decline in its overall steel volume.

Movers and shakers during the week
Company19-Jun-1526-Jun-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Jaypee Infratech121632.1%39/12
MMTC Ltd445320.6%102/42
DLF Ltd10712012.7%234/100
Opto Circuits192111.5%42/18
Thermax Ltd9501,05010.5%1315/790
Top losers during the week (BSE-A Group)
Sun TV29033415.0%476/258
Jaiprakash Associates11128.3%79/10
Oberoi Realty2782976.6%334/203
Essar Oil1361445.9%162/92
Source: Equitymaster

Now let us move on to some of the key sectoral and corporate developments of the week gone by.

According to a leading financial daily, Bajaj Corp is seeking shareholders' nod to raise Rs 10 bn by issuing equity shares to institutional buyers through Qualified Institutional Placement (QIP). The company would consider the proposal to raise the sum at its Annual General Meeting to be held on July 20, 2015. The company would issue securities in one or more tranches through Qualified Institutional Placements to Qualified Institutional Buyers, Global Depository Receipts and American Depository Receipts. Bajaj Corp is engaged in the manufacturing of hair oils. The company markets its hair oil under the brand names Brahmi Amla, Amla Shikakai and Jasmine hair oil.

Lupin Ltd has recently declared that its Board of Directors has given in-principle approval for raising funds of up to Rs 75 bn. This raising of funds will be by way of issue of securities i.e. equity shares, ADRs, GDRs, convertible bonds, equity linked instruments etc. For the purpose, enabling approval of the shareholders will be sought at the AGM to be held on July 23. Meanwhile, w.e.f. 22 June, 2015 stock of Lupin Ltd has become a part of the BSE's 30-share benchmark Sensex.

Nestle India Ltd is evaluating different snacks that can take the place of Maggi noodles which are banned in India earlier this month. The ban was imposed due to excessive lead content found in the product and mislabeling with regard to monosodium glutamate (MSG) content. Maggi has a 75% market share in the noodle segment. Nestle in order to get the product back on the shelves as soon as possible has challenged the order in the Bombay High Court with the hearing to resume on June 30. The company is evaluating various options such as re-launching Maggi in a new format or launching similar ready to eat or ready to cook instant snack.

According to a leading financial daily, Crompton Greaves has entered into a long term alliance with SOGO, a European competitor in consumer appliances. The Spanish consumer appliances company is engaged in the marketing and worldwide sales of kitchen and home appliances and personal care products under the brand name of SOGO since 1981. This alliance enables Crompton to offer a new range of high performance kitchen appliances to the Indian consumer. Reportedly, through this alliance Crompton will leverage SOGO's robust cost effective supply chain to introduce the new range of products through its well established distribution network with a target of reaching 9000 premium retail counters.

The resilience in the domestic markets on better than expected monsoons is a welcome sign. Going forward, the developments regarding Greece debt talks and uncertainty in rate hikes by the Fed are likely to influence the markets. However, investors should not get bogged down by short term fluctuations and macro events but rather focus on investing in good quality stocks with solid fundamentals and strong growth prospects.

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