It was a bad week for global stock markets. Thesell-off in Chinese markets continued (down 12.1%) this week. The bursting of the Chinese stock market bubble was inevitable and it is anyone's guess when the carnage will end. However, the center of the storm was in Europe, specifically Greece. The country defaulted on its sovereign debt (Euro 1.54 bn owed to the IMF) on 30th June. The crisis has only escalated since then. The government has called for a referendum on Sunday, 05th July to decide if it should accept the further bailout terms or not. A 'No vote' could set the stage for an eventual exit of Greece from the Eurozone. The European markets were understandably hit hard this week due to these unprecedented developments.
The US stocks too ended the week in the red (down 1.2%). This was largely on account of concerns regarding ongoing crisis in Greece. The US markets remain driven on liquidity. Thus, the timing of the start of the interest rate hike cycle by the US Fed will keep the markets on tenterhooks for the foreseeable future.
Coming to Indian stock markets, the benchmark indices posted moderate gains this week. The resilience of the Indian markets can be attributed to the better than forecasted rainfall thus far as well as hopes of a pickup in the capex cycle. The BSE Sensex gained 1% over the week.
Now let us discuss some of the key economic and industry developments in the week gone by.
As per a leading financial daily, money raised via the initial public offer (IPO) route during the current calendar year 2015 is set to touch its highest level in past five years. This is evident by number of draft red herring prospectus (DRHP) that companies have filed the with the market regulator, Securities and Exchange Board of India (SEBI). Till now, eight companies have collectively raised nearly Rs 38.5 bn through IPOs in first six months of the current calendar year. This is significantly higher than the Rs 12 bn amount raised during the entire calendar year 2014 by just five companies. In the past six months, 19 companies have filed DRPH with the SEBI to collectively raise estimated amount of Rs 110 bn.
India's fiscal deficit for April-May of current fiscal stands at Rs 2.08 lakh crore or 37.5% of the budget estimates for 2015-16. Fiscal situation during April-May, 2015-16 has showed some improvement over the corresponding period of last year as the deficit then was 45.3% of the budget estimates. On a YoY basis, the deficit was narrower due to higher non-tax revenue and lower non-plan expenditure. Net tax revenue for the first two months of 2015-16 stood at Rs 198.9 bn or 2.2% of the full year budget estimate. The same stood at 2.9% in the year-ago period. Total receipts stood at Rs 523.6 bn or 4.6% of the 2015-16 budget estimate, compared with 3.2% for April-May 2014.
Exports of automobile components from India grew 10% to an all-time high of US$ 11.2 bn in 2014-15. This growth was helped by demand from the US, Turkey and Italy. This is as per data released on Tuesday by the Automotive Component Manufacturers' Association (ACMA). Turnover for the industry grew 11% to Rs 2,348 bn in 2014-15 as against a decline of 2% in 2013-14. However, India has remained a net importer of automobile components in 2014-15 with its imports growing by 6% YoY to US$ 13.5 bn as against a decline of 6.3% YoY in 2013-14.
According to a leading financial daily, the government plans to set up Rs 5 bn venture capital funds to boost domestic pharma industry and provide cheaper loans to entities looking to establish or upgrade manufacturing facilities. The government is working on various proposals, including single window clearance for drug approvals, to rejuvenate the local pharma sector and make medicines more affordable. The steps were suggested by a task force formed by the Department of Pharmaceuticals (DoP) in a report submitted to Chemicals and Fertilizers Minister. This is in line with the government's agenda of promoting 'Make in India'. In the report, the task force had also said the DoP may also come up with seed capital and facilitate funding with other financial institutions for the medium and small scale pharmaceuticals industry.
Now let us move on to some of the key sectoral and corporate developments of the week gone by.
L&T construction, subsidiary of Larsen & Toubro (L&T), has won orders worth Rs 20 bn across various business segments in June 2015. Under Buildings & Factories Business, it has secured new orders for the construction of office spaces including add-ons. Under Transportation Infrastructure Business, it has won a major EPC order for the construction of 109.54 kms of four lane dual carriage of the Solapur, Maharashtra - Bijapur, Karnataka road. Further a major order was secured from a global information technology solution provider for the turnkey construction of their office building in Hyderabad. L&T is one of the largest companies in India's private sector engaged in the business of technology, engineering, construction, and manufacturing.
Bharti Airtel has become the third largest mobile operator in the world in terms of subscribers. Airtel with over 303 m mobile subscribers across its operations has moved up one position in the global rankings. The company's mobile networks cover over 1.85 bn people across its operations in 20 countries and carried over 1.23 trillion minutes of calls and over 333 petabytes of data in FY15. In India, its distribution channel is spread across 1.5 m outlets, with network presence in 5,121 census towns and 464,045 villages covering approximately 86.8% of the country's population. Airtel has the largest rural mobile customer base in India with over 100 m mobile customers.
Bharat Heavy Electricals (BHEL) has successfully commissioned the 500 MW Kosti Thermal Power Station (TPS) in Sudan. Significantly, Kosti TPS (4x125 MW) is now Sudan's largest power plant. The company has executed this project on Engineering, Procurement and Construction (EPC) basis, having designed, manufactured, supplied and installed the complete power project (4 units of 125 MW each) including associated civil works. All the major equipment for the project viz. boilers, steam-turbines, generators, Controls & Instrumentation, transformers, etc, have been manufactured in-house. The company has also constructed a canal from the Nile River to supply water for the project. The project is funded by Government of India's Line of Credit of US$ 350 m. It is to be noted that Kosti TPS is BHEL's largest oil-fired thermal power plant in the overseas market. It is also BHEL's first crude-oil fired thermal power plant in Africa and comes close on the heels of the successful completion of BHEL's 28 MW Nyaborango Hydro project in Rwanda which was recently inaugurated by the President of Rwanda.
Nestle India is making plans to re-launch its instant noodles brand 'Maggi'. The Bombay High Court has allowed Nestle India to export Maggi noodles but did not lift the ban on its local sales. The food regulator in the U.K has cleared the product. The matter will be resolved by the High Court within a period of three to six months as per legal experts. The company is assuming to get a positive order from Bombay High Court and has conducted an internal survey. A mail has been forwarded to all the employees of the company asking them their feedback on how the brand 'Maggi' could be rebuilt. The thought behind it is to generate a lot of ideas which could help the company to deal with the current crisis.
Infosys has been selected as a strategic partner by Allied Irish Banks plc (AIB), a financial services group operating predominantly in the Republic of Ireland and the UK. Infosys will also make significant investments in the Republic of Ireland. As a strategic partner to AIB, Infosys will provide traditional application development and management, as well as innovative services. Infosys will also set up a 200 seat facility in Dublin to house the staff who will be transferring from AIB as well as any additional staff who will be appointed locally. This follows recent agreements that Infosys has signed in the region. Infosys intends to set aside US$ 10 m from its global innovation fund for Ireland-based start-ups. Earlier this year, Infosys announced the US$ 500 m innovation fund earmarked for investments in the areas of new disruptive technologies.
Going forward, the Greece crisis will be the center of attention as far as global markets are concerned. Any indication of rate hikes by the US Fed is also likely to influence the markets. However, we believe investors should not be influenced down by short term fluctuations and macro events but focus instead on investing in stocks with solid fundamentals and strong growth prospects for the long term.