It was a mixed week for the world markets. Japan was the best performer up 2.7% while Brazil was the biggest loser down 3%. In Asia, all markets closed in the green. Hong Kong was up 1.5% while China was up 1.3%. Indian stock markets closed the week up 0.5% while Singapore closed the week up 0.4%.
Indian stock market benefited from flow of FII money this week. With lower food inflation numbers reported in the country and the concerns over Greece debt abating, the risk appetite of global investors was in favour of emerging markets. Foreign investors pumped in more money in July in Indian equities than for the period between January and June. In Europe, UK closed flat while Germany and France closed the week down 0.2% and 2.35 respectively. US closed the week firm up 0.6%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India, stocks from the realty space were the biggest gainers of the week on bargain buying after the recent fall. BSE-Realty index closed the week up 7.1%. Metal stocks were the biggest losers of the week on concerns about the rising cost of coking coal. BSE-Metals index closed the week down 1.2%. Among the top performers of the week were BSE-Consumer Durable and BSE-Auto up 4.1% and 3.6% respectively. Among the other top losers were BSE-FMCG and BSE-Oil & Gas indices both down 0.2%.
Moving on to the key economic developments during the week, HDFC released its results for the quarter ended June 2011. The company's Interest income grew by a robust 36% YoY during 1QFY12. This was on the back of 21% YoY growth in advances. Net interest margin remained flat at 4% during the quarter. Other income witnessed a growth of 334% YoY on the back of profit from the sale of investments. Net profit grew by 22% YoY as a result of strong growth in other income.
In news from the FMCG sector, two Indian companies have shown interest in acquiring US iced tea maker Arizona Beverage Co. Nestle SA and Tata Global Beverages have an interest in the privately held Arizona. Arizona is said to be valued between US$ 3 bn to US$ 4.25 bn. It is known for its large cans of iced tea. It is one of the biggest brands in the US market and along with Pepsi co's Lipton serves a third of this market. Nestle makes Sweet Leaf Tea and Nestea while Tata owns the Tetley brand of tea. It may be noted that there is a growing interest in bottled tea by health conscious consumers. The consumers nowadays prefer bottled tea over carbonated sodas. Thus, the companies are vying for this growing pie of the beverages market.
Coming to the steel sector, the Indian steel sector may have to contend with some challenging times in the near term at least. This is because prices of coking coal are expected to remain firm over the next few quarters. It must be noted that coking coal is a key ingredient for making steel. Indian steel makers such as SAIL and Tata Steel rely on imports to meet their requirement. Each tonne of steel produced requires almost a tonne of coking coal, mainly imported from Australia. Prices shot up as a result of floods in Australia during the early part of the year. Plus, the ongoing strike at BHP Billiton, which is the world's largest producer of coking coal, is only expected to compound woes further. Although the situation could improve in the second half of this fiscal year, normalization of operations in Australia will play a key role in determining where the coking coal prices head. Demand for steel is also likely to come under pressure. Because of rising interest rates, demand for steel could weaken from the automobile and construction sector as consumers go slow on vehicle and house purchases. Hence, Indian steel companies are likely to face some headwinds in the near term.
Moving to the hotel sector, Indian Hotel Company Limited's (IHCL) plans of constructing a landmark hotel on the Sea Rock Hotel site in Mumbai have run into rough weather. Sea Rock Hotel had been non functional since 1993 when a bomb blast damaged it extensively. IHCL had bought this property for Rs 6.8 bn with the aim to build a world-class convention and hospitality center. However, construction is now awaiting environmental clearance from the State Level Environment Impact Assessment Authority and Maharashtra Coastal Zone Management Authority. This is expected to take at least a year. As per the original plan, IHCL was to start construction at the sea-facing property early last year with the launch scheduled for 2013. But now, the new Sea Rock property is expected to become operational only by 2014.
In news from the auto sector, Maruti Suzuki has stated that its K-series engine has crossed 1 m units in sales. This milestone has been achieved within three years of starting the production of the engine. The K-series engine is a fuel efficient engine that Maruti manufactures and uses in its Wagon R, Swift, Estilo and Alto models. Maruti had introduced the high end engine in its a-Star model in 2008. As stated by the management, the success of the engine highlights Maruti's commitment to introducing improved technologies over the years. The engine has been well received by its customers. Maruti also plans to launch a new version of Swift next month. The new model would be more fuel efficient and would come with 1.2 litre petrol and 1.3 litre diesel variants.
In news from the economy, for the government struggling with a series of unfavorable macroeconomic developments like slowed industrial production, the easing of food inflation has come as a breath of fresh air. The domestic food inflation, as measured by Wholesale Price Index (WPI) for the month of June has fallen to a seven week low of 7.6%. However, this will hardly ease the pressure on the government as the headline inflation stood at 9.1% in May, much beyond the comfort levels of the government. It is important to note that recently announced fuel price hikes are yet to be incorporated and the numbers still don't reflect the full impact of rise in international crude oil prices. To make things worse, the headline inflation in the coming months would be driven more by global commodity prices that are on a rise instead of food items that are showing signs of easing.