Global concerns spook Indian markets

Fri, 10 Jul RoundUp

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The developments in Greece took a new turn as the Greeks rejected the conditions of rescue package in the public referendum conducted on July 5th, 2015. A Euro Group meeting will be conducted this Saturday. As per the European Commission, the institutions that are overseeing the bail out of Greece - the European Commission, the European Central Bank and the International Monetary Fund-will send their assessment on the country's eligibility for the bail out to Euro Zone finance ministries ahead of this meeting.  The same will consider Greece's latest overhaul proposals, about which the Eurozone leaders are positive. However, if the plan is considered insufficient, tougher criteria is likely to be pushed to avoid taking aggressive action.

The European markets have moved up on hopes the Greek government would finally seal a cash-for-reforms deal with its lenders by this weekend. The stock markets in France and Germany were up 1.7% and 1.4% respectively. The International Monetary Fund has cut its forecasts for global economic growth for 2015 on account of weakness in the US economy. At the time of writing, the stock market in US was down by 1% as compared to the last week.

China stock markets registered the sharpest gain this week (up 5.2%), after losing 12% last week mainly on account of Government intervention. In the absence of broader financial reforms, the attempts to arrest the slide may not last for long.

However, the other major Asian markets witnessed losses for the week, led by the stock markets in Japan (down 3.7%) and Hong Kong (down 5.2%)

The Indian stock markets registered a decline of 1.5% during the week.  Multiple factors such as upcoming macro data, first quarter results and other global developments influenced the Indian stock market during the week.

Key world markets during the week

Source: Yahoo Finance

The sectoral indices ended the week on a mixed note with stocks in capital goods and pharma sector witnessing maximum gains. However, stocks in IT and metal segment faced selling pressure.

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 International Monetary Fund (IMF) has reaffirmed its growth forecast for India in its latest World Economic Outlook (WEO). For this, a growth of 7.5% was pegged for both 2015 and 2016. With China expected to slow down considerably, the IMF has pegged its growth at 6.8% in 2015 and 6.3% in 2016. It further stated that by this, the gap between the two countries is likely to widen to 1.2% points by 2016. Further it has also lowered its forecast for global growth. It has pegged global GDP growth at 3.3% in 2015, lower than its April outlook of 3.5%. Though in 2016, it expects growth to bounce back to 3.8%. On the whole, the IMF expects emerging markets and developing economies to slow down from 4.6% in 2014 to 4.2% in 2015.

Movers and shakers during the week

Company	2-Jul-15	10-Jul-15	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Essar Oil	148	190	28.3%	198/92
Bhushan Steel	57	73	26.6%	402/49
Jet Airways	280	331	18.3%	544/204
Jaypee Infratech	15	17	13.7%	39/12
Crompton Greaves	168	187	10.9%	231/153
Top losers during the week (BSE-A Group)
Vedanta Ltd	174	146	-16.1%	305/138
Cairn India	186	169	-9.5%	358/164
Emami Ltd	1,219	1,113	-8.7%	1272/504
SAIL	65	59	-8.4%	94/59
Tata Motors	437	402	-7.9%	606/394

Source: Equitymaster
As per a leading financial daily, there has been reported a lack of concrete growth in cement sector. This is despite the core statistics for May showing a marginal growth in the cement sector. The sector being barometer of economic activity continues to be under pressure. As per the latest update from the government on growth of core sector for the month of May, the cement production witnessed growth of 2.6% against a contraction of 2.4% in the immediate previous month. While this is seemingly positive development; however it is too little to rejoice since the growth in corresponding month last year, that is in May 2014, was around 8.4%. While the sector is running at a capacity of 72% with more than a 100 million tonnes of capacity lying unutilized.

As per a leading financial daily, there has been a rise in the domestic passenger car sales for the month of June. Sales for the concerned period rose 1.5% to 1,62,677 units from 1,60,232 units in the year ago month. Vehicle sales across categories registered an increase of 2.6% to 16,20,673 units from 15,80,173 units in June 2014. On the other hand, for two-wheeler, sales in June rose 3.5% to 13,07,710 units.

According to ICRA, the recent bid for coal blocks that were earlier de-allocated saw negative price bids ranging from 300-1,100 per tonne by winners. This could lead to an under recovery of 40 paise to 1.20 per unit of power, creating concerns over their viability. The report said that almost 35,000 MW of projects have seen cost over-run of 35% due to delays in land acquisition, lack of fuel and other problems. There have been no new long term power purchase agreements (PPAs) between the power generation and state electricity boards (SEB) due to the dismal state of SEBs. This has added to the problems which are already persisting in the power sector.

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

The Brazilian drug regulator ANVISA has suspended the import of some drugs manufactured in one of the manufacturing plant of Lupin. These drugs are largely the ones which are used to make antibiotics. All Beta Lactum cephalosporin pharmaceutical ingredients and all the imported drugs using these ingredients as inputs by Lupin are banned. This step was taken after the regulator's inspection, which detected some irregularities. Reportedly, the sales of Lupin are not expected to get impacted on the back of this ban.

The technology major Wipro has announced its plans to acquire Designit, a Denmark-based global strategic design firm. This is in line with the company's strategy to tap opportunities in the digital space. The deal is finalized for Rs 59.5 bn with a component of deferred payment to be payable through the next three years upon the acquired entity achieving certain milestones. The acquisition is expected to strengthen Wipro Digital, the company's digital business unit which has been set up in March this year.

ICICI Bank may sell its housing finance arm. ICICI Home Finance contributes about 10% of the book value of total home loans given by ICICI. The deal will require RBI approval as ICICI Home Finance is an NBFC. The bank may be expecting a valuation of around Rs 44bn. ICICI Home Finance focuses on home loans in smaller cities and has smaller ticket size. Private Equity Funds and other companies are looking at housing finance sector given the overall housing shortage in India as well as the robust growth (around 20%) seen in the past 4-5 years.