Majority of the global markets have underperformed during the week. Barring some markets in Asia such as Brazil and Singapore that ended in the positive territory, all the other stock markets have fallen during the week. However, majority of global indices witnessed some buying interest on Friday covering up some of the losses.
The US market witnessed selling pressures in the week gone by, however the US equities changed their direction on Friday as the U.S. government posted a budget surplus in June. This is on course to record the lowest annual deficit since 2008 and a good sign of improvement in the country's finances.
European equity markets suffered losses during the week, as Portugal' s largest listed lender, Banco Espirito Santo (BES), raised fears of a possible default and a return to the dark days of the Eurozone debt crisis. However, later European markets too changed their direction on the fifth day of the week as the experts expect that the concerns over the financial troubles of BES won't spiral into an euro-area banking crisis.
It was an eventful week for Indian stock markets. To begin with, the Railway budget pushed down the indices. The Indian stock markets plunged by 500 points in a single day. The much awaited Union Budget 2014-15, too was declared later during the week. While Finance minister Arun Jaitley, emphasized on the fiscal consolidation and took some good steps to bring about the revival in the economy, he failed to get a big thumbs up. The Budget lacked the path breaking reforms and impacted the Indian indices. The Indian markets touched the 15-month low levels. Among the global indices, BSE-Sensex was among the leading losers for the week.
All sectoral indices in the Indian markets ended the week on negative note. Power (down 10.1%) and Capital goods (down 10.0%) witnessed the highest selling interest during the week. Only stocks from IT stocks (up 0.7%) and FMCG sectors (up 1.5%) closed on a positive note.
BSE indices during the week
Now let us discuss some of the economic developments of the week gone by.
As per the Economic Survey of 2014, the Indian economy is expected to pick-up and grow by 5.4% to 5.9% in FY15 despite facing headwinds from poor monsoon and macro-economic conditions. GDP growth had slowed down to a decade's low of below 5% in the past two years. The survey has added that with the global economy expected to recover moderately aided by improved performance in some advanced economies, the Indian economy can look forward for better growth prospects in FY15 and beyond. Economic growth can revert back to 7%-8% level beyond FY16 on the back of measures taken by the government to improve investment climate and governance.
The rail budget was tabled in the parliament today. Expectations were high on big bang modernization and reform schemes. While the budget did not completely disappoint on that front, it was not out rightly impressive either. Here are the key highlights. The focus of the budget was on increasing amenities, cleanliness and comfort for passengers. Investments were also given due attention as the railway minister touched upon issues pertaining to golden quadrilateral and PPP projects. Announcements pertaining to bullet trains was also made. There was also a proposal to restructure the railway board and mention of FDI in railway projects. The latter could be a game changer as the Indian Railway is starving of finance. In short, the budget focused on upgradation and modernization and had no sops for the aam aadmi. While this was a departure from what the previous budgets have been it would be interesting to see how the new government would be able to turnaround the fortunes of railways with its newly laid out policies.
Now let us move on to some more developments in India Inc.
As per the financial daily, Society of Indian automobile manufacturing (SIAM) has released data on the domestic automobile sales. Reportedly, the domestic passenger car sales have increased by 14.7% YoY for the month of June. Motorcycle sales were also up by 9.6% YoY and the two wheeler sales rose by 13% YoY during June month. However sales of the commercial vehicles were down by 9.03% YoY during the month. Financial year 2014 had been an extremely difficult one for the Indian auto industry.
The last two months have witnessed better volume uptake. However, we will wait and see how the sales picks up for the upcoming period. There are hopes that demand would pick up as the new government introduces reforms that will bolster economic activity and development.
According to a leading business daily, the Department of Telecom (DoT) has informed the new government regarding the policy decisions that will be taken over the next two years. As per the DoT, it will require about Rs 100 bn annually for the next few years to work on infrastructure development for the sector. The DoT plans to clear regulations on trading, sharing, harmonisation, delicencing and liberalising of spectrum, within the next six to 18 months. The auction of bands, such as 1,800, 900, 2,100 and 2,300 MHz will be conducted within the next nine months while the auction of the 700 MHz band will be conducted over the next two years. Measures regarding the Research and Development (R&D) which is crucial for the sector, will also be finalised over the next one year.
As per a leading financial daily, Cairn India Ltd (CIL) has signed up Halliburton Company, a US multinational, for a Rs 12 bn contract to drill 100 wells at the Rajasthan onland block RJ-ON-90/1 over the next 18 months. The company expects Halliburton to begin drilling in a month or two. Oil and Natural Gas Corporation Ltd (ONGC) is Cairn India's 30 % joint venture partner in the Rajasthan block and both plan to drill 300 wells over the next three years, and 1,000 wells in five years. Cairn India had won approval to drill exploration wells in the block last year after long delays. It now plans to increase production from current level of 200,000 barrels a day to 500,000 barrels a day in five years.
Glenmark pharmaceutical announced that it received approval from the USFDA for telmisartan tablets. The said drug is generic version of Boehringer Ingelheim's Micardis. Telmisartan is indicated for the treatment of hypertension. The company has received approval for three strengths viz; 20 mg,40 mg and 80 mg tablets. The market size of the said drug is US$ 250m. Other than Glenmark, the only other company that holds the approval is Watson. Thus, there is a likelihood of Glenmark launching the drug under low competition. Among the two patents listed in orange book, one is already expired in Jan 2014, while the another one will expire in 2020. Thus timing of Glenmark's launch remains uncertain for now.
As per a leading financial daily, India's fifth largest software firm Tech Mahindra, has signed a MoU with the Dubai Economic council (DEC). Under this agreement, the company will provide innovative IT solutions to the Emirate in its quest to achieve the status of a 'Smart City'. The city which is attempting to emerge from the global economic crisis by converting itself into a services focused smart city has opened its doors to global software companies. The Middle East is a key market for Tech Mahindra to achieve its revenue target of US$ 5 bn by 2017. The financial details of the deal were not disclosed. Tech Mahindra is trading down 1.4% today.
Sun Pharma's subsidiary Caraco Pharmaceutical is expected to recall some lots of antidepressant drug Venlafaxine Hydrochloride from the US market. The company has initiated talks for the same and according to FDA notification, it will recall 26,530 units of 30-count bottles and 14,597 units of 90-count bottles voluntarily. This recall is as per regulator's Class II classification in which the use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences. Venlafaxine Hydrochloride is an extended-release tablet used for the treatment of major depressive disorder. The recall, as per the company letter to FDA, is because the product does not meet the drug release dissolution specifications on stability results. This affects the treatment for which the drug is intended for. The recalled is drug was manufactured at Sun Pharma's plant in Halol, Gujarat
Result season has already kicked off, as Infosys Ltd declared its 1QFY15 results.India's second largest software firm Infosys Ltd has announced its first quarter results for the financial year 2014-2015 (1QFY15). The company has reported a 0.8% quarter-on-quarter (QoQ) decline in its sales and a 3.5% QoQ decline in its net profits. In rupee terms the consolidated sales decreased by 0.8% QoQ during 1QFY15. However, in US dollar terms the revenues were up 2% QoQ. The appreciation of the rupee in the quarter impacted the reported topline performance. Operating profits were down by 2.1% QoQ. This was due to the fall in sales and higher sales and marketing expenses on an absolute basis. Thus the operating margin which came in at 25.1% this quarter was slightly lower than the same reported in the last quarter of 25.5%. The net profit for the company came in at Rs 28.86 bn a decrease of 3.5% QoQ.
In the week to come, many more companies will declare their June quarter results. While it will be interesting to know the views and future plans of the companies post budgets, investors should not be swayed by short term moves in the markets and must remain invested in fundamentally strong companies for the long term.