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Global markets bounce back
Fri, 17 Jul RoundUp

The stock markets around the world ended the week on a strong note on hopes of early resolution of the Greek crisis. During the past week, the Greek Prime Minister finally agreed to the third bail-out package with its creditors. The bailout package of US$ 96 bn is based on strong austerity measures and quick passage of reforms by Greece. In a positive development, the Greek parliament has given its nod for the bail-out plan and the European Central Bank has extended its emergency funding for the country's banks. The European markets were the biggest gainers with France and German indices clocking gains of 4.7% and 4.2%, respectively. The UK market was up by 2.1% for the week. Even the US markets were up by 3.3% as lower jobless claims reinforced expectations for a US rate hike by the end of 2015.

Among Asian markets, the Japanese index was the biggest gainer posting the biggest weekly gain of 4.4% since October. The Chinese stocks rallied by 2.1% for the week amid speculation that the government is boosting funds to provide liquidity support to the markets. The Indian markets were up by 2.9% for the week aided by the cabinet proposal for the merger of limits for foreign direct and portfolio investments to ease norms for foreign investments.

Key world markets during the week
Source: Yahoo Finance

All the sectoral indices ended the week in positive territory with stocks in IT, pharma and consumer durable sectors witnessing maximum gains.

BSE indices during the week
Source: BSE

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

India's merchandize exports fell for the seventh month in a row in June. In value terms, the exports were down by 15.8% to US$ 22.9 bn. The decline is on account of a 53% decline in petroleum product dispatches to US$ 6.1 bn. Even engineering goods exports declined by 6% to US$ 5 bn. However, exports of gems & jewellery and drugs increased by 6% and 11%, respectively during the month. The cumulative exports for the period April-June 2015 was down by 16.8% to US$ 66.7 bn. On a positive note, the trade deficit declined to US$ 32.2 bn as compared to US$ 33.1 bn in the corresponding quarter last year on the back of a 39.5% fall in oil imports.

Movers and shakers during the week
Company9-Jul-1517-Jul-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Core Education6713.7%16/6
Tata Chemicals44148610.0%495/331
Max (I) Ltd4885359.6%544/292
Crompton Greaves1811989.4%231/153
Hexaware Technologies2522759.1%335/137
Top losers during the week (BSE-A Group)
Jaypee Infratech1816-10.4%39/12
Bajaj Holdings Investment1,4641,402-4.3%1635/1230
Sun TV279268-3.9%470/258
Shriram Transport Finance931897-3.6%1286/762
Titan Company359348-3.1%448/321
Source: Equitymaster

The finance ministry has planned to infuse Rs 120 bn into state owned banks that are currently bogged down by the pile up in the stressed assets. This is in addition to Rs 79.4 bn allocated in the budget towards capitalization. The funds will be allocated to the banks that are in urgent need of capital, irrespective of the efficiency criteria. Beneficiaries in the first infusion may include Syndicate Bank, Central Bank of India and Allahabad Bank. Capital infusion is required in the state owned banks as a steep rise in bad loans has hampered their lending operations to support the government's economic revival programme.

In order to further improve the affordability of medicines, the drug price control order has been extended to 39 more drugs ranging from diabetes treatment to antibiotics. The price control list already includes more than 500 drugs. Reportedly the latest price cap will apply to medicines manufactured by foreign drugmakers such as Abbott Laboratories and Glaxosmithkline Plc and domestic drug manufacturers such as Lupin, Cadila and Ipca.

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

Zee Entertainment has announced its results for the quarter ended June 2015. The company has reported a 27% YoY growth in operational revenues to Rs 13.4 bn. But margins for the quarter reduced to 23.3% as against 29.3% in the corresponding quarter for the last year. The contraction was on account of higher operational costs which increased by 51.4% on a YoY (year-on-year) basis. The company has reported a 15.4% YoY growth in its consolidated net profit to Rs 2.4 bn for the quarter.

Lupin is planning to make huge spends in Research & Development (R&D) to move up the value chain from generic to specialty business. As per the management, the company will spend 10% of its turnover on R&D. Currently, the company's R&D spend is at 8.5% of sales. In comparison, the average R&D spends for the industry is around 5-7% of sales.

Dr Reddy's Laboratories has launched a generic drug 'Memantine Hydrochloride' used for the treatment of dementia of the Alzheimer's type. The generic drug has been introduced in the US markets. The company has launched the tablets in the strength of 5 mg and 10 mg after getting the approval from the United States Food and Drug Administration (USFDA).

Tata Motors' UK subsidiary Jaguar Land Rover (JLR) has cut the price of its premium brand Range Rover Evoque in China. China is the biggest market for JLR and the price of the base model has been reduced by 11%. JLR operates in China in a joint venture with local auto maker Chery and produces the Evoque sports utility vehicle in Jiangshu province. Sales fell 20% to 23,526 vehicles in the March 2015 quarter, compared with a 36% increase in the year-ago quarter. China's contribution to JLR's overall sales fell to 23.5% in the March 2015 quarter from 29.6% in the corresponding year-ago period.

To meet the growing demand, Eicher Motors is planning to ramp up the capacity of Royal Enfield by up to 52,000 units a month by December from the current capacity of 36,500 units. The company has been clocking over 40% sales growth on an average every month since the beginning of this year. It has bought land for the third plant near the existing plant for around Rs 700 m. The move will reduce the long waiting period for the bikes, which is around five months on an average due to high demand.

The Indian equity markets will continue to be impacted by factors such as the rate hike by the US Fed, crude prices and macroeconomic stability in the Eurozone. Back home, the fate of key tax proposals such as land acquisition and national tax reforms that are expected to be debated in the monsoon session of the parliament will set the tone for the markets. However, investors should not get carried away by these short term fluctuations but instead focus on investing in fundamentally sound stocks available at reasonable valuations.

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