It was yet another lackluster week for the global stock markets. Except for Brazil all the markets closed the week in the red. Concerns over the US and European debt crisis continued to haunt investors. Even the lower than expected jobless claims data from the US failed to enthuse markets. It may be noted that this was the most volatile week for the US stock markets as Dow Jones registered a swing of 400 points for four consecutive trading sessions. Fears that US would be subject to double dip recession further excruciated the pain and added to the volatility. European markets also suffered heavily during the week. However, with short selling restrictions imposed in some parts of Europe we expect stability to return by the end of next week.
Indian stock markets faced the brunt of heavy selling with the BSE Sensex closing lower by 2.7% during the week. Markets overlooked buoyant IIP numbers as global economic concerns overweighed. Amongst the other world markets, Germany was the biggest loser (down by 7.0%) followed by Singapore (down 6.6%) and Hong Kong (down 6.4%). However, UK showed some resilience and was down by only 1.6%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices, except for Auto all other sectoral indices were down during the week. Stocks from the IT and Metal space were the worst hit. IT stocks in particular were down on fears of US economy slowing down. Even the Realty stocks were down due to negative sentiments prevailing in the sector. However, Capital Goods stocks posted a marginal loss of 0.9% during the week due to robust IIP numbers.
Now, let's take a look at key economic developments during the week. The IIP numbers for the month of June were announced recently. The industrial output in June increased to 8.8% from 5.9% in May. This was above the original expectations. With industrial output increasing and inflation remaining at elevated levels it would interesting to see what course of action RBI takes in its next monetary policy.
In light of global uncertainties and volatile capital markets, the government has indicated that it may cut down its disinvestment target for the financial year 2011-12 (FY12). As against its ambitious target of raising Rs 400 bn from the sale of shares of the state-owned enterprises, the government has so far raised only a little over Rs 11 bn by selling its stake in Power Finance Corporation in May 2011. There are a number of companies in the pipeline waiting to tap the capital markets, including SAIL, ONGC, etc. Rashtriya Ispat Nigam Ltd (RINL), MMTC, National Buildings Construction Corp (NBCC) were also set for divestment, however it seems that the government may postpone their stake sales in light of the volatility in capital markets.
Now, moving on the key corporate events that concluded during the week, it may be noted that engineering major Larsen & Toubro (L&T) bagged three international orders worth US$ 889 m (about Rs 40 bn) for hydrocarbon projects. Among the orders won by the company, there is Abu Dhabi Gas Industries' Habshan-Ruwais-Shuweihat Gas Pipeline Project worth US$ 189 m (about Rs 8.5 bn). The project is scheduled to be completed in 24-26 months. Another order is a US$ 450 m (about Rs 20.2 bn) project from ADMA-OPCO, a subsidiary of Abu Dhabi National Oil Company. The same is expected be completed in 27-29 months. Apart from these two projects, L&T has also won a US$ 250 m (about Rs 11.2 bn) project from PTTEP International, a subsidiary of Thailand's PTT Public Company. The project is expected to be completed in 24 months. As on 31st March 2011, L&T's order book stood at about Rs 1.3 trillion.
Indian pharmaceuticals company Piramal Healthcare has entered into an agreement with Indian telecom major Vodafone Essar to purchase 5.5% of issued equity share capital of Vodafone Essar Limited (VEL) from Essar. The deal is of a cash consideration worth around Rs 29 bn. The deal also has various exit options for Piramal, which includes participation in future initial public offering (IPO) of VEL and a sale of its stake to Vodafone. Earlier Vodafone had announced it would buy 33% from Essar in their joint venture VEL. But this transaction raised Vodafone's stake in the joint venture to 75.35% exceeding the foreign direct investment (FDI) limit of 74%. As a result Vodafone had to transfer at least 1.35% to an Indian investor to comply with the regulations. As far as Piramal Healthcare is concerned, the company is looking to diversify into other fields post the sale of its domestic formulations business to Abbott Laboratories for a consideration of US$ 3.72 bn.
Power major National Thermal Power Corporation (NTPC) is planning to invest about Rs 1 trillion to set up a hydropower project in Arunachal Pradesh. With a power generation capacity of 9,500 MW, the Siang Upper project will be India's largest hydropower project. The state-run power major is currently in talks with the Arunachal Pradesh government and is trying to address the concerns that have been raised over the project's feasibility.
NTPC currently has a power generation capacity of 34,000 MW. It aims to increase the same to 40,000 MW by March 2012. The company is likely to commission its first hydropower project in Himachal Pradesh by next year. It is also in the process of implementing a 520 MW hydel project in Uttarakhand.
It may be noted that Hero Moto Corp is planning to make an investment in excess of Rs 45 bn. The two wheeler giant who ended its 27 year old partnership with Honda of Japan eight months ago is planning to set up two new plants in India in addition to the already existing three plants. The first plant is expected to come up in one of the southern states which will have a capacity of 0.75 m units. The second plant is expected to come up in one of the western states. The company has also identified 30 global markets covering Latin America, Southern Asia and Africa to start assembly plants to cater to the export markets. The company recently launched a new logo and a new corporate theme composed by A R Rahman.
In some more news from the economy, the RBI has kept its 8% GDP growth forecast for the economy unchanged. A combination of rising consumption, investments and exports is likely to steer the growth prospects of the economy. However, near term concerns due to slowdown in the investment cycle (rising interest rates) and thus growth do prevail. Nonetheless, once the inflation problem is tackled and the rate tightening comes to end, the economy is likely to clock in higher growth rates in future.