A flat end to the week

Sat, 25 Aug RoundUp

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Except for India the world stock markets ended the week on a negative note. The US stock markets were down 0.9% during the week due to weak jobs data. As per the labor department, the number of people seeking unemployment assistance increased by about 4,000 to 372,000. This was the second straight week where the unemployment assistance figure increased. Further, ambiguity on whether Federal Reserve would introduce additional measures to boost economy dragged the benchmark indices.

The Indian equity markets closed the week with modest gains of 0.5%. This was the fourth consecutive weekly gain for the markets. However, it would be interesting to see whether markets can extend the current rally as investors have started feeling the heat due to delay in reforms amidst parliamentary logjam.

Amongst the other markets, most ended the week on a negative note led by France (down by 1.6%), UK (down 1.3%) and Hong Kong (down 1.2%).

Source: Yahoo Finance

Moving on to the performance of sectoral indices, IT and FMCG stocks were top gainers during the week, while realty, oil & gas and capital goods stocks closed in the red.

Source: BSE

Now let us have a look at key developments during the week. The monthly inflation figures were announced during the week. Inflation marginally declined to 9.86% during the month. The decline was largely due to lower prices of spices, cereals and its products. However, vegetable prices remained high during the month, up by 27% YoY. Edible oil prices were higher by 17.4%, while sugar was dearer by over 9% YoY. As for the overall inflation rates in urban and rural areas, the rate remained higher for the former at 10.1%. Inflation rate in the rural area stood at 9.76%. The retail inflation trend is the opposite to that of the headline inflation figure - measured by the Wholesale Price Index (WPI) - which had declined to 6.87% in July as the rate of price rise of the food articles category eased a little. During the preceding month i.e. June 2012, WPI inflation stood at 7.25%. It is also reported that inflation, based on the CPI (Consumer Price Index), was revised downwards to 9.93% from the earlier estimate of 10% for the month of June 2012.

Slow economic activity and ambiguity regarding taxation has taken a toll on FDI (Foreign Direct Investment) in the Indian services sector. As per reports, the same has dipped by 18% during April-May FY13 over the same period last year. The overall FDI also seems to have come down sharply for the second month in succession in May to US$ 1.32 bn from the previous fiscal's US$ 4.7 bn. As per experts, taxation issues related with GAAR and retrospective amendment in the income tax act along with waning investor confidence in the country seem to be the major cause of the decline in FDI inflows.

Now let us take a look at few corporate events that unfolded during the week. Wockhardt has received US Food and Drug Administration (USFDA) approval for marketing a generic version of Comtan tablets, used in treating Parkinson's disease. The company has received 180 days of exclusive marketing of 200mg tablets containing Entacapone. Entacapone tablet is the generic name for the brand Comtan, owned by Orion Corporation and marketed in the US by Novartis. Pursuant to a settlement of the litigation between Wockhardt and Orion Corporation, Wockhardt will launch an authorized generic version from September 30, 2012. The total market for Entacapone tablets in the US is about USD $98 m.

Finally Maruti, India's largest passenger car manufacturer has resumed operations at its Manesar plant amid heavy security measures. It should be noted that the company had declared a lock-out at the plant more than a month back after incidents of labour violence. The closure is estimated to have cost the company millions of dollars in lost output. One major change that it is initiating is in the form of doing direct hiring rather than employing contract labour and the same has been communicated to existing contract workers. We hope the step leads to no more disruptions and helps the company to efficiently run all its operations

Over the last few months, coal prices in the international markets have declined by about 25%. This has brought some relief to domestic thermal power producers in the form of lower production costs. As per an official of National Thermal Power Corporation (NTPC), India's largest thermal coal consumer, the decline in international coal prices have resulted in a decline in power production costs by 7-10 paise per unit. NTPC is passing on the benefit of lower production costs to its consumers, the state utilities. This in turn will benefit the ultimate users. It must be noted that Indonesian coal prices have dropped from US$ 100 per tonne freight-on-board in January to US$ 75. On the other hand, Australian coal with gross calorific value of 6,000 kilocalories/kg has declined from US$ 108 per tonne to US$ 88.

Movers and shakers during the week

Company	16-Aug-12	24-Aug-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
MTNL	33	41	21.1%	41/21
Gujarat State Petronet	71	79	10.5%	113/62
Shriram Transport Finance	566	614	8.5%	707/416
Ranbaxy	510	550	7.8%	554/367
Madras Cements	176	189	7.5%	191/80
Top losers during the week (BSE-A Group)
IFCI	36	29	-17.6%	49/20
Adani Ports	128	112	-12.2%	170/105
NCC Ltd	41	37	-11.3%	74/28
Opto Circuits	143	127	-11.3%	293/117
Moser Baer	7	7	-10.6%	29/7

Source: Equitymaster
As per news reports, by the end of December approximately 50 m square feet of housing area in 7 cities is expected to remain unsold. The inventory for 2013 on a whole is expected to be around 107 m square feet. Despite, such high housing inventory the property prices are showing no signs of correction thereby defying the law of general economics. But why? As per Mr Keki Mistry, the CEO of HDFC Ltd, the current supply is insufficient to have any impact on the prices. For prices to correct the supply needs to be increased by 1 m units every year. This effectively translates into 1,000-1,500 m square feet of area, about 10 times more than the current supply! It seems that the price correction is way too a distant dream than a reality.

After four consecutive weekly gains, Indian stock markets have turned a bit circumspect. Parliamentary logjam and delay in reforms process is making the investors jittery. The immediate performance over the next week will depend on how the Gross Domestic Product (GDP) data pans out. That's because if growth is not up to the mark it could trigger rate cuts.