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Stimuli promises fail to hold up mkt gains
Sat, 1 Sep RoundUp

The world stock markets ended the week on a negative note. The US stock markets were down 0.5% during the week. The lackluster performance till Thursday was slightly made up on Friday as Federal Reserve Chairman Ben Bernanke endorsed more stimulus action. While there is no formal announcement, chances of quantitative easing are strong. Going further, data regarding employment , manufacturing index , construction activity and job creations will decide the course of markets. The European stock markets rallied on Friday on account of chances of economy stimulus in US and as European Central Bank suggested that it was ready to give relief to European countries struggling with high borrowing costs by buying up their bonds. However, the markets have ended the week in red. The stock markets in France and UK were down by 0.6% and 1.1% respectively for the week.

The Indian equity markets closed the week with 2.3% loss amid concerns on policy paralysis and a controversial CAG report on coal block allocations . The other markets have also ended the week on a negative note led by Japan (down 2.5%) and Brazil (down 2.3%).

Source: Yahoo Finance

Moving on to the performance of sectoral indices, most of the sectors registered losses over the week .The Metal and Realty stocks performed the worst during the week while FMCG and Pharma stocks closed in the green.

Source: BSE

Now let us have key developments during the week.The country's Gross Domestic Product (GDP) for the first quarter (April - June) of 2012-13 data has been released. At 5.5%, the growth in GDP was slightly above consensus estimates of 5.3%.This compares to a growth of 8% growth in the corresponding quarter of the financial year 2011-12.

As per Central Statistics Organization's data, the economic activities that registered significant growth during the quarter on a year on basis were construction (up 10.9%), financing, insurance, real estate and business services (up 10.8% ) and community, social and personal services (up 7.9%). The growth in other economic activities was seen in agriculture, forestry & fishing (up 2.9%), mining & quarrying (up 0.1%), manufacturing (up 0.2%) and electricity generation (up 6.3%). The growth in the service sector at 6.9% was much below the growth in the corresponding quarter of last year (10.2%).

After two successive power grid failures across states that had affected million people in the country, the government has proposed to give more autonomy to the state regulators through an amendment in the Electricity Act . The Act is likely to be tabled in the winter session of Parliament. The Ministry apart from appointing a Task Force, headed by Chairman CEA (Central Electricity Authority), has also asked state regulators to work on the proposed amendment. The appointed task Force will consult various stakeholders for the matter and is expected to be ready with the report within two months. The Power Minister has also proposed to give more powers to State Electricity Regulatory Commissions (SERCs) and has proposed that the orders of the state regulators should be treated as 'civil decree' which can be enforced by law. He has urged the state regulators to put in place some tough governance and reforms for better functioning of the state electricity board.

In a separate development in the Power sector , Attorney General of India Mr. Vahanvati has said that the power regulator can regulate and revise electricity tariffs irrespective of the contracts signed by power producers with distribution companies. The statement offers hope for power generators like Tata Power, Reliance Power and Adani Power that together own 12,000 Megawatt (MW) capacity of import coal based plants. These companies have been seeking increase in tariffs to compensate for sharp increase in coal prices on account of regulatory changes in countries like Indonesia and Australia and because of depreciation of rupee against the dollar. However, they are stuck with their long term power contracts with the State regulators and distribution companies that have refused to pay more. Earlier, the power ministry had refused to intervene but referred the matter to the Central Electricity Regulatory Commission (CERC). Mr. Vahanvati has said companies cannot be denied a hearing even if they have signed legally-binding contracts.

Coming to steel sector, between June-July 2012, steel imports are up 40% to 1.47 million tonnes (mt) against imports of 1.01 mt in the same period last year. Of the total imports, flat steel products used in cars and consumer durables accounted for 63%. This comes on top of a 69% rise in imports to 1.52 mt in April-May 2012 and translates to a 55.7% jump in total imports to 2.99 mt between April and July 2012, compared to 1.92 mt in same period last year. Apart from China, imports are coming in from South Korea and Japan. The sharp rise in imports is due to higher volume of materials coming from countries like South Korea and Japan, with which India has comprehensive economic partnership agreements (CEPA). A differential rate of duty on steel imports from these countries is working as an incentive. Price fluctuation is also a factor that affects imports, particularly as domestic prices remain strong against import prices and there is fluctuation in domestic currency.

Now let us take a look at few corporate events that unfolded during the week. On account of uncertainty surrounding the supply of coal, India's largest power producer National Thermal Power Corporation (NTPC) has cut down its investment target for the 12th five year plan by Rs 500 bn. Earlier, it had set an investment target of Rs 2,000 bn during the five year period ending 2017. As such, capacity addition of about 11,000 MW will be postponed to the 13th five year plan starting 2017-18. Currently, NTPC has a power generation capacity of 36,000 megawatt (MW). It accounts for about 92% of the country's coal-based capacity.

Maruti Suzuki held its AGM yesterday discussing its plans and strategies over the long term. As per the company's senior management, the company will focus on diesel power cars. In order to maintain, if not increase, its market share of 40% in the overall passenger vehicle market, it would be looking at expanding the production of diesel variants. The company is reportedly developing an 800 cc diesel engine for its two popular vehicles - Alto and Wagon R. It is believed that close to 35% of the company's vehicles sold are diesel variants. While Maruti enjoys a strong market share in the petrol segment, the market share in the diesel segment is at a much lower 22%. It must however be noted that in the month of March this year, the company finalised a Rs 17 bn investment for doubling its diesel engine capacity to 0.6 m units by 2014.

As per a business daily, the Comptroller and Auditor General (CAG) has slammed state-owned Oil & Natural Gas Corporation (ONGC) for not placing desired emphasis on discovering oil and gas. Also, it says that the PSU has been behind the schedule in monetizing its discoveries. CAG's report on Hydrocarbon Exploration Efforts of ONGC underscores concern at the company's lack of adequate efforts, besides highlighting its anomalies in MoU target setting and reporting as well as performance measurement. Blaming ONGC for delaying purchase of seismic survey vessel, CAG reported that less than 50% of the basins were only able to meet survey targets. Further, CAG mandated the company to introduce transparency and competitive tension in the process of hiring consultants/expert. Moreover, it recommended the company to a review of Reserve Replacement Ratio (RRR) as a performance parameter for ensuring performance in exploration efforts.

Movers and shakers during the week
Company24-Aug-1231-Aug-12Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Jubilant Life Sciences15819422.6%225/154
Glenmark Pharma4094428.0%450/265
Godrej Consumer6536915.8%702/370
P&G Hygiene2,3112,4254.9%1470/1600
Cadila Healthcare8779164.4%926/629
Top losers during the week (BSE-A Group)
JaiPrakash Power3125-18.4%50/25
Moser Baer India76-17.1%29/5
Jain Irrigation7665-15.4%183/63
Sterlite Industries11296-14.3%141/86
JaiPrakash Associates7565-13.8%89/50
Source: Equitymaster

The banking sector is in news due to successive reports of bad asset quality piling up in the sector. As per credit rating agency Crisil, corporate debt restructuring is likely to surge to Rs 3,250 bn in financial year 2012-13 (FY13), an estimated increase of 49% over the previous year. While restructured debt accounted for about 4.7% of total advances in FY12, the same is expected to increase to 5.7% in FY13. The main reason for this is the increasing financial stress on account of the prevailing slowdown in the economy. State utility boards, construction and infrastructure companies will account for a significant chunk of the restructured loans.

This 2.3% loss over the week in the BSE Sensex has come after four consecutive weekly gains for the markets. While GDP growth during the quarter was better than expected, the key event to watch out for will be Reserve Bank of India (RBI) stance regarding interest rates in upcoming monetary policy review meet on September 17.

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