After witnessing a tough last week, stocks markets globally bounced back as the all the key markets ended on a strong note this week. Leading the pack of gainers were European markets, with France, UK and Germany reporting gains of about 5%, 4% and 3% respectively. It was reported that European stocks posted their biggest weekly gain since July on the back of reports from the US and China giving indication to investors that the economic recovery is occurring.
Asian stocks too saw some action this week as Singapore, China and Japan reported weekly gains in the range of 1% to 2%. India's benchmark index, the BSE-Sensex was however, the top underperformer this week, with gains of only 1.2%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India – barring stocks from the oil & gas space, buying activity was witnessed across the board. Leading the pack of gainers was the BSE-Realty Index which recorded a weekly gain of 3.2%. Stocks from the FMCG, auto and metal spaces followed suit as the BSE-FMCG, BSE-Auto and BSE-Metal indices ended higher by about 3% each.
Amongst the top underperformers were the engineering and power stocks as their respective indices, the BSE-Capital Goods and BSE-Power indices ended the week with marginal gains. Midcap and smallcap stocks were in favour this week as the
BSE-Midcap and BSE-Smallcap indices ended higher by 2.9% and 2.8% respectively.
Moving on to key corporate developments during the week – Auto manufacturers announced their sales volumes for the month of August 2010 this week. Maruti Suzuki registered its highest ever monthly sales at 104,791 units, which is higher by about 24% YoY as compared to the same month last year. This is the third time this year that the company has crossed the 100,000 units mark. Sale for the domestic market stood at 92,674 units, a rise of 33% YoY while, exports declined by 18.4% YoY.
Tata Motors sold about 66,000 units during the month. The domestic market and exports, both contributed to this growth. While the company's total passenger vehicles in the domestic market grew by 45% YoY, exports grew by 92% YoY. As far as the brands are concerned, while 'Indigo' grew by a dazzling 151% YoY, 'Sumo' and 'Safari' registered growth of 11% YoY. With respect to commercial vehicles, light commercial vehicles saw a growth of 11% YoY, while the growth of medium and heavy commercial vehicles stood at 34% YoY.
Commercial vehicle manufacturer Ashok Leyland touched its 52-week high this week as the company reported a strong 56% YoY increase in volumes during the month with sales touching 7,480 units. On a month on month basis, sales were higher by 10%, which is a strong growth number. Sales volumes growth was led by the company's medium and heavy CVs (good carriers) which grew by 63% YoY to 5,233 units. The company's M&HCV buses segment saw a sales growth of 47% YoY to 2,193 units. On an overall basis, exports formed about 10% of volumes as compared to 11.5% during the same month last year.
Moving on to two wheelers sales, TVS Motor and Bajaj Auto both reported strong sales volumes during the month of August 2010. While the former reported a 34% YoY increase in sales, the latter reported an increase of 55% YoY. Other non-listed two-wheelers such as Suzuki Motorcycle and India Yamaha Motor reported a 51% YoY and 30% YoY increase in volumes during the month respectively.
On the other hand, India's largest two-wheeler player Hero Honda reported a dismal 2% YoY rise in sales during the month. This was mainly on account of a higher base. The stock of Hero Honda was the top loser amongst BSE-Sensex stocks as it dropped by 6% this week. In addition to the slow increase in sales, the stock was under pressure on the back of reports of its joint venture partner Honda Motors Japan looking at selling its stake in the 25 year old company. While there are reports of the Munjal family (the Indian promoters) looking at setting up a SPV (special purpose vehicle) to acquire Honda's 26% stake, it may be noted that both the promoters – Hero Group and Honda – during the week, have denied these news. Going by the movement of the company's stock price, the market seems to believe this piece of information at the moment. However, it remains to be seen whether this information just market speculation or not.
Moving on from news of the auto sector to the hotel sector. The stock of EIH Limited ended higher by 12% this week as Reliance Industries (RIL) picked up 14.2% stake in the hospitality company. In fact, it upped its stake to 14.8%, just below the open offer threshold of 15%, a few days later. This investment was made through its wholly-owned subsidiary Reliance Investments & Holding Pvt. Ltd. The stake was bought from the promoter of EIH, Mr. P R S Oberoi and two other promoter entities, Oberoi Hotels Pvt. Ltd. and Aravali Polymers LLP. RIL later clarified that this is purely a financial investment and will not impact the day-to-day running of the hotels.
Interestingly, FMCG major ITC also holds a strategic 14.9% in EIH. This has reportedly been a cause of discomfort for the EIH management. Although, ITC has clarified that it does not plan to launch a hostile bid on EIH, RIL's role will now be that of the white knight to ward off such attempts. This also further consolidates the RIL group's play in the India consumption story.
Telecom stocks were in favour this week on the back of news of the government sticking to the deadline (of September 1) and allocating 3G spectrum to all the winning bidders at the
recently concluded auction. Spectrum has been allotted to all 7 winners namely Bharti Airtel, Reliance Communications, Idea Cellular, Vodafone, Aircel, STel and Tata Teleservices. With the allocation of spectrum the commercial launch of 3G services is expected to happen by the end of this year or early next year. As per the regulations, the operators would be able to use the spectrum for 20 years. The government has also imposed a roll out obligation under which the service providers will have to cover at least 90% of the service areas within metros over a period of 5 years.
Export numbers for the month of July were announced this week. For the month, exports grew by 13.2% to US$ 16.2 bn representing growth for the nine month in a row. On the other hand, imports too rose by 34% to US$ 29 bn. Oil imports in July grew by 4.4% to US$ 7.6 bn, while non-oil imports jumped by 49.6% to US$ 21.5 bn. As a result, the country's trade deficit widened to US$ 12.9 bn in July. The growth in exports, however, is an encouraging sign. It must be noted that the global economic slowdown badly hit Indian exports. However, once the recovery in exports began in November 2009, there has been no looking back.
Food inflation for the week ended August 21 rose to an annual 10.86% as compared to the 10.05% rise during the previous week. Higher prices of fruits and vegetables led to food inflation rise during the week. This is despite good monsoons so far. This means that a further rise in interest rates by the RBI cannot be ruled out. Having said that, the central bank expects the inflationary pressures to ease by the end of the fiscal.