ECB's decision cheers investors

Sat, 8 Sep RoundUp

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Global stock markets ended the week on a positive note. The decision by the European Central Bank (ECB) about unlimited bond buying to support the struggling European nations brought cheers to markets worldwide. The fact that job growth was slower than expected in the US was put aside by investors stating that this would result in the Federal Reserve taking steps to stimulate the economy. The Fed is expected to announce additional stimulus after its policy meeting next week.

The Indian stock markets registered gains on positive global cues. The markets rallied on the last day of the week on the ECB's announcement (by 2%) and ended the week higher by 1.5% (as per Friday's closing).

Amongst the other markets, barring Singapore which registered losses of 0.5%, all ended the week on a positive note led by China (up by 4%) and Germany (up by 3.5%).

Source: Yahoo Finance

Moving on to the performance of sectoral indices all ended the week in the green except FMCG stocks which were down by 0.3%. IT stocks were the top performers up by 3.9%.

Also, it may be noted that the market had a special trading session on Saturday. At the time of writing, BSE-Sensex was up by about 67 points with stocks from metals and healthcare space leading the gains.

Source: BSE *Return calculation as of Friday's closing.

Now let us have a look at key economic developments during the week. India's manufacturing sector saw weakest growth in the past 9 months. The index used to measure production - HSBC India Manufacturing Purchasing Managers' Index (PMI) - eased to 52.8 in August, from 52.9 in July. This is being attributed to lower exports and power failures that rocked the country in August. We may recollect here that 16 Indian states fell into darkness last month as power grids collapsed. This disrupted the manufacturing activities.

Now let us take a look at few corporate events that unfolded during the week. Auto major Mahindra & Mahindra Ltd. (M&M) was in news past week for a number of reasons. The auto company is in an expansionary mood and is looking at Sri Lankan markets for the launch of its 2 wheelers and aircrafts there. M&M has already sold its first aircraft in the Asian country and is expected to launch scooters by the end of this year. To build upon its brand value in the Asian country, M&M has partnered with Sri Lanka Premier League (SLPL) as the title sponsor for the first edition of the tournament. M&M is also planning a foray into the Russian automobile market. It is exploring the option of either manufacturing in Russia or selling the vehicles as completely built unit (CBU) imports.

In India too, M&M is planning to bring a cross over utility vehicle in 2015. For this the auto major is developing two new platforms in association with Korean subsidiary Ssangyong Motor Corporation. Overall, M&M is looking at an addition of 3-4 completely new vehicles to its portfolio over next couple of years.

Coal India is planning to invest around Rs 594 bn towards capital expenditure over next 5 years. This includes a sum of Rs 250 bn towards overseas acquisitions. The coal mining company has set aside Rs 100 bn for the development of its block at Mozambique. As per the Minister of state for coal, capex for the year would be Rs 42.75 bn. In addition to this, a provision of Rs 50 bn has been made for acquisitions abroad.

Oil and Natural Gas Corporation (ONGC) has bought Hess Corp's 2.72% stake in the large Azeri, Chirag and Guneshli(ACG) group of oil fields in Azerbaijan as well as its 2.36 percent stake in an associated pipeline for US$1 billion. Hess has agreed to sell its stake to ONGC's foreign investment arm ONGC Videsh and the deal is expected to get closed in the first quarter of 2013. This step by Hess is towards fulfilling its objective of trimming its assets and projects where it holds only a small working interest. The deal is subject to Indian and other regulatory approvals.

In the FMCG space, ITC is looking at entering into the business of dairy products. This is in line with the company's strategy to focus on health and nutrition segment in India. The FMCG company feels that Indians these days are opting for healthier choices and wants to extend its brand to the market. Although its existing distribution network will help the company in this new venture, it will be very difficult to garner market share from existing players in this segment.

Movers and shakers during the week

Company	31-Aug-12	7-Sep-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Torrent Power	148	172	16.2%	253/146
Jaiprakash Power	25	29	12.6%	50/25
Moser Baer India	6	6	11.6%	29/5
Everest Kanto Cylinder	24	27	10.8%	80/23
KSK Energy	60	66	10.6%	109/33
Top losers during the week (BSE-A Group)
Castrol	596	275	-53.9%	634/272
Tulip Telecom	94	87	-7.5%	167/66
Jain Irrigation	65	60	-7.3%	183/60
Chennai Petroleum	133	124	-7.2%	213/117
Praj Industries	46	43	-6.6%	93/43

Source: Equitymaster *Return calculation as of Friday's closing.
Comptroller and Auditor General (CAG) has recently criticized Gas Authority of India Limited (GAIL) for supplying cheap gas to private power producers against a government directive. As per CAG, GAIL has provided undue benefits worth Rs 24.6 m to these power firms that sold electricity at commercial rates. We may note here that earlier too CAG had raised the issue of revenue loss to the tune of Rs 22.7 m between 2006 and 2010. However, GAIL continued with the practice despite CAG's objection. GAIL has also been criticized by CAG for hiring a rig from Reliance Industries in an "opaque and irregular manner."

The Indian stock markets will see the release of few macro economic data in next few weeks including the crucial Reserve Bank of India (RBI) policy meeting on September 17. The stock market investors are eagerly looking forward to the meeting in anticipation of a much needed rate cut. However, with inflation persisting to be high it seems unlikely that the central bank will announce one in immediate future.