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Global markets witnessed sharp volatility during the week gone by. Stock markets in Brazil (down 2.8%) and US (down 2.2%), were the leading losers. While, Honkong and Singapore stock indices were among the leading gainers, registering weekly gains of 3.6% and 2.5% respectively.
Data was released during the week showing US jobless claim which fell to a six-week low last week. This was recorded as the 79th straight week that claims remained below the 3,00,000 threshold, which represents a robust labour market. While the jobs data fueled optimism for the US economy, the services sector data came in below expectations. Data released during the week showed that the US services sector activity slowed to almost six and half year low in August. This was seen amid sharp drops in production and orders. While manufacturing and services sector remains constrained, sustained labour market strength have increased the chances of Fed raising interest rates later this year.
The European Central Bank (ECB) left its 1.7 trillion-euro stimulus programme unchanged at its policy meeting on Thursday, leaving investors disappointed. European countries have been reporting mixed data including German industrial orders this week that showed the steepest drop in almost two years. This led many market participants to speculate the ECB might take additional actions in order to stimulate Euro Zone growth. The decision came as a consensus among the policymakers. Policymakers at the meeting were of the view that there's no immediate danger to the euro-area recovery from risks including Britain's decision to leave the European Union (EU).
In the recent past, central banks across the world are trying to prod growth by operating near zero or negative interest rates and by introducing stimulus measures. However, are these measures viable? Asad Dossani, editor of Daily Profit Hunter, calls these measures the definition of insanity. He has also written on how one can successfully trade such events and build a trading business.
Back home, BSE Sensex closed up by 0.9%. During the week, President Pranab Mukherjee gave its assent to Constitution Amendment Bill on Goods and Services Tax (GST). This, along with the bill ratified by more than 50% state assemblies, makes GST a law. With this milestone achieved, all eyes are now set on the formation of the GST Council.
Now let us discuss some key economic and industry developments during the week gone by.
With the GST milestone achieved, all eyes are now set on the formation of the GST Council. The GST council is a very important part of the implementation process. It will be the job of the council, which will be two-thirds represented by the states, to decide on the GST rate after which three GST Bills (Central GST, Integrated GST, and State GST) mentioning the actual rates will be sent to Parliament and state assemblies for approval. To know more about GST, please read Vivek Kaul's report titled GST & You: What the Media DID NOT TELL YOU About the GST. As for market participants, the question is this: Will the landmark GST Bill make you go out there and buy stocks in large numbers? One of the editions of The 5 Minute WrapUp titled 'GST Approved: Time to Buy Stocks by the Fistful?' answers this question.
As per an article in the Economic Times, the gold industry is expecting the rally in the gold price to continue in the coming months. The chairman of All India Gems and Jewellery Trade Federation said that gold is in a bullish phase now and may touch Rs 32,000/10 gm by Diwali. The industry stated that demand all over India in September is up 30% compared to that a year ago. Further, it was noted that India is expected to import 750-850 tonnes of gold this year. The only concern for gold is the Fed rate hike. However, analysts are of the view that things can work out in favor of gold even with a rate hike. This, they say, is because of the depreciation in the rupee as the demand for dollar would rise in the event of a rate hike and in turn would increase the landed price of gold. Of late, gold is witnessing buying interest in the global markets.
|Top Gainers During the Week (BSE Group A)|
|Top Losers During the Week (BSE Group A)|
And here are some of the key corporate developments in the week gone by.
Infosys is reportedly splitting itself into 12-15 smaller business units, each with revenue of $500 - $700 million in a massive reorganization. Each business units will have its own sales heads and P&L (profit & loss) responsibilities. The move will help the company in better market penetration and in client management. Currently, the organization is divided into four large verticals-banking & financial services and insurance, with $3 billion in revenue; retail & life sciences, with US$2.3 billion; manufacturing & hi-tech, with US$2.2 billion; and energy & utilities, communications and services, with US$1.9 billion. Each of these will be split into smaller units. Meanwhile, Tata Consultancy Services (TCS) is seeing some sequential loss of momentum in Banking and Financial Services Solution (BFSI) business in US. The company further said it is holding back discretionary spending seen in the segment. THE BFSI segment accounts for 40% of the company's revenue.
According to an article in The Financial Express, Cairn India and ONGC will get a 10-year extension for the Barmer oil and gas block in Rajasthan beyond 2020, when the current production-sharing contract (PSC) ends. The Barmer block is the biggest onshore oil producing project in India and its current output hovers around 166,943 barrels of oil equivalent per day.
The extension comes with a notice that the explorer would have to share 10% additional "profit petroleum" during the extended duration. Profit petroleum is the main source of revenue for the government from a hydrocarbon block. As per the reports, the Vedanta Group, which owns majority of Cairn India, has chalked out Rs 23.64 billion towards profit petroleum in FY16 on a consolidated basis. A chunk of it would be towards hydrocarbon output from Barmer block. The consolidated profit petroleum shared in FY15 stood at a little over Rs 47.34 billion.
According to a leading financial daily, Ashok Leyland will buy partner Nissan's stakes in Ashok Leyland Nissan Vehicles, Nissan Ashok Leyland Powertrain and Nissan Ashok Leyland Technologies. Ashok Leyland and Nissan announced a restructuring agreement in which Nissan agreed to sell to Ashok Leyland all of its shares in the three joint ventures (JV) that were formed in 2008. These companies will become wholly-owned Ashok Leyland subsidiaries. The process is expected to be concluded this year. As per the reports, Ashok Leyland will continue to manufacture under a licensing agreement the Dost and Partner light commercial vehicles that are based on Nissan's design, engineering and technology. The firms will continue their arrangement to procure spare parts from India for Nissan. The much talked about Nissan-Ashok Leyland venture reportedly turned sour (Subscription Required) with the Japanese company serving a notice for the termination license on NALT reportedly due to delay in a bill payment of Rs 23 million.
According to a leading economic daily, Yes Bank has launched a Qualified Institutional Placement (QIP) issue to raise US$1 billion. The bank proposes to use the funds to bolster its capital for meeting prudential norms and support its expansion. Yes Bank and some of its private sector competitors are increasing their loan books at double the pace of state-run rivals, which have been burdened by a surge in bad loans. The Yes Bank fund raising will be the biggest QIP so far in 2016. In June 2014, Yes Bank had raised US$500 million (Rs 29 billion) through a QIP. So far this year, just five companies have raised Rs 7.08 billion through the QIP route. In 2015, 32 companies had raised Rs 190.64 billion through QIPs.
As per an article in Business Standard, Indian Hotels Company has contested a decision of the Delhi High Court. The order was pertaining to auctioning of one of its prime properties in Delhi popularly know as Taj Mansingh. The company had got this property on lease from the New Delhi Municipal Council (NDMC) for a period of thirty-three years. This lease had expired in the year 2011 and saw several extensions since then. Reportedly, Taj Mansingh is a 294-room property, located in Lutyens Delhi and is a key asset operated by the company. This hotel contributed to around 6.5% to the overall revenues of the company. An unfavorable decision may prove to be a dampener on the financials of the company. The stock is trading down by 1.5%.
Monetary policies have infused lots of volatility in the global markets of late. The question is: How can one avoid capital loss amid such volatility? Asad says Don't Fight Easy Money. And to learn how, you can read recent articles from Apurva Sheth - one highlighting some trading principles from Warren Buffett and another explaining how traders can measure their trading performance.
Even as global headwinds continue to impact the market direction, long term investors would do well to focus on the companies' fundamentals and invest in the stocks that offer sufficient margin of safety.
One way to do so is to buy the stocks that are best positioned to ride the earnings upside to Sensex 40,000.
The Nifty opened with a huge gap up on Tuesday and a rallied 130 points but ended the week with nominal gains on account of profit booking at higher levels. It seems like the channel line would act as a resistance on an immediate basis and keep prices in check. 8,800 could act as an immediate support while 9,000 could act as a resistance. You can read the detailed market update here...
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