Barring Brazil (down 0.2%), major global indices closed the week on an encouraging note, posting solid weekly gains. The US stock market closed higher by 2.1% for the week. The US data released on Thursday indicated positive developments in the labour market. However, another report showed weak inflation, signaling moderate economic growth. These factors will play important role in directing Federal Reserve's decision whether to hike interest rates next week.
The UK stock markets notched up and closed higher by 1.2%. The Asian markets viz., Japan and Hong Kong were the leading gainers registering gains of approximately 3.2% and 2.7% each. The week gone by witnessed various market indices touching higher levels since July.
Back home, the week gone by was a volatile one for the Indian markets; however the benchmark indices closed higher by 1.6%. The IIP numbers were recently declared which have showed some positive signs. The country's industrial activity, (IIP) for the month of July rose by 4.2% YoY. This reported growth was above the street estimates, a welcome relief for investors.
Now let us discuss some of the key economic and industry developments in the week gone by.
The cabinet approved the gold monetization scheme. The government intends to monetize gold by offering interest on gold deposits made with banks. This interest will be exempt from income-tax and capital gains tax. In the scheme, the deposits can be short term (1-3 years), medium term (5-7 years) and long term (12-15 years). The interest rates on short-term deposits will be decided by banks and will be denominated in grams of gold. However, the interest rate on medium- and long-term deposits will be decided by the government in consultation with the Reserve Bank of India and will be payable in cash only. At present, holdings of gold are estimated at 20,000 tonnes and most of the same are private holdings.
As per an article in Economic Times, the Union Cabinet is going to take a call on increasing the fund allocation for the programme to promote grid connected rooftop and small solar projects. The proposal has sought to increase allocation for the scheme to Rs 50 bn from Rs 6 bn in 12th plan period (2012-2017). The Ministry of New & Renewable Energy has set this Rs 6 bn outlay in its 12th plan for grid interactive rooftop and small solar systems. On a separate note, the government has set a target of 40,000 MV of grid connected rooftop solar power generation capacity by 2022 under the National Solar Mission.
As per an article in Economic Times, Telecom Regulatory Authority of India (TRAI) is considering making it mandatory to disclose network capacities periodically for all telecom operators. This is undertaken to examine the call drop problems in entirety. Further, the companies are also required to disclose steps that are taking to optimize their networks to address the problems. The TRAI recently came out with a consultation paper on call drops after it was witnessed that the problem has become more acute in the last 3-4 months.
Now let us move on to some of the key corporate developments of the week gone by.
Engineering major Larsen & Toubro (L&T) is expecting Rs 30 bn worth infrastructure projects in Sri Lanka as the company seeks to expand its global presence. The projects are likely to be materialized during the fourth quarter of this fiscal. It is also expecting a 15% growth in order inflow as the current order book stands around Rs 2,390 bn. The company already has its presence in West Asia and also made a foray into the African markets and is reportedly looking at some other countries for expansion. Moreover, L&T has 17 road projects in its pipeline. The scrip of L&T ended the trading day on an encouraging note (up 1.8%) on the BSE.
As per a leading financial daily, Dr. Reddy's Laboratories has entered into a multi-country supply and licensing agreement with PanTheryx Inc., a global medical nutrition company. The agreement grants Dr. Reddy's the exclusive right to market and distribute PanTheryx's breakthrough nutritional intervention, DiaResQ, for infectious diarrhea in India and Nepal. The company is going to market this product under the 'Reliqua' brand.
As per an article in Economic Times, India's largest drug maker by sales Sun Pharmaceuticals Ltd has declared that it is looking to divest a manufacturing plant in Ireland. This is planned in order to control costs that have spiraled since the company bought Ranbaxy Laboratories Ltd. Further, the company is also working on resolving issues at Ranbaxy's India-based drug manufacturing sites, all of which were banned from exporting to its largest market, the United States over quality control issues.
According to a financial daily, Tata Motors Ltd in collaboration with Jaquar Land Rover (JLR) is planning to launch two new Sports Utility Vehicle (SUVs) under the brand name of Tata. This is the first time JLR will collaborate with Tata Motors in developing the latter's SUV. The models are likely to be rolled out by the end of the calendar year of 2016. The company has awarded contracts to three key Indian auto parts suppliers to source components for the SUVs. As per an article in Livemint, company has identified Motherson Sumi Systems for supply of wiring harness used in electrical systems and Sona Group for supply of steering systems. The article further stated that Bridgestone Tyres India will be the official tyre partner for the SUVs.
As per an article in Livemint, Cairn India Ltd is stepping up activities across its four offshore oil & gas assets to take advantage of low exploration costs. The drop of crude oil prices has also brought down the cost of goods and services especially for high cost offshore assets. Hence, to benefit from these low costs, the company has floated tenders to shortlist firms that can offer a host of services to some blocks in the eastern and western region. An international competitive bidding process is initiated to provide rigs, ancillary equipments for oil and gas development and service in support of drilling campaign in all these blocks.
All eyes will be on the upcoming week, as the Fed makes its decision on interest rates. Over and above, Chinese industrial output, retail sales and investment data will be released on Sunday. This will give some clues on the economy's growth. These events will set the tone for the markets. The global markets are likely to remain on the edge with volatile moves possible in either direction. If the markets correct sharply, such events provide opportunities to buy great businesses at good prices.