Global markets continue to rally

Sat, 14 Sep RoundUp

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Laying aside economic concerns, major global stock markets posted strong gains for the second week in a row. The bullish sentiment has overridden the cautious undertone arising from the likelihood of the Fed announcing pull-back of its stimulus program on Wednesday. Even worries over Syria lingered as US and Russia held talks and felt that Syria was not doing enough to give up its chemical arms. The US stock markets were up by 3%. The European markets were buoyant with indices in Germany and France ending higher by 2.8% and 1.6%, respectively. The UK markets were up by 0.6%.

Stocks across Asian markets posted high returns. Improving economic climate in China continued to boost its stock indices that were up by 4.5%. The stock markets in Japan continued to revel in the euphoria on being selected to host 2020 Summer Olympics and gained 3.9%.

Even the equity markets in India were up by 2.4% as the rupee continued to limp back to normative levels after a slew of measures by the new RBI governor. By the end of the week, the rupee has recovered to Rs 63.5 to the US dollar. Additionally, the Index of Industrial Production grew by 2.6% YoY in July after contracting in the preceding two months.

Source: Yahoo Finance

Barring software (down 0.7%), all sectoral indices ended the week on a positive note with realty (up 8.8%) and capital goods stocks (up 8.0%) witnessing the maximum gains. The Indian stock markets witnessed strong buying in Financial Technologies, Core Education, GMR Infra, & Engineers India shares during the week.

Source: BSE

Now let us discuss some of the economic developments of the week gone by.

The government released Index of Industrial Production figures for the month of July 2013. The index was up by 2.6% YoY on the back of 3% and 5.2% growth in manufacturing and electricity sectors, respectively. In terms of industries, 11 out of 22 industry groups in the manufacturing sector recorded positive growth during the month of July as compared to the year-ago month. However the cumulative growth for the period April-July 2013 was down by 0.2% YoY due to contraction in production in the first two months of FY14.

The consumer price index for August has fallen marginally to 9.52% as compared to 9.64% registered in July. Food inflation continued to remain high driven by escalation in prices of cereals and vegetables that grew by over 14% and 26%, respectively.

The Advisory Council has lowered of the GDP forecast for FY14 much in-line with that of the Reserve Bank of India (RBI). The Panel trimmed the economic growth for FY14 to 5.3% from 6.4% projected earlier. The Advisory Council is of the opinion that the manufacturing sector is expected to do well in the second-half of the FY14 on account of good uptick in automobile production and exports in the month of August. Besides, the Industrial production unexpectedly has rebounded in July and the consumer inflation has cooled down offering some relief. Considering, all the above factors, the GDP forecast at 5.3% appears to be reasonable in the opinion of the Ministry.

Petrol prices have been hiked by Rs 1.63 per litre on rising oil rates and falling rupee. This hike is the seventh increase in the past three months. With this increase, petrol prices have gone up by a huge Rs 10.80 per litre since June, excluding VAT. A cut in petrol prices had been expected around mid-September, the scheduled date for fortnightly revisions on the back of an appreciating rupee over the past few days. However, the oil firms advanced the date and announced the increase after factoring in the rupee's depreciation in the early part of the month.

To provide the much needed push to the beleaguered Infra, real estate and engineering companies, the government has cleared projects worth Rs 1,200 bn under Delhi-Mumbai Industrial Corridor (DMIC) project. A total of nine projects were given a go-ahead by the DMIC Trust. DMIC is an ambitious US$90 bn project; which is aimed at creating mega industrial infrastructure along the Delhi-Mumbai Rail Freight Corridor. Japan is giving financial and technical aid for the project. The nine projects include several integrated industrial townships, improvement of water supply system and construction of new railway lines, solar power projects and various water desalination projects in states encompassing Madhya Pradesh, Rajasthan, Gujarat and Haryana.

Now let us take a look at news from the corporate side.

With an aim to reduce the incidence of loan defaults, India's largest public sector bank State Bank of India (SBI) has made eligibility norms for car loans more stringent. The bank has raised the eligibility limit for salaried individuals from Rs 2.5 lakh per annum to Rs 6 lakh per annum. However, for SBI account holders the eligibility limit has been pegged at Rs 4.5 lakh per annum. Currently, the interest rate on car loan is 10.45%. During the first quarter of the financial year 2013-14 (1QFY14), SBI's car loan portfolio increased by 38.7% year-on-year to Rs 264.11 bn.

Coal India Ltd (CIL) has finalized fuel supply agreements (FSA) with 146 power plants comprising 65,000 MW of generation capacity. As per the Power Ministry, the total installed power generation capacity in the country stands at 2,25,793 MW of which around 59% (1,32,228 MW)is coal-based. With nearly half of the coal-based power generation capacity getting tied up with firm coal supplies, the beleaguered power industry has hopes of improved conditions going ahead.

Infrastructure Management Services (IMS) is a rapidly growing revenue driver for IT companies. Tata Consultancy Services (TCS) has bagged a five-year multi-million Euro deal from SAS Scandinavian Airlines. Under the terms of the contract TCS will upgrade and improve the IT infrastructure of the airline, using its propriety cloud based solution. SAS Scandinavian Airlines is one of Northern Europe's major airlines, with more than 1,100 daily departures to 136 destinations in Europe, US and Asia. Infrastructure Management services (IMS) contributed 11.5% of the FY13 revenues for TCS while Revenues from Europe was 9.5% of FY13 revenues.

Even Wipro has launched a range of information technology (IT) products for the aviation industry. The products were developed in partnership with Qatar Airways and comprise enterprise solutions and mobility solutions. Enterprise solutions include products for crew management, route profitability analysis, loyalty management, in-flight catering, aircraft maintenance planning and crisis management. Mobility solutions include products for pilots, cabin crew and flight dispatchers. It aims to address critical airline business functions, which have a direct bearing on service quality, operational efficiency and strategic decision making.

To pass on the hike in cost of imported gas due to the rupee depreciation, Indraprastha Gas Ltd (IGL) has raised the prices of compressed natural gas (CNG) and piped natural gas (PNG) in Delhi and NCR regions. The price of CNG in Delhi has been hiked by Rs 3.7 per kg to Rs 45.6 per kg. For regions such as Noida, Greater Noida and Ghaziabad, the price has been raised by Rs 4.2 per kg to Rs 51.5 per kg. The price of PNG has been hiked to Rs 27.5 per standard cubic metres (scm) in Delhi.

With falling sales in the domestic markets, Tata Motors has entered into the Indonesian automotive industry. The company has launched three Tata passenger vehicles; the Tata Vista hatchback, the Tata Aria crossover multi-purpose vehicle and the Tata Safari Storme sports utility vehicle. The company is also setting up a decent network of sales and service outlets. The company is also introducing five 3S (sales, service and spare parts) dealers to Indonesia and 4 more will come up by December 2013 and they hope to have a total of 15 dealerships by March 2014, Apart from these set ups, they are setting up around 40 additional workshops by March 2014 which will offer customers service almost at their door steps. The company also launched its flagship 24x1 parts program wherein the company is committing that if it can't supply a part within 24 hours, it will be offered free of cost to the customer.

The global stock markets will be affected by two major developments, the tapering of the stimulus measures likely to be announced in the coming week and the resolution of the political conflict in Syria. Apart from these, the mid-quarter review of the monetary policy on 20th September will also set the course for the Indian equity markets. We would suggest investors to avoid being bogged down by these short term gyrations but instead utilize thus opportunity to cherry-pick good quality stocks available at reasonable valuations.