India was the biggest gainer this week, up 4.2%, and crossing the 19,000 mark on strong FII inflows. This is the second straight week when India has led the world markets. The biggest loser was China, down 2.4%, as a result of the monetary policy outlook and slowdown in overseas demand.
Other than China, the remaining Asian markets closed the week in the green with Japan, Hong Kong and Singapore up 4.2%, 3.4% and 1.8% respectively. In the Americas, the US closed the week up 1.4%, while Brazil was up 0.4%. In Europe, the markets were flat with UK closing marginally up at 0.1% and Germany and France marginally down at 0.1% each.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India - buying interest was witnessed across the board during the week with stocks from the banking space leading the rally. BSE-Banking index was the top gainer of the week up 5.9%, while BSE-Oil & Gas index followed close behind with a gain of 5.5%. Among the other top performers BSE-Realty index was up 4.5% while the BSE-Sensex was up 4.2%. BSE-Consumer Durable closed the week with a gain of 4.1%.
BSE-Smallcap index was the only one to close in the red, down 0.1%. Among the other laggards for the week, BSE-Midcap index was up by 0.7%, while BS-Power index was up 1.4%. BSE-PSU and BSE-Auto indices gained 1.9% and 2% respectively.
Moving on to key corporate developments during the week - the government has finalized a gas allocation policy for the power sector. As per this policy, 42% of domestic gas would be reserved for government controlled companies. In addition to this, power plants located in special economic zones (SEZ) and the Delhi-Mumbai industrial corridor would get 8% each. Of the remaining 50% gas, which is reserved for the power sector, 40% would be reserved for the independent power producers. However, no power plant will be assured gas for its entire capacity. The policy also lays down that domestic gas linkage would be provided for 60 % of the plantís capacity and the plant would need to be located near a gas pipeline. To eliminate subjectivity in allocation, the policy has defined a weight system under which a maximum of 30 points have been allotted for progress on land acquisition, 20 points for coal shortage, 20 points for using sea water and 10 points of having environmental clearance. It may be noted that the gas-based capacity in the country as on June 30, 2010 was 17,220.85 Mw, about 10.6 % of the total installed capacity of 162,366.8 Mw
Moving to the auto sector, Maruti expects its sales momentum to slow down in the second half of the fiscal compared to the 25% YoY growth achieved in the first half of the year. The reasons for this are the high base effect and inflationary pressures. Although Maruti is anticipating lower growth, it expects to maintain the number of vehicles sold per month at the historical monthly average. The company has seen its market share fall under 50% for the first time in history. This is due to production constraints which have resulted in high waiting period for some of its models. However, the company is planning to ramp up its production from October to produce 110,000 cars a month, an increase of 10% over the current levels. Maruti is also planning to expand its production capacity to 1.75 m units per annum by 2013 from the exiting 1.2 m units.
In news from oil & gas sector, Reliance Industries is considering investment in Chesapeake Energy Corp.ís shale gas assets. Chesapeake, which has about 600,000 acres in the Eagle Ford shale in south Texas, has confirmed that it is negotiating joint ventures with a couple of parties. Reliance has spent US$3.4 bn since April this year on buying shale gas assets in the U.S. This includes US$1.3 bn spent in purchasing areas in the Eagle Ford formation from Pioneer Natural Resources Co and Marcellus shale gas areas in central and northeast Pennsylvania from Atlas Energy. Global giants like Royal Dutch Shell and BP are also keen on acquiring assets in shale gas in the US where shale gas accounted for about 10% of total output in 2008. This is seen as a long term investment for Reliance, as it is difficult to make money in the short term due to low prices of gas currently.
Moving to alternate power segment, Suzlon has announced aggressive plans for its Chinese operations. The company is planning to start a research and development (R&D) centre in the country. This is in addition to the companyís recently opened R&D centre in Germany and to the one at its headquarters in Pune. Suzlon also plans to list its Chinese subsidiary, Suzlon Energy (Tianjin), on the Hong Kong Stock Exchange in a few years. The company is following this strategy to take advantage of the local Chinese market and compete with its Chinese rivals. It may be noted that Suzlon has been present in China since 2006 and is the 8th largest wind energy company in the country. China is one of the fastest growing markets for alternate energy in the world and has added 13.7 Gigawatts (GW) of wind energy last year. At present it has an installed capacity of 25.85 GW.
In news from the FMCG sector, the biggest gainer of the week has been Godrej Consumer. As per an interview with Mr. Adi Godrej, chairman and managing director of Godrej, the company is looking to increase the price of soaps this month. This is being done as the price of raw material particularly vegetable oil has rising sharply over the past few months. In fact the company has already increased the price of its hair dyes due to this. So far, Godrej has been judicious in increasing prices and plans to be so going forward as it only wants to maintain its margins. In its insecticide business, the company is seeing good growth as a result of little competitive pressure and the malaria and dengue scare. This year the company is looking to grow by over 20% YoY.
In other news, the higher growth rate of the Indian economy is being reflected in a significant increase in employment generation as well. According to a finance ministry official, the latest figures based on a sample survey of eight sectors show that as many as 1.1 m jobs were added between March, 2009, and March, 2010. These eight sectors include information technology, information technology enabled services, gems and jewellery, handloom, textiles, leather, metals, engineering goods and automobiles. These are labor intensive sectors which mainly cater to the export markets and had seen massive job losses in the aftermath of the global financial meltdown.
The total employment in the Indian economy during 2009-10 has been estimated at 506 m with an average annual growth rate of 2% for the period 2004-05 to 2009-10. The total labor force in the country for 2009-10 has been estimated at 520 m and the figure is expected to go up to 574 m in 2014- 15. This means that 10 to 11 m new entrants are expected to join the labor force each year. As per estimates employment must grow at least at 2.5% per annum for the next five years so that most of the open unemployment, including the additions to the labor force due to the increasing population is taken care of. This translates to a 9% GDP growth rate in order to absorb a 2.5% annual increase in labor at the current level of absorption. While the government talks of inclusive growth, it is important to ensure a high growth rate of the economy as well if a livelihood is to be provided to the people.