Barring China and Japan, key global markets ended the week on a firm note. Ending the week higher by 2.4%, the US market led the pack of gainers. India followed suit, with the BSE-Sensex recording another strong week with gains of 2.3%. Stocks in Europe performed well this week as UK, France and Germany ended with gains in the range of 1.4% to 1.6%.
This is the fourth weekly gain for US stocks. This is seemingly on the back of easing concerns over the health of the economy. Signs of improving demand for capital goods, technology products and consumer items are some of the factors behind this sentiment. Closer to home, gains in Hong Kong were seen on expectations of the city’s economy to grow at a moderate pace this year.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India -FMCG stocks were the top gainers this week, with the BSE-FMCG Index rising by 5.3%. It was followed by the BSE-Consumer Durables and BSE-Auto indices, which recorded weekly gains of 2.7% and 2.5% respectively. Stocks from the oil & gas and realty space were the sole losers this week, with the BSE-Oil & Gas and BSE-Realty indices ending the week with losses of 0.8% and 0.5% respectively. Small and midsized stocks ended with marginal gains as the BSE-Smallcap and BSE-Midcap indices ended higher by 0.3% and 0.1% respectively.
Moving on to key corporate developments during the week - FMCG stocks stole the show this week, with the BSE-FMCG Index recording a weekly gain of 5.3%. Amongst the top gainers were FMCG majors, HUL and Colgate which ended higher by 13% and 12% respectively. While it seems that the gains in the pack may be on account of the recent price hikes taken by the industry in order to protect margins, the surge in FII investments cannot be ruled out as well. It may be noted that the BSE-FMCG index had been amongst the top underperformers in the current rally (since March 2009). A key reason for the same would be the high valuations of FMCG companies at that time. However, during the market decline in 2008, the index was the top performer recording a lesser decline as compared to the other indices.
During the week, Nestle announced plans of investing Rs 2.3 bn for setting up its first research and development (R&D) centre in India. This unit will be located in Manesar and is expected to be operational by mid-2012. This centre will be the 30th R&D facility of the Nestle Group worldwide. The plans as of now are to have a team of 40 scientists and engineers. It will be fully integrated with the company's global R&D network. The centre will facilitate innovation across a variety of categories including culinary, cereals, beverages and dairy products. It will be the company's effort to further indigenize its products in India.
Moving on to news from the two-wheeler auto space - Recently, two-wheeler major Hero Honda stated that it would be difficult for it to maintain its market share in the entry level segment (75 cc to 125 cc) as arch rival Bajaj Auto has gained a strong foothold in this segment post its reentry into the same. Hero Honda's market share in the 75-125 cc segments has declined to about 69% in the April-August period this fiscal as compared to about 82% in the same period last year. Bajaj Auto's share in the segment has increased to 19.5% in the last five months. Apart from Bajaj Auto, Hero Honda's market share is also being affected by the launch of Honda Motorcycle & Scooter India (HMSI) with 'CB Twister'. Apart from these reasons, Hero Honda has also been facing problems internally. These relate to capacity constraints, which are also a major concern for the company. However, to counter this problem in the long run, Hero Honda is scouting for locations to set up its fourth facility.
During the week, Sun Pharma reported that it completed the acquisition of a controlling stake in Israel based Taro. With this, Sun Pharma has increased its economic interest in Taro to 48.7% and its voting rights to 66%. The company had announced its acquisition of Taro in 2007. However, the latter's promoters later terminated the agreement sparking a legal feud between the two. Recently, the US and Israeli courts ruled in favour of Sun Pharma. At the time of acquisition Taro was a loss making company but had around 90% of its sales from the US market, which was the key rationale for the acquisition. Sun Pharma has already invested US$ 60 m into Taro to prevent it from going bankrupt. With this acquisition, Sun Pharma intends to build on Taro's market presence in the US, Israel and Canada. It also aims to leverage on Taro's expertise in dermatology (related to skin) and pediatrics.
The stock of telecom major Bharti Airtel picked up momentum towards the latter half of the week on news of the company’s Malawi unit rolling out its 3G network. Zain Malawi is believed to be the biggest telecom service provider in the country and the roll out of this service will further help it strengthen its position in the country. It is reported that Bharti is planning to spend about US$ 100 m over the next three years on network expansion in the country. In addition, it has also outlined plans for expansion in Uganda, Nigeria and other countries.
Leading economic think-tank CMIE expects India's GDP to grow at 9.2% during the current fiscal (FY11) led by a surge in economic activities. This seems like a much faster growth when compared to a 7.4% growth that the Indian economy recorded during FY10. CMIE expects the industrial sector, including construction, to grow by 9.4% during the current year, better than the 9.2% rate it clocked in FY10. Further, it sees the services sector growing by 10%, as compared to 8.6% in FY10. However, the best performance is seen coming from the agriculture and allied sector that is estimated to grow by 5.7%.
Inflation numbers for the week ended September 11 indicated that fuel price index for the period remained flat at 11.48%, while food inflation stood at 15.5%. During the preceding week, food inflation stood at 15.1%. The increase in the same was on the back of higher prices of items such as condiments, spices, fish (inland) and poultry. On the other hand, prices of items such as tea, gram and jowar declined. The RBI had increased interest rates last week. However the effect of the same is likely to be seen with a lag effect. The central bank had also stated that headline inflation had stabilized, but is expected to remain above the comfort zone for the next few months. RBI expects the wholesale price index to ease to 6% by March next year. During the month of August 2010 the figure stood at 8.5%.