The global markets were down for second consecutive week on disappointing economic signals. Barring China all the global markets witnessed selling pressure. In the midst of growth concerns, positive economic data cheered the Wall Street on Friday. Despite this rally, the protests in Hong Kong and outbreak of Ebola in US weighed down the US and global markets for the week gone by. The trading volumes were also low as markets in India, China and South Korea were closed on the last trading days of the week.
The Chinese central bank eased the lending rules in order to increase the home mortgage loans in order to boost the housing sector. The China market closed the week up by 0.7%.
Along with global indices, the Indian indices too closed marginally lower this week. The BSE-Sensex was down by 0.2%. The Reserve bank of India has kept the key rates unchanged in its bi-monthly policy review. In order to tame the inflation, the RBI decided to keep the repo and CRR rates same. The move by the central bank was much anticipated. However Indian markets witnessed sharp fall trimming down the gains after the announcement.
Among the sectoral indices, the IT index (up 3.5%) and pharma index ( up 3.2%) were the leading gainers during the week. Realty (down 3.5%), metal (down 2.5%) and banking (down 4.6%) were the top sectoral losers for the week.
Now let us discuss some of the economic developments of the week gone by.
The Reserve Bank of India (RBI) has maintained status quo on all major interest rates in its bi-monthly monetary policy. The central bank has said that it has taken this decision keeping in mind the evolving macroeconomic situation. The repo and reverse repo rates have been unchanged at 8% and 7% respectively. The Cash Reserve Ratio (CRR) and the Marginal Standing Facility (MSF) have also been maintained at 4% and 9% respectively. The Statutory Liquidity Ratio (SLR) has also been left unchanged. The RBI has said that it will continue to closely track inflation while noting that industrial activity has moderated somewhat after the unexpected upturn in Q1 2014-15.
As per a leading financial daily, the government has cancelled approvals of nine special economic zones (SEZ) as no "satisfactory" progress was made to execute the projects. The Board of Approvals has stated that the developers have to refund the duty benefits availed by them. The developers whose SEZs were cancelled include Hindalco Industries, Essar Jamnagar SEZ Ltd, Adani Townships & Real Estate Company Ltd, Chennai Business Park, Integrated Warehousing Kandla Project Development and Gujarat Industrial Development Corporation. It must be noted that Hindalco Industries had proposed to set up an aluminium product SEZ in Orissa. The formal approval to the company was granted in July 2007. It was granted extension from time to time and the last extension granted expired on December 31, 2013.
India's apparel exports are poised to climb by about 10% this year. The case for India's textile industry has been made strong on the back of factors like increasing wages, political instability and concerns about workplace conditions in the other large textile exporting countries. It may be noted that textile exports from India are currently pegged at around 4.5% of world trade. And this is expected to move higher due to the above mentioned reason. In fact, as per reports, firms in the industry have already been seeing a surge in sales in the year to date.
Now let us move on to some corporate developments in India Inc.
The stock of BHEL has lost more than 15% during the last month or so. While overall business sentiment has been quick to pick up pace since the general elections in May, the pace of actual activity on the ground for stalled and slow moving power projects has not been able to match up. This has weighed on the stock price of BHEL. The situation has been further exacerbated by the recent verdict of the Supreme Court which cancelled almost all the coal block allocations since 1993. This has set the stage for major upheaval in the power sector amongst others, and BHEL's stock has suffered as a result.
However, these are short to medium term apprehensions which necessarily have to get sorted out over the longer term if the Indian economy is going to grow. And the stock markets, being as they are, have focused on these near term negatives. It would be pertinent to note here that the company's position in its industry remains quite strong. It recently won an order through international competitive bidding for setting up a coal fired supercritical thermal power plant. Significantly, this is the first ever project of 800 MW unit rating ordered in the country on an engineering procurement and construction basis, and indicates that the company has steadily been working at honing its technological prowess in its area of business. In fact, the company recently indicated that despite severe market shrinkage and stiff competition in the power equipment business, it has actually increased its market share from 68% in FY13 to an overarching 72% in FY14. It has also been able to remain profitable during a period in which most of its peers have been seeing large losses.
As per a leading business daily, aluminium major NALCO is considering filing of review petition to Supreme Court for reconsideration of its decision to cancel allotment of coal block to Navratna PSU. NALCO's Utkal E coal block is among 214 blocks that have been de-allocated by the Supreme Court recently. The company is of the view that it almost met the criteria of Supreme Court for allowing 4 coal blocks to operate. The company maintains to be a PSU and has not entered in to any joint venture with private player. As such, it is seeking legal opinion for filing review petition on the order. In fact, the company has made significant progress in the development of the coal block. For instance, it made almost 70% of the land acquisition and has invested about Rs 1 bn for the development of the block.
India's leading passenger vehicle maker Maruti Suzuki India Ltd, the company has announced that it will recall of 69,555 diesel vehicles. This will include 55,938 units of Old Dzire, 12,486 units of Old Swift and 1,131 units of Ritz that were manufactured between March 8, 2010 and August 11, 2013. The company will inspect and repair the wiring harness fitment of these vehicles. Maruti's dealers will contact owners of all the affected vehicles and provide the necessary inspection and repair free of cost.
As per one of the financial daily, the high court has ordered the national pharmaceuticals pricing authorities the manner in which it is exercising its power to cap prices of non-scheduled drugs in view of the recent withdrawal of the guidelines issued for the purpose. Recently, the Department of Pharmaceuticals under the Ministry of Chemicals and Fertilizers had on September 19 ordered the NPPA to withdraw a guideline under the Drug (Prices Control) Order (DPCO) of 2013 that gave the pricing authority powers to cap prices of non-scheduled drugs. Since July, the NPPA has ordered twice and brought the drugs under various categories under price control. This move was negative for the pharma companies. The latest withdrawal of the order, had given a big relief to various pharma players especially the MNC companies. Reportedly, the NPPA has submitted before the court that only some internal guidelines were withdrawn and the same would not in any way affect the July 10 notification. The court, however, directed the authority to file an affidavit making its stand clear on the issue.
According to a leading financial daily, India's third largest IT firm Wipro, has embarked on a multi-year automation program. This drive is intended to control costs and improve margins. At the center of the program is to reduce the company's workforce by about one third by voluntary attrition. This means that the company is looking to reduce the strength of its workforce from about 1,46,000 to about 1,00,000 in about three years time without resorting to mass layoffs. The company plans to achieve this by automating the processes in the infrastructure monitoring and software testing divisions which currently employ about 68,000 employees. Wipro was trading up 2.7% at the time of writing.
There has been a lot of activity happening in global and domestic front. The geo-political tensions are expected to fuel uncertainty across the world. On the domestic front too, high inflation, interest rates continue to act as dampeners. While there has been some temporary nervousness, the fact that some economic green shoots are already visible. We thus continue to reemphasize that investors should invest in stocks that are fundamentally sound for the long term and should not be swayed away by short term blips in the stock market.