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Global stock markets hit by US shutdown 
(Sat, 5 Oct RoundUp) 
 
As many had feared, the US government entered a partial shutdown on Tuesday after Congress failed to pass a continuing resolution to fund the budget and keep it open. Speculation is building that the partial US government shutdown could collide with the potentially devastating debt ceiling deadline of 17 October. Initial market reaction to the US federal government deadlock was muted, but investors grew somewhat more anxious as the week progressed. Market jitters could build the longer the impasse persists. Reassurances by key players that the US government will not default on its debt have calmed investors for now. The US stock markets ended the week down 1.2%.

Economic data from the United States, United Kingdom, China, the Eurozone and Japan were positive overall. Much of the world's economy is expanding at a slow but steady rate, based on purchasing managers' indexes and similar gauges. The stock markets in Europe also reflected the concerns in the US economy. As a result, the latter overshadowed the encouraging euro zone business confidence data and ended the week with losses. The stock markets in France and UK lost 0.5% and 0.9% respectively while Germany ended flat over the week. Barring India and China (up 1% and 0.7% respectively), the major Asian stock markets ended the week in the red.

The Indian equity markets ended higher in the truncated week as the Indian rupee gained. Indices edged higher as the rupee strengthened against the dollar after data released by the RBI showed a lower-than-expected current account deficit (CAD) in Q1 June 2013. According to data released by the RBI, the current account deficit rose to US$ 21.8 bn or 4.9% of GDP for April-June 2013 due to a rise in imports (especially of gold) and shrinking exports. The CAD for April-June 2012-13 was US $16.9 bn, 4% of GDP.

Key world markets during the week
Source: Yahoo Finance

Majority of the sectoral indices ended in the red with stocks in the banking oil and gas space leading the losses, down 4.6% and 4% respectively over the week. However, stocks in the IT (up 2.7%) and pharma (up 2.6%) sectors witnessed some buying interest.

BSE indices during the week
Source: BSE


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

Activity at Indian services companies shrank at the fastest pace in more than four years last month, suggesting the slowdown in India still has some way to run. The HSBC Services Purchasing Managers' Index (PMI), slipped from 47.6 in August to 44.6 in September, its weakest since April 2009. That marked its straight third reading below 50, the threshold between growth and contraction. It showed firms were less optimistic about the future and were cutting staff as new business dries up. The PMI's new business index fell to 45.0 in September from 46.6 in August, the weakest reading since February 2009 and the third month running that demand has declined.

The Planning Commission has said it will revisit annual average GDP growth target of 8% for the 12th Plan (2012-17) in view of the dismal performance in first two years of policy period, while saying the economy is likely to expand by over 5% this fiscal.

After better than expected sales numbers, the auto sector has got a boost from recent initiative by the government to extend additional funds to the PSU banks to finance auto (particularly in two-wheeler segment) and consumer goods purchases. This decision comes in the wake of upcoming festival season as availability of more funds will encourage demand and help overcome the slowdown in these sectors. This additional amount will be over and above Rs 140 bn which was provided for capital infusion in budget. According to a leading business daily, the decision to increase the quantum of capital provided to banks was taken at a meeting between Finance Minister P Chidambaram, RBI Governor Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram yesterday.

Movers and shakers during the week
Company 27-Sep-13 4-Oct-13 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
ING VYSYA Bank 510 572 12.2%667/406
Tata Com 195 215 10.3%258/137
Jet Airways 349 38510.2%689/280
Shree Cement 4,004 4,390 9.6%5210/3413
Voltas 74 80 8.0%127/63
Top losers during the week (BSE-A Group)
Core Education 23 19 -15.9%334/13
Apollo Hospitals 943 888-5.8%1096/728
United Spirits 2,621 2,469 -5.8%2815/990
JSW Energy 46 44 -3.7%75/34
NTPC 148 143 -3.5%174/123
Source: Equitymaster


Now let us move on to some news from the corporate world.

Tata Power has announced that it has begun construction work for the first phase of its 400 MW hydro power joint venture project in Georgia. This is Tata Power's biggest project outside India. The first phase has a generation capacity of 185 MW. This hydel project would be jointly developed by Tata Power along with Clean Energy of Norway and IFC Infra Ventures. The project is being developed primarily to supply power to the country of Turkey.

This is not the first hydel power project that Tata power has developed. The company already has hydel generation capacity of 450 MW in Maharashtra. Apart from this, it has partnership with Norway based SN Power to develop hydel projects. It is also developing the 114 MW Dagachhu hydel power project, along with Druk Green Power Company, in Bhutan. Tata Power as part of its sustainability initiatives, aims to have 20-25% of its total electricity generation capacity from clean energy sources. The company has a total installed capacity of over 8,500 MW.

Lupin Ltd, announced that the company has launched generics of Zymaxid 0.5%, an ophthalmic solution in the US market. The drug is generically known as Gatifloxacin ophthalmic solution 0.5%. The branded market size of the drug is US$ 62 m. Lupin was the first to file (FTF) and holds 180-days exclusivity on this drug. Lupin had earlier received approval from USFDA for this drug, which is indicated for the treatment of bacterial conjunctivitis. The drug is the first launch in the ophthalmic category in the US. In April 2011, Lupin had filed an application with Para IV on this drug and was subsequently sued by the innovator Allegan. The patents in issue are patent number '045 and '283 with expiry in 2016 and 2020. As both the patents are still to expire, it is still not clear whether the said launch is at risk or Lupin has won some favorable ruling.

As per a leading financial daily, Godrej Consumer Products (GCPL) is expanding its indirect reach in villages to increase focus on its rapidly growing rural sales. The company has initiated a feeder wholesalers' programme, Pragati, on a pilot basis in villages with population of around 3,000. Under this programme, 15,000 wholesalers will be backed by technology to indirectly reach out to remote villages in the country. The company hopes to get indirect coverage on 50,000 additional villages through its Pragati initiative. Reportedly, GCPL presently has a direct coverage of 50,000 villages. With rural sales growing faster than the urban sales, the company already has 'Operation Vistaar' which is a rural sales promotion and channel development in states like Bihar. GCPL wants to launch new products in the household insecticides category as well as push sales of existing brands, Hit and GoodKnight, in the rural markets. In the June 2013 quarter, the company reported a 24% YoY rise in consolidated sales backed by double-digit growth in each of its domestic and overseas markets.

According to a leading business daily the London based Vedanta group is preparing to buy out the Indian government's residual stake in Hindustan Zinc (HZL) and Bharat Aluminum company (BALCO). The government currently holds 29.5% stake in Hindustan Zinc and 49% in Balco. It is looking at exiting from the two companies by December. The sale would fetch close to Rs 200 bn for the government. The secretary of the department of economic affairs, Arvind Mayaram, had said earlier that there were no legal impediments for the stake sale. Vedanta chairman Anil Agarwal who holds 64.92% stake in Hindustan Zinc through Sesa Sterlite (earlier known as Sterlite Industries) has met government officials to discuss the stake sale. He said that the price and the exact date for the sale will be decided within a few weeks. The proposal has now been sent to the ministry of mines for the final clearance.

As per a leading financial daily, Oil and Natural Gas Corporation Ltd. (ONGC)-led consortium of Indian energy firms which includes Indian Oil Corporation (IOC) and Petronet LNG, are negotiating with Russia's second biggest gas producer OAO Novatek to acquire a 9% minority stake in the 16.5 million tonnes Yamal liquefied natural gas project that is worth US$ 20-bn. Chinese energy firm China National Petroleum Corp (CNPC) bought 20% stake in the venture on September 5, 2013. It must be noted that French energy firm Total already holds a 20% stake in the project. Given that Novatek wants to retain 51% stake in the venture, this is the last opportunity for India energy firms to acquire a minority stake in the project.

Last week saw the subdued performance of global stock markets on back of the US shutdown. The Indian stock markets performed relatively better on hopes that the Federal Reserve will delay QE tapering due to the partial US shutdown. Going ahead, the Indian stock markets will be influenced by global trends and corporate earnings starting next week. Investors should note that short term developments should not form the only basis for investment decisions. Indeed, the focus should be on stocks of companies that have good fundamentals and a sound management. And if these near term gyrations result in such good quality stocks being available at attractive valuations, then investors must certainly take advantage of the same.

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