It was a mixed week for the global stock markets. While developed markets posted healthy gains, emerging markets closed the week in the red. The US stock markets closed the week on a positive note over speculations that Europe is making calibrated efforts to contain its debt crisis. Further, better than expected jobs data also propelled US stocks. Although the unemployment rate remains in the region of 9%, the jobs data for the month of July and August were revised on the upside fuelling positive sentiments across Wall Street.
Indian stock markets were on a downtrend for the entire week. However, gains in the last trading session helped Sensex recoup earlier losses. Improved outlook on Indian exports (due to depreciating rupee) and increase in the rating of country's equities by Citigroup excited investors. With losses recorded in the previous trading session's the Sensex finally closed down by 1.3% during the week. Among the other world markets, Brazil was down by 2.1% and Singapore by 1.3%. However, France and UK were both up by 3.8% and 3.4% respectively.
Source: Yahoo Finance
Except for the Capital Goods, all the sectoral indices closed the week in the red. Banking was worst hit and lost 4.6% during the week. Concerns related to the rising asset quality weighed on the banking stocks. Even realty stocks were down by 1.5% during the week due to increasing risk profile amidst rising interest rates. Healthcare and FMCG stocks were relatively flat during the week. However, Mid and Small cap stocks continued to lose investor's interest and were down by 2.8% and 2.3% respectively.
Now, let's take a look at key economic developments during the week. It may be noted that banks would not be able to achieve the revised target of 18% credit growth for the current financial year set by Reserve Bank of India (RBI). RBI had already lowered the target from 19% to 18% in its first quarter review in the month of July. In the light of the downward revisions of country's Gross Domestic Product (GDP) growth rates, industry experts are estimating a credit growth of around 16% with downward bias. According to the data released by RBI, bank credit has witnessed a growth of just 3.92% in the first six months of the current fiscal year. Banking officials are also saying that in the current economic scenario, it is difficult to achieve the previous target of credit growth. However, according to some banks such as IDBI, they are keeping lower credit growth target as a part of their strategy.
World's largest coal miner Coal India has set an ambitious target of investing Rs 400 bn in the 12th five year plan period ending 2017 towards mines development to increase production. The company will also spend money on development of new projects, buying machinery and building washeries. The company had set a target of Rs 350 bn for the 11th five year plan but ended up with investment of only Rs 250 bn. Coal India has also set a production target of 556 m tonnes by 2017. The main focus of the company during the 12th five year plan would be developing mines within India as overseas coal assets acquisition programmes are moving quite slowly.
The stock of State Bank of India (SBI) witnessed bloodshed during the week after major ratings agency, Moody's, decided to downgrade its rating for the bank. The bank's financial strength rating has been downgraded to D+ from C-. Moody's has stated that the main reasons for this are concerns over the bank's asset quality as well as its capital situation. In light of the increasing interest rates, there are fears that the bank may see its asset quality deteriorate. In addition to this, SBI's Tier 1 capital adequacy ratio (CAR) has hovered at levels lower than the mandatory 8% level. As at the end of June 2011, the Tier 1 CAR stood at 7.6%. SBI has plans for a Rs 230 bn rights issue which would help in increasing the ratio to 9.3%. However, as per Moody's this amount may prove to be inadequate considering the size of the bank.
Titan Industries, the maker of watches, eyewear and jewellery is planning to hike watch prices by 4-20% across all of its brands. This move comes in an attempt to safeguard their margins. The company is planning to raise prices of Nebula, Titan's line of gold watches by 15-20% because of rising gold prices. It has also hiked the prices of its Swiss-made brand Xylys due to significant currency fluctuations and is going to further hike prices of this brand post the festival of Diwali. According to the company, demand for watches in the price segment of Rs 2,000 and lower has come down, while that for the price segment of Rs 5,000 and above has remained intact.
The newly appointed Chairman of Oil and Natural Gas Corporation (ONGC) has, said that the company will focus on exploration activities. By 2014, ONGC plans to raise the output of crude oil to 28 m tonnes per year. By 2017, it also plans to raise the gas output to 100 m standard cubic metres per day. To achieve this target the company will bring in foreign partners. ONGC has always been criticized for its declining output or not meeting projections. The current crude oil output for 2010-11 was 24.4 m tonnes. The Chairman also said that while the existing fields are old but are still the cash-cows for the company. The increase in output will require ONGC to invest Rs 260 bn.
Associated Cement Companies Ltd (ACC Ltd). has planned for an ambitious project for replacing 5% of its annual coal requirement of about 5 m tonnes with waste generated by cities and industries. The exercise is supposed to get completed within 3 years. The company already saved Rs 600 m in 2011 on fossil fuels by burning waste for its plants. The company is working on disposal of city wastes, wherein it will segregate the plastic waste and use it for burning. The company said that they have already replaced 2% of their coal requirement by disposing and burning all types of wastes. However, their target is to achieve 5% of their total coal requirement in the next 3 years. Currently, the projects are being implemented in Himachal Pradesh and Madhya Pradesh.
The government is expected to unveil a new telecom policy on Monday. The policy is expected to ease M&A norms and also set a new pricing mechanism for the spectrum. The new pricing formula would mean that the companies will have to pay for spectrum based on the current market prices. The policy would also focus on licence renewals and spectrum sharing issues. Easing M&A (mergers & acquisitions) norms would be a welcome move considering that the Indian telecom is already overcrowded with 15-odd players. However, the new pricing formula, if accepted, will hurt telecom companies as they will have to pay huge amount of money for holding spectrum beyond a certain limit.