For the third consecutive week, global markets traded mostly in the negative on weak worldwide economic growth. The US Fed Reserve would be winding down its bond-buying program later this month. But a series of weak economic data from Germany and other large euro zone economies led to growing concerns of recession in the European region. Germany, France and UK witnessed maximum selling pressures for the week. The US and Japan markets were also down by 1.9% and 2.6%, respectively. Concerns about global growth further pulled down crude prices that tumbled below US$ 90 a barrel.
Among Asian stock markets, each of the India and Singapore markets were down by a percentage point. However, the Chinese and Hong Kong markets managed to end marginally positive. The Hong Kong markets continued to remain jittery on a possible escalation in pro-democracy protests in the city.
Majority of the sectoral indices in India ended on a negative note. Among the sectoral indices, pharma (down 4.2%), metal (down 3.8%) and FMCG (down 2.4%) were the leading losers during the week. Power (up 2%), oil & gas (up 1.8%) and realty (up 1.3%) were among the few gainers for the week.
Now let us discuss some of the economic developments of the week gone by.
Plans are afoot by the Finance Ministry and RBI to draw up a new framework for the fixing of interest rates. Under the new framework likely to be in place by the end of this year, powers will be given to the government and Parliament to fix the inflation target. Further, a monetary policy committee will then decide the interest rates based on this target. Effectively this will take away RBI's exclusive and autonomous control over India's monetary policy. One may note that a similar structure is already in place in many countries across the globe, where it is a monetary policy panel that fixes interest rates.
The auto industry had reason to cheer. Total domestic passenger vehicle sale volumes for the month of September 2014 rose by about 5% YoY. Total volumes stood at about 218,000 units for the month. As per SIAM, this is the third straight month of increase that the segment has witnessed. Maruti Suzuki reported a volume growth of about 10%. However, the fastest growing companies were Honda and Nissan which grew by about 45% and 33% respectively.
Now let us move on to some corporate developments in India Inc.
The September earnings season has been kick started with India's second largest software firm Infosys declaring results for 2QFY15. The company posted a 4.5% quarter-on-quarter (QoQ) growth in its sales and a 7.3% QoQ growth in its net profits. In rupee terms the consolidated sales increased by 4.5% QoQ during 2QFY15. In US dollar terms the revenues were up 3.2% QoQ. Operating profits were up by 8.5% QoQ aided by good control over direct costs (as a percentage of sales) in the quarter. Thus, the operating margin, which came in at 26.1% this quarter, was higher than the same reported in the last quarter at 25.1%. The net profit for the company came in at Rs 30.96 bn, an increase of 7.3% QoQ. The company has declared a 1:1 bonus issue as well as an interim dividend of Rs 30 per share. The company has also launched new banking software. The software called Infosys Transaction Reconciliation Solution (ITRS) will help banks in automating and simplifying their daily transaction and reconciliation processes.
Three Indian pharma companies viz., Dr Reddy's Ltd, Cadila Ltd and Sun Pharma have been probed by US congress over pricing of generic drugs in the US market. The US Congress has cited price hikes to the tune of 390-8200% across 10 products. This trigger for this probe is the National Community Pharmacists Association (NCPA) 2013 survey of drug prices. In 2014, the NCPA had written to the US Senate seeking investigation into large upswing in acquisition prices of generic medicines.
In a positive development, Cipla's subsidiary Medpro Pharmaceutica has entered in to an agreement with Teva Pharmaceuticals for the South African market. Teva Pharmaceuticals is the largest generic pharmaceutical company in the world. Under the agreement, Cipla Medpro will market Teva's pharmaceutical product portfolio in South Africa. The products to be marketed will focus on oncology, central nervous system, women's health, cardiovascular, ophthalmology and other specialty products. The collaboration is subject to approval by the Competition Commission of South Africa.
Infrastructure projects in the country that had been on slow track are slowly gaining traction. Larsen & Toubro (L&T) has won an engineering, procurement and construction (EPC) order valued at Rs 16.3 bn in Uttar Pradesh from Expressways Industrial Development Authority. The project is for the construction of a six-lane access controlled 63 km expressway from Unnao district to Lucknow. The expressway is expected to be completed within 36 months.
Another engineering behemoth, BHEL has bagged an EPC contract (Engineering, Procurement and Construction) worth Rs 78 bn for setting up a 1,320 MW thermal power project for Tamil Nadu Generation and Distribution Corporation Ltd (TANGEDCO). The order is for setting up a 2x660 MW coal-fired thermal power project at Ennore Special Economic Zone in Tamil Nadu. The company will work on designing, engineering, manufacturing, supplying, construction, erection, testing and commissioning for the EPC Package.
Mahindra & Mahindra's subsidiary Mahindra Two Wheelers entered into an agreement to acquire 51% stake in Peugeot Motorcycles, an affiliate of the Euro 54 billion PSA group, for Rs 2.16 bn (Euro 28 m). Out of the 28 m Euros, 13 m Euros will be spent on secondary sale of shares from Peugeot of PSA. The remaining 15 million euro will be spent through a fresh issue of shares to M&M. The legal processes are likely to be completed in three months. This acquisition will help Mahindra & Mahindra expand its two-wheeler business.
On the international front, concerns of protracted slowdown in developed economies will continue to weigh down global equity markets. In the domestic markets, investment climate is witnessing pick-up with a revival in infrastructure projects. However, inflation and interest rates continue to remain high. Barring short term hiccups from weak global cues, the long term fundamentals of the economy remain strong and investors should focus on investing in financially strong stocks.