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Global Markets End the Week on a Mixed Note
Fri, 28 Oct RoundUp

Global indices ended the week on a mixed note. At the time of writing, Asian markets excluding Japan were the leading losers with Hong Kong down 1.5 percent and Singapore down 0.5 percent. Japanese index was among the leaders with gains of 1.4 percent. Strong growth data posted by Britain yesterday prompted a global bond market selloff.

There are expectations that the US Fed might increase rates once more this year in its upcoming monetary policy meets for the year. Any rate increases will be dependent on the state of the US economy and country's other macro-economic factors.

After central banks of the developed world unleased their easy money policy with lower rates and asset repurchases programs. The European Central Bank is reportedly discussing possible reductions in the pace of monthly bond purchases, while the Bank of Japan expressed concerns on Tuesday over risks of negative interest rates.

There were some positive signs for the German economy, a recent survey of business morale showed that morale had actually improved in October. The German economy reported relatively strong numbers where the country reported growth rates of 0.7 percent and 0.4 percent for the current year. The forecasted rate of growth for 2016 is 1.8 percent which if reached will be the strongest rate in five years aided by increase in private consumption and higher state spending.

China has recorded a slowdown in its profits growth rates in September compared to previous months. Despite signs of stability, most of the sectors numbers are still weak indicating that the economy is currently stable but the high growth rates of the past seem to be a distant dream.

The Chinese economy continued to grow at 6.7 percent in the third quarter similar to the earlier quarter as well. Exports however were weak but were offset by increased government spending. The major problem for the country is its industrial overcapacity, especially in the key traditional sectors. This has led to a drag on its profits in recent months. The key development to watch out for here would be when there is a significant cut to its current capacity.

Back home, the Indian indices i.e. the BSE Sensex closed the week on a flat note. Finance minister, Arun Jaitely earlier this week had a meeting with PSU banks heads to tackle the issue of stressed assets. According to us, there is an urgent need to address the problems of bad loans since it is affecting the monetary transmission capabilities of banks to transfer any reduction in interest rate provided by the central bank. The markets were trading with a negative bias over the week which also saw the monthly derivatives expiry for October series.

Key World Markets During the Week

On the sectoral indices front, IT stocks led the gainers this week. On the other hand, stocks from Power, Realty and Metal witnessed selling pressures.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

The Sovereign Gold Bond (SGB) scheme has been popular and has met with a good response from the public. The sixth tranche of SGB opened on Monday and subscriptions will remain open through to 02 November 2016.

Below are some points-important characteristics that one should know before taking a call on subscribing for the same.

  • The SGBs are offered by the government in tranches. Anyone who wishes to buy them can do the same from post offices, banks, and the stock exchanges.
  • The bonds are denominated in 'grams of gold' (not in rupees) and every tranche is listed on the exchanges.
  • The tenure of the SGB is eight years with exit options in fifth, sixth, and seventh years. The bonds carry an interest rate of 2.5% in the sixth tranche (it was 2.75% in the previous five tranches), to be paid semi-annually.
  • The bonds carry a sovereign guarantee and at maturity, the owner of the bond gets the market rate of gold on that date.
  • There's no capital gains tax and no securities transaction tax applicable.
  • Under the sixth tranche, the government has decided to offer a discount of Rs 50 per gram. The bonds will be offered at Rs 2,957 per gram. This is the lowest price for SGB's so far this year.

    According to a leading financial daily, India was placed at 130th position out of 190 countries globally in the World Bank's ease of doing business ranking this year despite many efforts by the government. India managed to move up just one rank this year. Even the one place improvement was because last year's ranking was revised lower to 131 from which the country has improved its place by one spot.

    The government was expecting at least a 10-spot jump on the back of several ease of doing business measures taken in the past two years. The rankings are based on ten parameters which includes starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

    Out of 10 parameters, India's ranking this year improved in two, remained unchanged in three and worsened in five. Though, in the ranking, India has made a substantial improvement in some areas such as electricity connection, but slippage in other areas, including payment of taxes and enforcing contracts, prevented improvement on the rankings that is followed widely by global investors.

    Movers and Shakers During the Week
    Company20-Oct-1628-Oct-16Change52-wk High/Low
    Top Gainers During the Week (BSE Group A)
    Federal Bank73.382.011.9%86 / 41
    TTK Prestige5,614.26,229.811.0%6,278 / 3,900
    Dr. Reddys Lab3,075.73,347.08.8%4,375 / 2,750
    Gujarat Mineral Development102.4111.18.5%112 / 52
    Cadila Healthcare388.9422.08.5%437 / 296
    Top Losers During the Week (BSE Group A)
    Torrent Pharma1,609.31,412.8-12.2%1,768 / 1,190
    The Indian Hotels130.0115.4-11.2%143 / 89
    Jubiliant Foodworks1,118.71,002.6-10.4%1,572 / 897
    Axis Bank538.8487.5-9.5%638 / 367
    JSW Energy71.865.4-9.0%96 / 59
    Source: Equitymaster

    And here are some of the key corporate developments in the week gone by.

    Hindustan Unilever declared its second quarter results this week. It posted just 1.6% year-on-year increase in its net sales, while Dabur posted standalone revenue growth of just 2.3%. Meanwhile, ITC's FMCG business grew 13%, prompting everyone to concede that the overall market in the country remains "challenging". According to the MD of Hindustan Unilever, July was when the company actually saw the consumer demand and volumes dip because of the confluence of drought plus floods in some places.

    HUL's personal care business that accounts for half its overall sales declined 0.3% to Rs 40.28 crore in the September quarter, while home care segment grew 3% to Rs 27.77 billion. Hindustan Unilever's dominating presence in a range of daily consumption items such as soaps, shampoos and detergents makes its performance more or less reflects the overall consumer sentiment in the country.

    According to an article in The Economic Times, Larsen and Toubro (L&T) plans to raise as much as US$500 million (Rs 33.5 billion) by selling shares to institutional investors. The company joins the league of a group of large companies taking advantage of a liquidity-driven market rally to fund their capital requirements.

    L&T will use the share sale proceeds to fund expansion. The company plans to double its revenues in the next five years as it focuses on sunrise sectors such as defense and explores new markets such as Africa.

    The company aims to achieve a 15% compounded annual growth rate to reach that target as it believes a revival in sentiment and an expected further cash flow into the core infrastructure space will help it to keep the order inflow momentum.

    ONGC is currently drilling 14 to 15 wells per year. With the deployment of additional rigs, the number would go up to 20-22 a year. ONGC has so far drilled about 210 wells in Tripura, more than half of which are gas-bearing.

    The ONGC board had earlier approved a plan to invest Rs 50.5 billion by 2022 to explore for more gas in Tripura. Under this plan, new wells would be drilled and additional surface facilities would be created to increase gas production from 5.1 million standard cubic meters per day (MSCMD) to at least 6.25 MSCMD from Tripura's gas fields.

    Reportedly, the company had earlier commissioned its first commercial power project in India, located in southern Tripura and run by ONGC Tripura Power Company (OTPC), formed by ONGC, the Tripura government and Infrastructure Leasing and Financial Services Limited (IL&FS). ONGC has also planned to set up an Rs 50 billion fertilizer plant in northern Tripura in association with the state government and Chambal Fertilizers and Chemicals Ltd, a Rajasthan-based private company.

    As per an article in The Economic Times, Glenmark Pharmaceuticals announced that it has received final approval from the US health regulator for anti-fungal ointment nystatin and triamcinolone acetonide.

    Reportedly, US Food & Drug Administration (USFDA) issued a nod for the nystatin and triamcinolone acetonide cream USP, 100,000 units/gram and 1 mg/g. The drug is a generic version of Mycolog-II cream, 10,000 units/g, 0.1%, of Delcor Asset Corporation.

    Recently, in one of the editions of The Equitymaster Research Digest, we have highlighted how timely approvals from the FDA boosted the growth (Subscription Required) of pharma companies.

    According to IMS Health sales data, for the 12-month period ending August 2016, the Mycolog-II (Nystatin and Triamcinolone Acetonide) Cream, 100,000 units/g, 0.1% market achieved annual sales of approximately US$120.9 million. Notably, Glenmark's current portfolio consists of 111 products authorized for distribution in the US marketplace and 60 ANDAs pending approval with the USFDA. In addition to these internal filings, whether Glenmark continues to recognize and discover various development partnerships and accelerate the growth of its existing portfolio will be the key thing to watch out for going ahead.

    Emami Ltd- a reputed player in the consumer goods and edible oil space is looking to scale up its cement production capacity.

    The company intends to scale its cement production capacity to 15-20 million tonnes (mt) in three-five years from the prevailing 4 mt. The expansion will take place in two phases. In the first phase of development of its cement business, Emami will spend around Rs 35 billion on its manufacturing facility. This amount will be funded in a debt equity ratio of 70:30.

    Beneath the phase one plan, two facilities in the state of West Bengal and Odisha are scheduled to be operational in the next year. The company is also looking at acquisition opportunities to grow its cement business. The un-related diversification in cement space could possibly dent the return ratios of the company, considering the subdued demand prevailing in the cement industry.

    And here's an update from our friends at Daily Profit Hunter...

    It was business as usual for the markets this week. The Nifty traded flat on Monday and slipped lower on the following two days before finally recovering marginally today with gains of about 20 points. It still ended the week with a loss of 0.61% to 8,639.95. Going forward, it seems like the trading activity is likely to be restricted in a narrow range due to a short working week and neutral indications from the RSI on intraday charts. You can read the detailed market update here...

    Nifty Ends with Marginal Losses

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    Read the latest Market Commentary

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