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Major world markets close positive
Sat, 15 Nov RoundUp

Barring stock markets in Germany (down 0.4%) and Brazil (down 2.7%), global indices ended the week on a positive note. The US stock markets witnessed some selling pressures on the last trading day of the week, however managed to post a fourth-straight weekly gain. The recently released retail data, showed an encouraging picture highlighting increasing spend by the consumers in the upcoming month.

The GDP numbers from the eurozone nations highlighted sluggish activity for the third quarter, though they were above the expectations. The data indicates, Germany and France, which are two largest economies in the eurozone nations have barely avoided recession. Despite upbeat Eurozone data, UK markets pulled back from six week high levels but ended the week on a positive note.

Majority of the Asian markets were broadly higher for the week gone by. Japan (up 3.6%) and China (up 2.5%) led among the gainers. The Japan markets have hit highest levels in last seven years during the week.

The Indian indices, closed at all-time high levels. The overall positive sentiment has helped in the stock rally. Falling inflation and other positive trends in the economy have boosted investor interest.

Key world markets during the week
Source: Yahoo Finance

Among the sectoral indices this week, FMCG and auto stocks were clearly the top performers, while oil and gas and power stocks registered maximum losses.

BSE indices during the week
Source: BSE

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

The government has raised the excise duty on petrol and diesel by Rs 1.50 a litre on the back of fall in global crude oil prices. The basic excise duty on unbranded petrol has been increased from Rs 1.20 to Rs 2.70 a litre, and the duty on unbranded diesel has been raised from Rs 1.46 to Rs 2.96 per litre. This hike will currently not be passed onto retail consumers. Since crude oil prices have dipped below $80 a barrel, the oil marketing companies are making profits on sale of petrol and diesel. Therefore the increase in excise duty will be absorbed by the public sector oil retailers. The Finance Ministry hopes to raise funds to the tune of Rs 60-70 bn in the remaining five months of the current fiscal through this excise-hike. The hike will aid the government in boosting indirect tax collections which have been targeted to increase by 25.8% in FY15.

The recently released inflation and Industrial production data came as surprise. The IIP in particular registered an exceptional growth of 2.5% YoY. Retail inflation, which the Reserve Bank of India (RBI) tracks closely and decides its policy accordingly, slowed down further, to 5.52% in October helped by slower increase in food and fuel prices.

The Society of Indian Automobile Manufacturers (SIAM) announced official total sales volumes for the month of October 2014 recently. As per the agency, domestic passenger car sales declined by 3% YoY during the month of October 2014. Total sales for the month stood at 159,036 units, as compared to 163,199 units in same month last year. The story was the same for motorcycle sales as well, with volumes coming down by about 9% YoY; a little over 1.1 m units were sold during the month gone by. However, when it came to overall sales of two-wheelers, the volume decline was only 3.6% YoY, thereby indicating that the scooter sales volumes remained strong in the month gone by. Sales of commercial vehicles came in lower by about 4%YoY. On an overall basis, total volumes (across categories) were lower by 3.8% with the industry clocking in volumes of 1,787,146 units as compared to 1,858,594 units in same month last year.

The Reserve Bank of India (RBI) has tightened the rules for non banking finance companies (NBFCs). The new set of changes have raised the minimum capital requirement for NBFCs and placed some restrictions on the deposits with an aim to protect consumers and the market without hampering growth. At a time when traditional banks are saddled with huge bad loans and are held back, NBFCs have been lending heavily to sectors like infrastructure. However, they are not subject to tougher rules unlike commercial banks and also do not hold full banking licenses. RBI has warned the risks from the growth of such unregulated financial firms. As a defensive measure, the central bank has tightened Tier 1 capital requirements for NBFCs. The latter would now need to hold capital levels of at least of Rs 10 m by the end of March 2016 and Rs 20 m by March-end 2017 to avoid losing their right to operate. Further, only certain investment-grade NBFCs would be allowed to take deposits and would have to acquire a credit rating until the end-March 2016. The central bank has also capped deposit-taking at 1.5 times the size of a firm's minimum capital - down from four times previously.

The logjam between the Defense Ministry and the Department of Telecom (DoT) regarding the issue of spectrum held by the former may soon end. The Communications and IT Minister Ravi Shankar Prasad will soon meet with newly appointed Defense Minister Manohar Parrikar to resolve the issue as per an article in a leading financial daily. With the spectrum auctions scheduled for Feb 2015, a resolution of this issue will go a long way to reduce the bidding intensity. The Defense Ministry holds a pan-India 15 MHz spectrum (in the 2,100 MHz band) which the DoT has asked for. In return, the Defense Ministry has asked for an equal 15 MHz spectrum (in the 1,900 MHz band) from the DoT which is currently reserved for CDMA players. A quick resolution of this impasse will enable an extra 5 MHz of spectrum for 3 telcos in each circle across the country to be put up for auction.

Movers and shakers during the week
Company7-Nov-1414-Nov-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Bayer Cropscience2,2962,71018.0%2748/1378
Ashok Leyland485514.7%56/15
Jubilant Foodworks1,2821,46614.4%1441/939
ING Vysya bank68077513.9%759/493
Top losers during the week (BSE-A Group)
Engineer's India270226-16.5%331/142
Unitech2321-7.7%39 / 11
MRPL6157-6.9%81/ 38
Future Retail113105-6.6%148/ 63
GMR Infra2220-6.5%38/17
Source: Equitymaster

Now let us move on to some of the key corporate developments of the week gone by.

According to a financial daily, Cipla Ltd, has asked the government to revoke five patents of a respiratory drug Onbrez of Novartis. Cipla has asked the Department of Industrial Policy & Promotion (DIPP) to cancel the patents of Novartis on the ground that the Swiss company has held these patents for six years without making the medicine locally. Further, the company has also failed to import the required quantity of the drug in Indian markets which has also caused shortage of the said drug. Recently, Cipla has also launched the generic version of indacaterol with the brand name, Unibrez in the Delhi market and will be launching soon in the other markets as well. Cipla has launched this drug at one -fifth price of the innovator's drug. The outcome is still awaited.

India's state oil marketing companies such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) are again likely to cut petrol and diesel rates on account of sharp decline in international crude oil prices. This will be the seventh cut in petrol rates since June 2014 and the third cut in diesel rates since it was decontrolled on October 18, 2014. For consumers, the two fuels are already 10-13% cheaper than their peak rates earlier during the year. It must be noted that fuel prices are reviewed and aligned with global trends in the beginning and middle of every month.

As per a leading financial daily, Sanofi's vaccine division Sanofi Pasteur has launched a paediatric pentavalent vaccine Shan5 in India. The vaccine has been developed and manufactured by Sanofi's affiliate Shantha. The vaccine provides protection to children against five diseases namely diphtheria, tetanus, pertussis, Hib and hepatitis B. The World Health Organization has given prequalification status to the launch of Shan5 vaccine. This criterion will help the company secure the market for such vaccines in 50 emerging and low-income countries.

Let's move on to some of the key corporate results that were declared during the week...

Tata Steel has announced its financial results for the quarter ended September 2014 (2QFY15). During the quarter, the company's standalone net sales grew by 9% year-on-year (YoY) to Rs 107,009.8 million. Operating profit increased by 5.3% YoY to Rs 30,941.3 million. Operating margin contracted from 29.6% in 2QFY14 to 28.7% in 2QFY15. There was an exceptional gain of Rs 11,468.6 m during the quarter. As a result, the bottomline increased by 58.9% YoY to Rs 24,764.1 million. On a consolidated basis, net sales declined by 2.4% YoY to Rs 355,032.5 million. However, higher other income and an exceptional gain led to a rise of 36.8% YoY in the consolidated net profit which stood at Rs 12,543.3 million.

Tata Chemicals has declared its September quarter results. Total income from operations increased by 11% YoY. Higher sales volumes in the domestic businesses contributed to this growth. The company has undergone restructuring in its Europe and Kenya business and the Kenya restructuring got completed recently. Reportedly, some positive signs of this restructuring exercise is seen in the company's performance. The company's interest costs declined by approx 30% YoY. On the back of good performance, lower interest and taxes, net profit was up by 91% YoY.

Cipla Ltd. has announced results for the quarter ended September 2014. Its consolidated sales increased by 9.3% YoY aided by 20.5% YoY rise in domestic sales. However its export sales fell by 4.6% YoY for the quarter. The growth in domestic sales was largely on account of growth in pediatrics, respiratory, and urology therapies. The poor performance of export markets was due to a 34% fall in API exports to Rs 1.4 bn whereas formulations grew by a mere 0.4% to Rs 12.4 bn. The company's bottomline fell by 16.6% YoY due to a poor performance at the operating level.

On the macro front geopolitical events will continue to influence the stock market direction. In India, corporate earnings are mixed bag so far. Various developments on the policy front have been taking place, which indicate a positive sign. While the long term fundamentals of the country remains intact, the small term hiccups are expected to negatively impact the stock prices. Hence investors should not get swayed by short term jitters and focus on investing in fundamentally strong stocks.

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Jan 22, 2018 (Close)