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Global markets delivered a strong performance this week. Sentiment improved significantly after the minutes of the US Fed meeting last month were made public. These showed that the pace of rate hikes would be gradual. The S&P 500 index posted its best week in almost a year.
Markets have viewed the Fed minutes as a sign that US interest rate hikes won't affect the economic recovery. The first rate hike is now expected to happen at the December meeting of the Fed. In response, Gold prices fell to a five and a half year low of US$ 1,065 during the week before bouncing back marginally.
European markets shrugged off the Paris attacks and closed the week on a positive note. The British FTSE, the French CAC and the German DAX all recorded strong gains as the markets expect more stimulus measures.
The Japanese economy formally entered into a recession, the fifth since the global financial crisis of 2008. However, the Japanese stock markets did not react negatively to the news.
The Indian markets also posted gains this week; the benchmark indices were up by around 1%.
Key world markets during the week
BSE indices during the week
Now let us discuss some key economic and industry developments during the week gone by.
As per an article in Economic Times, the telecom commission has decided to change the way of calculation of total bandwidth in a circle. With this move, it aims to allow telcos to hold more airwaves and pave the way for consolidation needed in an industry hit by massive competition.
The commission has decided that all airwaves available with the department of telecom (DoT) and subsequently put to auction should be counted towards calculating the total amount of airwaves for arriving at spectrum caps. However, any bandwidth assigned for non-commercial use would not be included in the calculations. Moreover, the government will also add the airwaves surrendered or returned by telecom operators.
At present, operators can share and trade spectrum so long as the resultant pool of airwaves is not beyond 25% of the total airwaves allocated in the service area and not more than 50% of the airwaves allocated in that particular frequency in the service area.
The decision will boost the sentiments of telecom industry that has been struggling with intense competition over the years. If you are interested to know the past trends of the industry, here is our analysis report for the same.
The Reserve Bank of India (RBI) has widened the scope for mergers and acquisitions in the banking industry. It has signaled that it is open to investors holding more than 10% stake in a bank. This is for the first time in decades the central bank has announced that it could permit promoters, or investors to own more than 10% if the applicant meets certain conditions.
The central bank, for this, has detailed the fit and proper criterion that will be used to grant permissions. It said that the applicant's integrity, reputation and track record in financial matters and compliance with tax laws would be a barometer to judge the fit and proper criteria.
For an applicant that is a body corporate, the track record or reputation should be for operating in a manner that is consistent with the standards of good corporate governance, financial strength and integrity. This is in addition to the assessment of individuals and other entities associated with the body corporate.
The above directions will also apply to compulsorily convertible bonds, voting rights or convert optionally convertible bonds.
The revision was necessitated after the Banking Law (Amendment) Act, 2012 was passed. Shareholders owning more than 5% will have to give an annual declaration to the concerned bank of which they own shares. Lastly, sourcing of funds would be critical for raising stake beyond 10%. However, the major shareholder will have to furnish the details of the source of funds for such incremental acquisition and obtain 'no objection' from the concerned bank before such incremental acquisition.
In a move to boost overseas shipments after a persistent decline in exports, the government has announced 3% interest subsidy scheme for exporters. The decision was confirmed after the government gave its approval for Interest Equalization Scheme (earlier called Interest Subvention Scheme) on Pre and Post Shipment Rupee Export Credit with effect from 1st April, 2015 for five years.
The scheme would be available to all exports of Micro, Small and Medium Enterprises (MSME) and 416 tariff lines. However, the same would not be available to merchant exporters. The rate of interest equalization is kept at 3% and it will be evaluated after three years.
Under the scheme, exporters can avail loans at affordable rates, which in turn help them ship more goods to foreign markets. The financial implication of the proposed scheme is estimated to be in the range of Rs 25 billion to Rs 27 billion. However, the actual implication would depend on the level of exports and the claims filed by the exporters with the banks.
India's exports have remained in the negative territory for the 11th month in a row in October, registering a dip of 17.53% to US$21.35 billion due to a demand slowdown. With this move initiated by the government, one can hope for some relief in India's exports levels. The scheme can help the identified export sectors to be internationally competitive and achieve higher level of export performance.
The government made certain important announcements to give a boost to their reform agenda. In one of the reforms, The National Highway Authority of India (NHAI) has been allowed to grant an extension of concession period to the developer. The extension can be granted, provided there is no fault of the developer. This move will benefit the infrastructure companies and benefit 34 stalled projects.
Until now, infrastructure projects went through multiple stages of examination by different ministries, departments and committees, which caused delays. However, now a single window clearance mechanism is executed to provide quick approvals for the development projects.
As reported in the financial daily, The 'GST' the finance minister 'Arun Jaitley' recently stated that Goods and Service Tax (GST) will be the main agenda once the parliament session reconvenes in the next week. The recent debacle in 'Bihar' polls will make it more difficult for the National Democratic Alliance (NDA) government to take control of the upper house of the parliament i.e. Rajya Sabha. However, the finance minister states that this will not affect the passage of GST.
The government has set a deadline for the implementation of GST by April 2016. Once the bill is passed in the parliament, the same will have to be ratified by more than half of the states in India. After this, the parliament will have to pass another bill to implement the GST.
Thus, the government will have to make all efforts to pass the GST bill in the up-coming session of the parliament. Otherwise, it will be very difficult to meet the deadline of implementation of GST by April 2016.
Commerce and Industry Minister Nirmala Sitharaman has said that the government is taking steps to increase India's total exports to US$ 900 billion by 2020. The minister said that the government is taking steps to facilitate the 'Make in India' program and therefore boost exports.
The move is in line with achieving a similar target set by the Foreign Trade Policy. At the start of the fiscal, the government had announced a slew of incentives and new institutional mechanisms as part of the new Foreign Trade Policy (2015-2020) which aims to double the goods and services exports from the country.
As per the data, India exports goods worth around US$ 300 billion per fiscal year. Further, service exports amount to around US$ 150 billion annually.
The target set, however, is said to be ambitious as the country's exports are in the negative zone since December last year. Contracting for the 10th month in a row, India's merchandise exports dipped 24.33% in September to US$ 21.84 billion. This was mainly due to steep fall in shipments of petroleum products, iron ore, and engineering goods amid tepid global demand. India had a trade deficit of about US$ 48 billion in 2014-15.
Lastly, the minister said that India has an advantage in terms of young population and low cost of production as compared to China, which is becoming a costlier place to produce. She added that with a structural adjustment happening in China, that is, moving from an export led kind of an economy to a consumer led economy; India will be able to attract many manufacturers.
However, raising the country's exports remains a challenging task. Vivek Kaul, co-author of 'The Daily Reckoning', has shared some of those in one of his recent articles. You can read it here.
|Top gainers during the week (BSE-A Group)|
|Top losers during the week (BSE-A Group)|
Now let us move on to some of the key corporate developments of the week gone by.
According to a leading financial daily, the Environment Ministry has decided to grant environmental clearance to Tata Steel for expansion as well as setting up of two units at its Joda plant in Keonjhar district, Odisha based on the recommendation of the Expert Appraisal Committee. Reportedly, the total cost of the project is estimated to be around Rs 1.85 bn providing employment to about 2,000 people.
The company has received clearance for expansion of Fe-Mn (Ferro Manganese) alloy plant from 0.0504 million tonnes per annum (MTPA) to 0.06 MTPA. Besides, the company has also received nod for addition of 0.06 MTPA silico-manganese plant and 0.05 MTPA manganese sinter plant in existing Ferro alloy plant at Joda, Koenjhar district in Odisha.
The approval has been given with some specific conditions including developing green belt in 33% of plant area and maintaining of gaseous emissions within permissible limits among others. The company is expanding the Ferro alloys production keeping in view the country's rising steel demand, which is expected to touch 193 MT in 2020.
Tata Steel recently declared its results for the quarter ended September 2015. Market conditions in Europe significantly worsened in the quarter as UK continues to witness surge in imports and declining competitiveness of the manufacturing sector due to weak industrial demand, strengthening of the sterling and adverse regulatory and business conditions. Income from operations declined by 18.1% YoY and other operating income also declined by 12.3%. Here is our detailed analysis of the results. (Subscription required).
As per a leading financial daily, India's largest car maker Maruti Suzuki has opened the e-voting through postal ballot to take approval from minority shareholders to let its parent Suzuki Motor Corporation (SMC) to invest and own the upcoming plant in Gujarat. In one of our earlier editions of the 5 Minute WrapUp, we had talked about how when the company had first come out with this proposal, it had not gone down well with the investing community and how rise in shareholder activism can bring in greater accountability.
The new plant coming up in Gujarat was initially proposed to be owned by Maruti Suzuki. However, the plan was altered in January last year when SMC reported that they will own the new plant and would be investing US$ 488 million for building it. Subsequently, MSI decided to seek minority shareholder's nod. However, the voting was delayed due to changes in regulations and MSI deciding to comply with requirements under the amended Companies Act.
Finally, under the new arrangement between Maruti Suzuki and Suzuki Motor Gujarat (SMG), Suzuki will be setting up a manufacturing facility on land leased from Maruti Suzuki. As per the terms of this agreement, SMG would manufacture and supply the vehicles and parts exclusively for Maruti Suzuki. The entire arrangement would be on the basis that SMG does not have any profit or losses at end of financial year. The whole arrangement is for initial period of 15 years. The same will be automatically extended for another 15 years, unless terminated.
Tata Power has reported that its consolidated power generation grew 6.5% to 11,663 million units (MUs) during the second quarter of this fiscal on a year on year (YoY) basis.
As reported, together with all its subsidiaries, the company achieved generation sales of 11,376 MUs of power from all its power plants during the concerned quarter.
On a separate note, the company is going to hive off its renewable energy assets into subsidiary Tata Power Renewable Energy (TPREL) as a part of its restructuring plan. With this strategic plan, the company is aiming to continue its focus on clean and renewable energy generation capacities.
The company's board had approved the restructuring plan Monday, which involves carving out of 500 Megawatts (MW) of renewable assets of the company to its subsidiary TPREL and its subsidiaries. TPREL will have a total installed capacity of 720 MW with additional 250 MW under construction. The proposed restructuring will lead to the renewable assets in the books of the company to be transferred to TPREL through slump sale. The assets include 376.5 MW of wind assets in Gujarat, Maharashtra and Tamil Nadu, a 3 MW solar asset in Mulshi, 120 MW waste heat recovery based power plants at Haldia, West Bengal.
As per a leading financial daily, Hero MotoCorp has clocked over 10 lakh units in retail sales during the festive season this year. The company reported that this landmark was achieved during the 35-day festive period starting with the Navratna. This records an 11% increase in retail sales for the company over the corresponding period last year.
As reported, the company's two new scooters, Maestro Edge and Duet, have been blockbusters. Further, there has also been a phenomenal demand for the new Splendor PRO. The company stated that these, along with the sales of Passion PRO and Glamour bikes, and the continuing popularity of Pleasure and Maestro scooters have resulted in this double-digit growth.
Hero MotoCorp is the world's single largest two-wheeler motorcycle company. The company had recently announced its second quarter results of the financial year 2015-16 (2QFY16). It posted a 1.1% YoY fall in sales, while net profits rose by 1.1% YoY. Here is our detailed analysis of the results. (Subscription required).
The Cabinet Committee on Economic Affairs (CCEA) approved the disinvestment of 10% stake in Coal India. Currently, government holds 78.65% stake in the firm. The stake sale will help the government to meet its Rs 695 bn divestment target for 2015-16. Reportedly, stake sale could fetch around Rs 211.3 bn.
Going forward, markets could witness more volatility as RBI's next monetary meeting draws near. As the earnings season has left a lot to be desired, the markets will look for key policy triggers as well as the winter session of Parliament. The possibility of US Fed starting the rate hike cycle next month will add to the uncertainty. However, long-term investors should not concern themselves with short-term developments and should instead focus on company fundamentals.
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