Barring the stock markets in Hong Kong (down 2.7%) and Japan (down 0.8%) global indices ended week on a positive note. The Brazilian markets bounced back from last week's fall. The US markets ended the week higher by 1%. As the US markets enter the holiday season, there are growing concerns about the pace of the rally. The euphoria in the markets has taken the Dow Jones Industrial Average (DJIA) to record highs. The Chinese central bank made a surprise move to cut interest rates and the European Central Bank (ECB) hinted that it was willing to step up its asset purchases to support the struggling European economy.
The European markets too were buoyant. The German Dax, the French CAC and the British FTSE ended the week higher by 5.2%, 3.4% and 1.5% respectively.
The Indian Indices, buoyed by global sentiment, were up 1% for the week. Expectations are high from the upcoming winter session of parliament regarding the passage of key economic bills.
Now let us discuss some of the key economic and industry developments in the week gone by.
As per a leading financial daily, the Department of Telecom (DoT) and the defense ministry have reached a partial understanding regarding the issue 3G spectrum held with the latter. The defense ministry has agreed to free up 5 MHz of pan India spectrum for the auctions. Once this is done the government will be able to auction 20 MHZ of 3G spectrum in 17 circles and 15 MHz in the remaining 5 circles. However, the decision to split the auctions into two parts will still cause intense bidding. The government will auction 2G spectrum in February 2015 while the 3G spectrum will be auctioned in May 2015.
The government has issued the draft rules for the re-allocation of the coal blocks cancelled by the Supreme Court in September. The government is planning to allocate 74 of more than 200 cancelled blocks by March 2015 through a mix of auctions and allocations. As per the draft rules, central and state government-owned companies can bid for blocks even though blocks will be allotted to them. Power plants which are operating on imported coal will also be eligible to participate in the auctions. Out of the coal blocks being allotted, 42 blocks with a production capacity of 90 m tonnes are operational and 32 blocks with capacity of 120 m tonnes are ready to be mined. The government does not want to increase the electricity tariffs for power generated from coal mined from these blocks.
The government has offered exporters a refund of the duty they pay on imports as an incentive to boost exports. This comes on back of the fact that exports contracted during the month of October, more so for the first time in six months. The new drawback rates have been determined on certain broad average parameters including the prices of inputs, input output norms, share of imports in input consumption, the applied rates of central excise and customs duties on inputs used for exports etc. One may note that the duty drawback is a refund of duties on imported inputs for export items, and this furthering on incentives will prove as an incentive for all companies in the export sector.
As per a leading financial daily, Union government is likely to de-incentivize gold imports to prevent the rupee from depreciating like in August last year, when it had plummeted to the 69 per dollar level. It is noteworthy that gold imports have registered a 300% increase over last October, something that is a matter of concern as it can adversely impact current account deficit (CAD) and forex reserves. As such, finance ministry is having discussions on how to curb gold imports. The debate is whether to increase the import duty (10% at present) on gold or to do away with the relaxation granted to bullion trading houses and impose a moratorium on imports by them. No final decision has been taken yet, but if any such step is taken, gold prices are likely to go up.
Now let us move on to some of the key corporate developments of the week gone by.
Sun Pharmaceuticals and US based Merck have called off their three year old joint venture. Under the deal, Sun was selling Merck's anti-diabetic drug sitagliptin in India. Reportedly, the reason for the decision is still not clearly known. The said JV was aimed at bringing innovative drugs to emerging markets, including India. In April 2011, Sun Pharma and Merck had entered into deal for manufacturing and marketing of "innovative and differentiated drugs" for the markets in Asia Pacific, Latin America, Eastern Europe, the Middle East and Africa. Sun pharma being a leading pharma company was given rights to sell the said drugs.
ONGC will be investing Rs 106 bn in increasing production from its western offshore fields. The company board has approved the third phase of redevelopment of its Prime Mumbai High South oil and gas field at a cost of Rs 60.7 bn and the integrated development of Mukta, Bassein and Panna formations at an investment of Rs 46.2 bn. The Mumbai High South redevelopment (phase III) will expand the lifespan of the giant gas field that has been in production for over three decades and is expected to be completed by March 2019. This will result in incremental gain of 7.547 million tonne crude oil and 3.864 bn cubic meter gas by 2030. The development of Mukta, Bassein and Panna formations will start yielding results in 2014-15 with 10 m standard cubic meters per day of gas and 950 barrels of oil per day by 2017-18. The project is scheduled for completion by April 2017.
Coal India Ltd. (CIL) has given green signal to a long-pending proposal for the set up of a 1,600 MW pithead power plant at the Sundergarh district in Orissa. CIL had planned to enter the business of power generation almost a decade ago in 2005 and had given an in-principal nod to subsidiary Mahanadi Coalfield for the foray then. Mahanadi Basin Power, a special purpose vehicle set up by Mahanadi Coalfields, will erect the power plant at an estimated investment of Rs 110 bn. Nearly 800 acres of land in coal-rich Sundergarh district have been earmarked for the project but government clearance would be required for the proposed power project. The Odisha government has offered 50,000 cubic feet per second of water for the project and the 7-8 m tonnes fuel for the project will be sourced from nearby mines.
India's second largest software firm Infosys, has cracked down on a few employees of its BPO division for financial irregularities. The executives had over-invoiced one of the company's marquee clients Apple, in a European country. Infosys has terminated the services of the BPO division's CFO for not reporting the incident. The division's CEO has also stepped down taking moral responsibility. The employees involved have also been dismissed from service. The company has clarified that the amounts involved were insignificant. However, keeping with the highest levels of corporate governance at the firm, Infosys has begun taking punitive measures.
As the results season has wound to a close, the markets will look for cues from home and abroad going forward. Central bank talk and action will be followed closely as well as any policy moves by the government. However, investors will be best served by following a long term approach to investing by investing in businesses with sound fundamentals.