World markets- worst week in 2 months

Sat, 26 Nov RoundUp

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The world markets had a disappointing performance over the week. The equity markets across the globe saw their worst week in two months. Main culprit for this is that there seems to be no end and no solution for the Eurozone crisis which has dragged for so many months now. Further, Germany's inability to sell its 10 year bonds, France's deteriorating rating and Italy's rising cost of borrowing worsened the situation.

Indian stock markets witnessed a fall of nearly 4% this week. The markets were very volatile on concerns of weakening rupee, euro zone crisis and poor fundamentals. Amongst the other world markets, Germany led the losses (down by 5.3%). The German debt agency failed to find buyers for its 10-year bonds. All other markets were on the losing end too with China losing the least (down by 0.8%).

Source: Yahoo Finance

Amongst, the sectoral indices, all were in the list of losers except Pharma. Power stocks fell the most by 12.9%, followed closely by the BSE Small Cap stocks (down by 10.6%). Announcement on FDI however brought some cheers to the retail counter and the retailing giant Pantaloon was up by a whopping 26.5%. Other retailing stocks too were up on hopes of sourcing funds from foreign collaborations.

Source: BSE

Let us have a look at the key economic developments during the week. The retail sector was in news this week after the cabinet finally gave approval for Foreign Direct Investment (FDI) in multi brand retail. The decision has been taken to permit up to 51% FDI in multi brand retail. For single brand, the limit has been fully relaxed to 100%. The announcement was appreciated by the domestic retailers. The opening up of the retail sector is expected to bring in much needed capital to fund the growth of the companies in the sector. It is also going to bring in foreign expertise and technology that will make the sector more efficient.

Now, let us take a look at key corporate events during the week. The engineering space saw Larsen And Toubro (L&T) looking for growth opportunities outside India to deal with the slowdown in the country. The company had earlier revised its order growth guidance for the financial year to 5%. This was because of increasing competition, high interest rates and project deferrals. The management's objective is to increase the share of overseas revenues to 15-20% from the existing 10-12%. With the same objective in mind, L&T has been considering overseas projects lately. In fact, it has already announced US$ 1.1 bn worth of new foreign contracts. This includes contracts from hydrocarbon firms in the Gulf region.

To deal with the shortage of coal from domestic mines, power company National Thermal Power Corporation (NTPC) has invited bids for importing coal. It has an existing import contract with State Trading Corporation for sourcing 12 m tonnes of coal. The company is now looking at long term relationships with the suppliers spanning 25 years to ensure smooth availability of the fuel. It will use this imported coal across 14 of its major thermal stations. The bids are for 4 m tonnes of coal. NTPC uses 164 m tonnes of coal annually for two- thirds of its existing installed capacity.

In the steel sector, Steel Authority of India(SAIL) has reduced India's steel demand forecast to half of its earlier estimate. It is now expected to grow by 6% in financial year 2012. This is because of high interest rates. High interest rates have led to reduced demand for automobiles and infrastructure. Car sales registered a huge fall in the month of October. SAIL feels that reduced demand for automobiles and decrease in construction activities would adversely affect the demand for key input for these industries- steel.

Private sector bank ICICI is now focusing on its retail lending business. The bank was earlier not to keen on lending to the retail sector after it suffered a setback during the 2008 crisis. IT may be recollected here that prior to the crisis days, bank was aggressively selling unsecured credit cards and personal loans. This had led to a rise of more than 5% in the bank's non-performing loans. It also had to reduce its credit card portfolio to Rs 48 bn. It is now more willing to lend to the retail customers. The bank's gross non-performing assets (NPAs) stood at 4.6% and net NPAs at 0.8% of advances at the end of September 2011.

In the world of finance and investments, IDFC is looking at increasing its exposure to transportation sector. The troubles faced by the power sector are inducing the finance company to divert its focus to the transport sector instead. The management feels that infrastructure sector needs funds. The road projects are doing well and the company expects more than Rs 150 bn to Rs 200 bn worth of road projects. The finance company that presently lends only to private players is also looking at tapping the offshore market in the wake of high interest rates domestically.

Lastly, Hero Motocorp has effected a wage hike across the board. This hike interestingly comes at a time when the auto industry is facing a slowdown. For white-collar employees it is a hike of up to 30%. It has raised the wages of Dharuhera plant by Rs 6,500 and will soon implement the same at its other 2 plants at Gurgaon and Haridwar too. It may be recollected here that Maruti recently faced production losses due to strike by its workers at its Manesar plant. With this wage hike, Hero is expecting to maintain healthy relations with its employees and gear up for global expansion.