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Global Markets End on a Mixed Note
Sat, 28 Nov RoundUp

After a strong show last week, equity markets ended on a mixed note this week. The European markets ended in positive territory as hopes that the European Central Bank will announce further stimulus measures and cut bank deposit rates boosted sentiments. Even the Indian markets ended in the green, recording a rise of 1% for the week.

The US markets ended weak on expectations of a rate hike by the US Fed in mid-December. Even the US November jobs report is to be released next week and will be the critical signal for the Fed before its rate hike meeting.

The Chinese markets tumbled after investigations by Chinese regulatory body into several brokerages for breaking regulations triggered a sell-off. The indices were down by 5.3% for the week. Even the Singapore and Hong Kong markets were down by 2% and 3%, respectively. The Japanese index remained flat after the country's core consumer prices fell for the third consecutive month pointing to a weak macroeconomic environment.

Back home in India, anticipation of the passage of the amendment bill on goods and service tax (GST) in the winter session of the parliament kept equity markets buoyant for the week.

Key world markets during the week

Barring FMCG and Pharma, all sectors ended the week on a positive note. Stocks from the realty and banking sectors were the biggest gainers for the week.

BSE indices during the week

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

In a bid to enable banks to clean up their stressed assets, the Reserve Bank of India (RBI) has allowed foreign portfolio investors (FPIs) to invest in bonds that are either partly or fully in default. The move is also likely to boost the bond market in the country.

RBI has stated that issuers of such bonds will have to restructure repayment tenures. While doing so, they should bear in mind existing norms for foreign investors that mandate them to buy bonds only of a maturity of three years or more.

With an aim to give a push to the gold monetization scheme that has failed to garner adequate volumes, RBI wants to simplify the gold tendering process. As per the modified guidelines, banks would be allowed to deposit the collected gold directly at the refineries as the collection and purity testing centres (CPCT) are not equipped to handle bulk volumes of the gold on a daily basis. The gold monetization scheme has set a target of tapping 20,000 tonnes of gold lying with Indian households to reduce imports and the current account deficit.

The business sentiment in the country continues to remain weak. As per the Deutshe Borse's MNI India Business Sentiment Indicator, that acts as a barometer for the sentiment among the listed BSE companies, the business sentiment in November fell to 11.6% on a month-on-month basis despite the festival period. This is the lowest level since February 2014 and is across both manufacturing and construction companies. As per the survey, new orders for companies fell 11.1% whereas exports were down by 9.4% on a YoY basis in November. An improvement in the balance sheets of companies, helped by softening commodity prices, was the only silver lining. The survey has said that the sentiment is unlikely to revive in the coming months

Movers and shakers during the week

Company20-Nov-1527-Nov-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Lanco Infratech5731.9%7/2
Reliance Communications667412.4%113/46
GMR Infra141612.1%20/10
DLF Ltd10211411.4%179/93
Top losers during the week (BSE-A Group)
United Spirits3,5903,171-11.7%4,080/2,501
Emami Ltd1,002916-8.6%1,368/705
UPL Limited458421-8.0%576/300
Dr. Reddy's Lab3,3493,099-7.5%4,383/3,010
Max (I) Ltd.579540-6.7%586/359

Source: Equitymaster

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

In order to reduce its debt burden, Tata Steel is looking to raise US$1.5 billion to refinance its debt and thereby reduce interest costs. The fund size for this can go up to as high as US$3 billion. The funds are being mobilized through the company's Singapore subsidiary and will primarily be for Tata Steel Europe, earlier known as Corus. The balance sheet debt of others may also be refinanced. Reportedly, the company has a total debt of Rs 807 bn on its books.

Petronet LNG is renegotiating a major deal with its Qatar-based supplier Rasgas for lowering the cost of gas shipments and exemption of US$ 1.5 billion penalty fee for lifting less gas then that agreed upon. The company has a 25-year contract with Rasgas to annually buy 7.5 million tonnes of liquefied natural gas (LNG). Petronet LNG had reduced its purchases from Rasgas by about a third this year due to high prices. The company currently pays about US$12-US$13 per million British thermal units (mmBtu) for Qatari LNG under deal that began in 2004, compared with present price of around US$7-US$8 per mmBtu. Under the new deal, the relief on the US$ 1.5 billion penalty will be on the condition that the Indian firm lifts full volumes in subsequent years.

Britannia Industries has reportedly chalked out plans to achieve a topline of Rs 200 bn within 5-6 years. The company would be expanding its dairy segment in the next six months and also introduce new variants of its value segment biscuit brand Tiger. About 75% of the company's turnover comes from the biscuit category. Moreover, in the next two years, the company is also planning to expand into ready-to-eat, ready-to-cook and drinks category in a phased manner.

Dr Reddy's Laboratories continues to remain in the eye of the storm. The US Food and Drug Administration (USFDA) has warned the company that products made at some of its facilities may face ban if it fails to confirm to prescribed global manufacturing standards. Further, the drug regulator has also said that it may withhold approval of new applications if the company fails to make the necessary amendments. The deviations pertain to current good manufacturing practice (CGMP) for the manufacture of active pharmaceutical ingredients at the company's plants located at Srikakulam in Andhra Pradesh and Nalgonda in Telangana. The FDA made it clear that it was not satisfied with nine responses submitted by the Indian drugmaker between December 2014 and September 2015.

Ashok Leyland has bagged its largest-ever order worth US$ 200 m from the West African country Cote D'lvoire. The order is for the supply of 3,600 trucks and buses. Further, it is also the largest contract that the West African country has signed with any firm in India. The order will set the base for the company to expand its presence in the region. The delivery of the vehicles is likely to take place over the next twelve months.

Idea Cellular has purchased the right to use spectrum in the 1800 MHz band in Gujarat and Uttar Pradesh West from Videocon Telecommunication. The purchase price of Rs 33.1 bn is nearly three times the price that Videocon paid in November 2012. The management has clarified its stand for the huge price stating that as they have a leadership position in Gujarat and Uttar Pradesh West, it was critical for them to enhance leadership in these markets. But the company is not planning to strike similar deals in the near future and will wait for auctions to happen for the rest of the circles.

Going ahead, the uncertainty over passage of key reforms in the winter session of the parliament will keep markets on the edge. The rate hike by the US Fed will further add to the volatility in the markets. However, instead of getting swayed by these short-term gyrations, investors should remain focused on the long term potential and fundamentals of companies while taking a decision to invest.

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