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World markets remain positive 
(Sat, 29 Nov RoundUp) 
 
Majority of the world markets continued to remain buoyant in the week gone by. Following OPEC's decision of not cutting oil output, benchmark crude oil prices slipped further and reached their lowest levels since September 2010. Although weak crude prices bode well for the global economy, it poses a challenge to major central banks that have been trying to keep inflation high to revive the sluggish economy. Therefore the People's Bank of China had cut benchmark lending rate and deposit rate by 0.4% and 0.25%, respectively last week. As a result of the stimulus, the Chinese index was the biggest gainer (up 7.9%) for the week. Among other Asian indices, Hong Kong and India were up by 2.3% and 1.2%, respectively. Even Japan and Singapore markets posted marginal gains.

The European Central Bank is also likely to take up more stimulus measures to boost sentiment. While Germany and France recorded gains, the UK markets were down marginally for the week. The US markets remained flat for the week.

The Indian indices continued to deliver positive returns on optimism of falling oil prices providing room for rate cuts in future.

Key world markets during the week
Source: Yahoo Finance

Among the sectoral indices this week, realty and IT stocks were the top performers, while FMCG and BSE Small Cap stocks were the biggest losers.

BSE indices during the week
Source: BSE

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

India's fiscal deficit stood at about Rs 4.8 trillion at the end of October 2014. This stands at about 90% of the full year's target of 5.3 trillion. During the same seven months period last year, the figure stood at about 85% of the full year target. Net tax revenues for the period stood at Rs 3.7 trillion which is about 38% of the full year's target, while non-tax revenues stood at Rs 1.1 trillion which has a little over half of the full year target. The non debt capital receipts stood at Rs 62 bn, which is about 9% of the full year target. This is however the case due to no disinvestment occurring in the year so far.

It may be noted that the Modi government has committed to bring down the fiscal deficit of 4.5% of GDP in FY14, to 3.6% and 3% of GDP in FY16 and FY17 respectively. The government is planning to divest stake in Coal India, Steel Authority of India (SAIL) and Oil & Natural Gas Company (ONGC) by the end of Jan 2015. If the stake sale does go through then the government will get over Rs 200 bn from a 10% divestment in Coal India and more than Rs 150 bn from a 5% divestment in ONGC. If the government is able to raise the desired money, it shall definitely help in cushioning the fiscal gap.

As per the Finance Minister, commercial mining of coal will be allowed after allocation of mines to public sector companies and auction of mines to specific end-users. The government had passed an ordinance last month for auctioning off 204 coal blocks after their allocations were cancelled by the Supreme Court in September. The government has not given a timeline for allowing commercial mining by private firms.

Movers and shakers during the week
Company21-Nov-1428-Nov-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Jet Airways 261 322 23.3% 322/204
JSW Energy 82 94 14.4% 95/42
Strides Acrolab 747 842 12.7% 1050/344
BHEL 253 283 12.0% 292/146
HPCL 534 597 11.7% 611/206
Top losers during the week (BSE-A Group)
Future Retail 94 83 -11.6% 147/63
Core Education 10 9 -8.5% 28/ 90
Jaiprakash Associates 31 29 -8.3% 90/24
MMTC 65 60 -8.1% 107/46
Max (I) Ltd 398 366 -8.1% 443/178
Source: Equitymaster

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

ONGC will launch its Rs 100 bn power and gas production project in Tripura. Two power units of 726.6 MW capacity are ready and being synchronized to supply power to seven states in the north-east. The surplus 98 MW electricity may be sold on commercial terms to neighbouring state Bangladesh after approval from the centre. This is ONGC's biggest project at a single location in northeast India. The company invested in the power plant to utilize the gas produced from the field which cannot be transported due to lack of infrastructure. The Tripura government and ILFS are the promoters in the project.

Dr Reddy's Laboratories has got USFDA observations for its API plant in Srikakulam. Reportedly, these 483 observations pertain to procedural and other compliances of the plant systems. Dr Reddy's has received nine observations from USFDA and is in the process of implementing the necessary measures and the remedial plans. The US drug regulator team has also visited the Visakhapatnam manufacturing facility. The company has launched Docetaxel injection USP 20 mg/mL and 80 mg/mL in the US markets. The drug is a generic version of Taxotere and is a cancer medication. As per IMS Health data, the branded and generic versions of the drug have a sales turnover of around US$ 218 m for twelve months ending in September.

As regulations in the US markets become stricter, Indian pharma companies are feeling the heat. As a proactive measure, Aurobindo Pharma has voluntarily recalled Gabapentin capsules, an anti-epilepsy drug from the US markets. The drug lot of USP 300 mg 100-count bottles was found to contain some empty capsules that could result in adverse health consequences. These could range from no-effect, short-term reduction in efficacy or withdrawal effect or long period seizures that can be life-threatening. There have not been any events for adverse effects but the company has received four complaints for empty capsules.

In the private power production space, Tata Power is set to lose its leadership position after Adani Power recently acquired 600 MW Korba West plant from Avantha Group. This acquisition will scale up Adani Power's installed capacity to 11,040 MW as compared to Tata Power's operational capacity of 8,580 MW. While Tata Power is struggling with a pipeline capacity of 7,000-8,000 MW in the domestic markets, its overseas expansion is moving on smoothly. The company is setting up capacity of 2,600 MW abroad which includes 1,200 MW in Vietnam, 600 MW in Myanmar and 400 MW in Georgia. Tata Power has said that the foreign expansion might overtake the domestic expansion. The company has set a target of achieving 10,000 MW of overall capacity by 2020 as compared to Adani Power's target of reaching 20,000 MW in the same time-frame. But with a presence in all segments of power sector including transmission and distribution, Tata Power claims to be the largest integrated power company.

With an aim to consolidate its position in the commercial vehicle segment, Tata Motors is planning to introduce several new technologies, including the automated manual transmission (AMT), in its commercial vehicles. Reportedly, the company, which has over 60% market share in the domestic commercial vehicle sector, is currently developing on its own the AMT technology. Recently, AMT has been introduced in various passenger cars, like in sedan Zest as well as Maruti Suzuki's small car Celerio. As per the Tata Motors Executive Director, the company is looking to provide AMT technology in products like the Prima trucks, Xenon XT pickup truck and light commercial vehicle Ultra. These are expected to hit the market in the next financial year.

Weak crude prices continued to aid the uptrend in the domestic equity markets. But as low prices may be difficult to sustain in the long run, it makes more sense for investors to look out for stocks with strong fundamentals rather than short term tailwinds.

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