After witnessing bloodbath last week, the world stock markets registered a sharp bounce back in this week's trade. Except for China all the markets registered healthy gains. The US stock markets were up 7.0% during the week, which is the largest weekly gain recorded since July 2009. The surprise drop in the US unemployment rate and general improvement in market sentiments after German Chancellor advocated for tighter rules on government spending boosted markets.
The Indian stock markets were up 7.3% during the week taking cues from the global stock markets. Revival in foreign fund flows and bargain hunting at lower levels drove markets higher. It would be interesting to see how the next week pans out for world markets considering investors are keenly eyeing the outcome of European Summit to be held on 09 December.
Amongst, the other markets France was up 10.8% while Germany was up 10.7%. However, China ended the week on a flattish note.
Source: Yahoo Finance
Amongst the sectoral indices, metals were up 10.5% during the week followed by banking (up 8.0%). In fact, all the sectoral indices ended the week in green as broad based buying was witnessed across markets. Short covering was also witnessed in select oversold sectors resulting in sharp appreciation. Oil & Gas stocks were up 6.5% with the power sector recording a gain of 6.2% during the week. However, consumer durable stocks closed the week on a flattish note.
Now let us have a look at the key economic developments during the week. Fears about India's growth slowing down have come to the fore. India's economy grew at its weakest pace in over 9 quarters in the three month period ended September 2011. GDP growth fell to 6.9% in the second quarter of the 2011-12, slipping below 8% for the third straight quarter. The euro zone crisis, slowdown in western economies, stubborn inflation and the 13 interest rate hikes by the RBI continued to take a toll on Asia's third largest economy.
The manufacturing sector, contributing nearly 16% of the country's GDP, grew at a meager 2.7% in the second quarter. This compares unfavorably with the 7.8% growth seen a year ago. Farm output rose an annual 3.2% for the same period and mining activity fell by 2.9% on account of the illegal mining ban in a few states. Taking into account the trajectory over the past two quarters, the Finance Minister Pranab Mukherjee expects GDP growth to be 7.3% in the current financial year. This is an over 1% contraction from the 8.5% growth seen in 2010-11.
The Divestment Department is seeking views of various ministries if buy-back of shares could be a feasible option for mopping up resources from cash rich public sector entities such as Coal India, National Thermal Power Corporation (NTPC), Oil and Natural Gas Corporation (ONGC), Oil India and National Mineral Development Corporation (NMDC Ltd). The department is now considering mechanisms other than public share sales to achieve the disinvestment target of Rs 400 bn for the current fiscal. The poor market conditions have forced the government to give up plans of public share sales as a part of divestment strategy. Under the buyback route, the Government can raise money by selling part of its equity holding in the company to the central public sector enterprise itself. As per the sources, if the public sector entity in question is a listed entity, the buy-back of shares should be open to all shareholders of the listed company and cannot be selective only for Government holding.
Now let us have a look at the key corporate developments during the week. The United States health regulator, US FDA has approved Ranbaxy to go ahead with the generic launch of cholesterol lowering drug Lipitor. This was a much awaited move for the company and it will now be able to launch Lipitor generic in the US market. The US FDA statement said that Ranbaxy Laboratories Ltd has gained approval to make generic atorvastatin calcium tablets. The tablet will be in the form of 10 mg, 20 mg, 40 mg, and 80 mg doses. This drug will be manufactured by its subsidiary, Ohm Laboratories in New Jersey. However, there is no clarity on the pending issues regarding the manufacturing facilities in India.
In news from the energy sector, ONGC has announced two significant oil discoveries. The company has discovered oil fields in North Kadi area of Gujarat's Mehsana district, which is the company's major production centre. The exact size of the reserve is not yet known and awaits further tests. The other discovery has been made in Panna area, which is 40 km away from Mumbai offshore field. Besides, as per the Minister of State for Petroleum, the company is developing marginal fields through 14 projects, three of which have been completed. The 14 projects are estimated to entail an investment of Rs 273 bn. The remaining 11 projects estimated at an investment of Rs 249 bn are under various stages of implementation. The company is also investing an additional Rs 76 bn for oil and gas production.
In news from the auto sector, the November month sales figures for the auto sector were announced recently. Both Bajaj Auto and Hero MotoCorp have surprised positively by reporting strong numbers after the recently concluded festive season. Bajaj Auto's total sales increased 25% YoY to 3.7 lakh units while Hero MotoCorp's sales increased 27% YoY to 5.3 lakh units. This was the highest ever sales recorded by both the companies in the month of November. While the November month's sales figures were encouraging it would be interesting to see whether both the companies are able to carry forward the current momentum into the future amidst rising competition and increasing raw material prices.
Recently, Insurance Regulatory Development Authority (IRDA) of India issued Initial Public Offer (IPO) norms for insurance companies. Only those companies which have completed 10 years of operations and have embedded value (EV) twice their equity capital will be allowed to tap markets for raising funds. EV is the future value of the business based upon the current asset-liability structure of these companies. Apart from this, IRDA will also have a say in stake dilution and minimum lock-in requirements of promoters once the issue hits the markets. It may be noted that there are approximately 24 insurance companies in India and many have disclosed their interest to go public. But considering the current market conditions we do not foresee their listing plans materialize at least in the near future.