After recording a lackluster performance during the preceding week, global stock markets made a comeback during the week ended December 3, 2010. Gains across the board were largely influenced by US economic reports and easing concern over Europe’s sovereign debt crisis, thereby giving investors’ confidence of a global economic recovery.
India was the top gainer this week, with its benchmark index, the BSE-Sensex ending higher by 4%. The US, Brazil and Hong Kong markets followed suit with gains of about 2 to 3%. Barring China, which ended the week lower by 1%, all the major Asian markets ended on a firm note. While Singapore ended higher by 0.5%, Japan closed the week with a gain of 1.4%. Major European stock markets closed the week higher by about 1%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India - All the indices ended the week on a firm note. The pack of gainers was led by realty stocks, which incidentally were the top losers last week (down 14%). The BSE-Realty Index ended the week ended December 3, 2010, higher by 7.6%, followed by the BSE-Bankex (up 6%) and BSE-PSU (up 6%) indices. FMCG, consumer durables and power stocks, though recording weekly gains, were the top underperformers. Their respective indices ended the week higher by about 3% each.
Moving on to key corporate developments during the week - auto stocks were in the limelight for various reasons. Firstly, the auto sales numbers for the month of November 2010 were announced this week. We shall start with the two-wheeler manufacturers first. TVS Motors reported a volume growth of 29% YoY during the month and sold 157,041 units as compared to the same month last year. Two-wheelers formed nearly 98% of overall sales with the balance being contributed by three wheelers. Hero Honda reported a volume growth of 10.5% YoY during the month. The company sold 421,366 units. While the growth figure may be slow, it must be noted that this is the seventh month in a row when the company has reported a monthly sales volumes of over 400,000 units. Bajaj Auto recorded a sales growth of 9% YoY jump in motorcycle sales to 265,036 units during the month of November 2010. The slow increase in volumes is mainly due to the 8% YoY decrease in export volumes, which formed nearly one-third of the volumes as compared to about 40% of volumes during the same month last year.
Passenger car major Maruti Suzuki reported a strong sales growth of 28% YoY. The company sold a total of 112,554 vehicles during the month. It may be noted that this is the second consecutive month wherein it has crossed the 100,000 mark in terms of total sales volumes. The growth in volumes was led by the company’s A2 and C segments. Moving on to the CV manufacturers, Tata Motors and Ashok Leyland reported sales volumes of 1% YoY and 10% YoY. Tata Motor’s volume growth was impacted by the decline in sales volumes of its mini car, Nano. On the other hand, its CV segment’s sales were up by 19% YoY in the domestic market.
The other significant development in the auto space was that of Hero Honda allegedly agreeing to increase its royalty payments to its current partner, Honda Motors, Japan. A leading business daily reported that Hero Honda has agreed to increase its royalty payments to Honda to about 8% of annual sales. This figure is quite high considering that Hero Honda averaged royalty payments of about 2.2% to 3% if annual sales (amounting to about Rs 5 bn). In return, the Japanese firm will provide technology for three new bikes (apart from keeping its existing portfolio intact) and will also lower its stake in Hero Honda to 20% from the current holding of 26%. As per the business daily's source, negotiations are at an advanced stage and a final decision would be taken over the next few days.
Moving on from news from the auto space to news in the engineering space, state run power equipment manufacturer, BHEL seems to be in a mood to diversify into other segments like finance. As per a leading daily, the company has appointed Crisil as the consultant for undertaking a study for floating an NBFC (Non Banking Finance Company). As per the company's management, the NBFC would be the company's arm for financing of power projects. BHEL would get other strategic investor on board and will itself assume the role of a minority stake holder.
The stock of IOC was in favour this week on the back of news of the company looking at coming out with a follow on public offer by the end of next month at an estimated price of Rs 450 per share. The follow on offer will see government divesting 10% stake combined with a 10% fresh issue by the company, aggregating to about Rs 200 bn. Half of the proceeds that the company will get will be used to revive the shelved petrochemicals project at Paradip in Orissa and build a proposed facility for importing gas in ships at Ennore in Tamil Nadu. The stock closed higher by 11.5% this week to Rs 385.
Moving on to news in the realty space, the country’s largest realty firm DLF reportedly sold about 150 plots at Gurgaon for a consideration of Rs 5 bn. This is part of the company’s 100 acre township project, which it launched a few days ago. In the first phase, the company released 150 plots at a price of Rs 60,000 a square yard with inaugural discount of 10%. These were supposedly sold within a few hours of the launch. The company will be launching another 200 plots in the township, where it plans to develop shopping centre and provide facilities such as healthcare and recreational facilities for residents.
In economic news, employment numbers in India showed a positive sign as the figures improved by 0.4 m during the September quarter this year. As per the survey (covering eight selected sectors), the maximum increase in employment was observed in textile sector including apparel where jobs generated were about 0.2 m. The IT/BPO sector follower suit with employment rising by 0.1 m. the other sectors which saw a good amount of hiring included the auto and metal sectors. As per figures from the last survey (for the quarter ended June 2010), overall employment rose by about 0.2 m.
India's economy grew 8.9% YoY in the quarter ended September 2010 and returned to pre-financial crisis expansion levels. The second-quarter GDP growth beat expectations of growth of around 8.2% and was propelled by a 9.8% jump in manufacturing and an 8.8% leap in construction. The economy also got a boost from stronger farm production, which expanded 4.4%, thanks to a bountiful monsoon. With this reading, achieving an 8.5% for full year growth target does not seem to be difficult.
The projections of higher GDP growth numbers for the fiscal seem to have assuaged some of the profitability concerns with regard to India Inc. in the minds of investors. A leading business daily reported during the week that companies in China and India are increasingly moving higher on the innovation space. The report states that in less than 15 years, China has moved from 14th place to the second place now just behind the United States. Also 8 of the 10 global companies with the largest R&D budgets in the world are establishing R&D facilities in China or India or both. Thus the focus on not just low cost manufacturing but also innovation could help Indian companies focus on margins along with growth.