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European Markets Tumble
Sat, 5 Dec RoundUp

The European markets ended the week in negative territory after European Central Bank chief Mario Draghi offered up a round of additional stimulus measures that fell short of investor expectations.

The Bank also chose not to boost the amount of government bonds it buys each month through its stimulus program, which aims to help the economy by cutting loan rates. Instead, the ECB extended its bond buying for six more months at the same level until March 2017.

The US markets ended marginally higher during the week owing to a solid US job data. The jobs growth was stronger than median forecasts and firm enough to keep the jobless rate on a downward trend. This strengthens the possibility of a rate hike in the upcoming Fed meeting.

Barring Japan and India, major Asian markets ended the week on a positive note. China ended the week on a buoyant note with benchmark indices closing higher by 2.6%. However, Japan’s stock index fell 1.9% during the week, owing to weak economic data.

Back home in India, benchmark indices also fell 1.9% during the week following the global sell-off as investors digested the ECB policy moves and comments from Fed chair Janet Yellen raising fears of a rate hike in the US.

Key world markets during the week

Barring a few, all sectors ended the week on a negative note. Stocks from banking and automobile sectors were the biggest losers for the week.

BSE indices during the week

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

The Indian economy has grown by 7.4% for September quarter as compared to 7% in the June quarter. The growth was led by a pick-up in the manufacturing and electricity space. These segments grew by 9.3% and 6.7% respectively as compared to the June quarter. The farm sector too grew at 2.2%.

Investments have also shown a sign of revival during this quarter. The investments have remained subdued since a while now. However the growth in the investment is a positive sign.

Further, huge chunk of the contribution to the Gross Domestic Product (GDP) came from private consumption. Private consumption increased by 6.8% and accounted for 55.1% of the rise in GDP from a year ago.

The European Central Bank (ECB) in its recent policy meeting cut its deposit rates by 10 bps to minus 0.3%. Further, President, Mr Draghi stated that it would continue to buy government bonds and other assets until March 2017, six months longer than previously planned.

However he stated that those purchases would continue at a rate of 60 billion euros. The rate of purchase is something which immensely disappointed the European markets. Markets were expecting the ECB to announce an increase of at least 10 billion euros a month. The European market’s reacted negatively to the policy with index in Germany falling as much as 3.5%.

Movers and shakers during the week

Company27-Nov-154-Dec-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Indian Hotels 93 107 15.0% 127/81
Bhushan Steel 42 48 12.4% 103/41
JSW Steel 871 972 11.6% 1186/801
Emami Ltd 916 1,008 10.0% 1368/705
Jet Airways 506 556 9.8% 588/249
Top losers during the week (BSE-A Group)
Ashok Leyland 98 90 -7.3% 100/43
TTK Prestige 4,338 4,028 -7.2% 4549/2989
PNB 144 135 -6.8% 232/124
Bank of Baroda 179 167 -6.6% 229/138
Canara Bank 271 253 -6.6% 478/251

Source: Equitymaster

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

As reported in a leading financial daily, Maruti Suzuki intends to invest Rs 150 bn. The money will be utilized for procuring land for dealership network and expanding its stockyard, warehouse and transportation infrastructure.

The investment is in sync with the company's aim to increase its annual sales to about 2 million units by 2020. Further, once Gujarat plant gets operational it will help in doubling its sales. Thereby additional dealership network will be required to sell these manufactured products. Reportedly, company has a dealership network of 1,700 outlets. The company intends to double its dealership network in the next 5-6 years.

The expensive land cost is making it difficult for the dealers to invest in land. Hence, company will purchase the land for the dealers to set up their showroom. The land parcels procured by the company will then be leased to dealers who will in turn pay rents to the company. Going forward too, company intends to set up future dealerships on the land owned by the company.

According to a financial daily, Bharti Airtel will invest Rs 600 bn over the next three years. The money will be utilized to increase its network capacity in order to enhance its ability to provide high speed data service and improve its quality of voice services. The capital expenditure will be partly allocated to address the call drop issue also. The company has named this programme as 'Project Leap'.

The entire project will be funded through internal accruals and clash flows. Reportedly, the investment is made keeping in mind the increase in competition from the entry of 'Reliance Jio'.

Wipro Ltd has announced about acquisition of a Germany based technology company. The acquired company implements and maintains SAP (systems application and products). The deal is pegged at US$ 78 million. The acquisition is intended to scale its business in Germany, Austria and Switzerland. Cellent has a list of reputed customers including lens maker 'Carl Zeiss' and auto-maker 'Daimler'. Cellent posted revenue of US$ 92 million during the last year.

Recently, many acquisitions have taken place in the SAP space. A while back Wipro had acquired 'Designit' in the same region to strengthen its presence in the digital space.

Further, deal will help to bring cultural synergies and location proximities which are key to building successful customer relationships.

As per an article in Livemint, iron ore prices have fallen to the lows of 2008. Recently, iron-ore was traded at US$ 42.97 a tonne at Qingdao Port in China, the lowest levels since May 2008.

To add to the woes, new capacity is entering the market from the Australia's Roy Hill project which is expected to further drag down the iron-ore prices. The prices are at its bottom owing to weak demand from the steel industry which is its main consumer and the excess availability of the iron-ore.

The prices of iron-ore have corrected by 42.3% since the beginning of this calendar year. However, there are talks to cut the export duty on iron-ore. This will provide a relief to players such as National Mineral Development Corporation(NMDC) and Vedanta Ltd. NMDC stock has shed of a third of its value within a period of one year.

As per a leading financial daily, Sun Pharmaceuticals Industries has received approval from the US Food and Drug Administration (USFDA) to make a generic version of Novartis AG's cancer drug Gleevec. The company stated that it is eligible for six months marketing exclusivity in the US.

Gleevec is patented by Novartis and has annual sales of US$ 2.5 billion in the US. Under the terms of a settlement agreement with Novartis Pharmaceuticals Corporation, the company is permitted to launch its version of generic Gleevec in the United States on 1st February, 2016.

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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Mar 5, 2021 10:28 AM