Positive signals from developed economies propped up world markets in the week gone by. US reported a better than expected jobs report with the number of workers added in November being at a three-year high thereby pointing towards better economic growth. The US markets ended positive (up 0.7%) for the week. Even the European markets closed firm on the strong US jobs data.
Among Asian markets, the Chinese market continued to rally still riding high on the central bank's interest rate cut last month and expectations of additional stimulus measures. In fact the index was the biggest gainer (up 9.5%) for the week. The Japanese markets posted robust gains as the weakening yen favored the country's exports. The Indian stock markets remained volatile on mixed signals. While interest rate cuts were once again given a miss by RBI, the passenger car sales registered a robust rise in November. The index closed lower by 0.8% for the week.
Now let us discuss some of the key economic and industry developments in the week gone by.
In its monetary policy review, the RBI has maintained status quo. While the repo rate remains unchanged at 8%, the cash reserve ratio too remains at the 4% level. RBI will continue to provide liquidity under overnight repos at 0.25% and liquidity under 7 day and 14 day term repos of up to 0.75% through auctions. It will also continue with daily one day term repos and reverse repos in a bid to maintain smooth liquidity.
In a major relief to cigarette manufacturers, the government has shelved the Cigarette and Other Tobacco Products (Amendment) Bill that was aimed at tightening restrictions on cigarette sales. Until 25th November, the government had indicated that it wanted to go ahead with the anti-smoking legislation that included curbs on loose sale of cigarettes and raising the age bar and fines on public smoking. The move is aimed at protecting the tobacco growing farmers of Andhra Pradesh and areca nut growers of Andhra Pradesh. Since many farmers in the country are still dependant on these two cash crops, it has been decided that the bill should not be introduced until the farmers shifted to alternative crops. As this is not likely to happen in the near future, the bill has been shelved indefinitely.
On the back of falling price of crude, the government has raised excise duty on petrol and diesel by Rs 2.25 and Rs 1 a litre, respectively. The government will benefit from higher revenues which in turn will reduce the pressure on fiscal deficit. It is however expected that the excise duty hike will not be reflected in the retail prices. This is the second excise duty hike that the government has taken in less than a month. The government kick-started its Rs 580 bn disinvestment programme with dilution of 5% stake in Steel Authority of India Ltd (SAIL) on 5th December, 2014. As per the steel ministry, the government put on block, 206.5 million shares in the company through the offer-for-sale (OFS) route. The floor price for disinvestment in SAIL had been set at Rs 83 a share. The SAIL share offer was subscribed more than two times.
To meet the estimated domestic coal demand of 1.2 billion tonnes by FY20, the government is making efforts to scale up production from Coal India and expedite bidding of blocks that have been de-allocated. The methodology for bidding will be put up for Cabinet approval next week. The Coal Ministry would also create a platform to monitor clearances for all projects. Coal India has finalized mine-wise plans to achieve 925 m tonnes of coal production by 2019-20.
Now let us move on to some of the key corporate developments of the week gone by.
Ranbaxy continues to face heat on the regulatory front. Germany has recently barred the company from exporting antibiotic cephalosporin to its country. This development comes after a non-compliance report issued by the German regulator post inspection in June. As per the report, deficiencies were observed in the operation of drug manufacturing rooms and procedures in sterilization of equipment at Ranbaxy's Dewas plant. The company's Dewas factory along with the other India-based plants have already been barred from exporting to US. Reportedly, Ranbaxy derives more than 50% of its revenues from the US. Germany accounted for 2% of the company's global sales during the 15-month period ended March 2014. The company, which has been acquired by Sun Pharma, has been working towards getting the regulatory bans lifted. In a latest development all the member nations of the European Union (EU) have also joined the fray in banning exports of certain drugs from the Dewas plant. The plant has faced inspections by drug regulators from Europe, Australia and Canada. As per the company, the ban pertains to only the cephalosporin injectable unit at Dewas in Madhya Pradesh.
Petronet LNG received the biggest shipment of 2.6 lakh cubic metres of liquefied natural gas (LNG) by ship at its Dahej terminal in Gujarat. Reportedly, this receipt of LNG from Qatar's Ras Laffan is the biggest shipment to date for India as the country embarks to derive economies of scale benefits to meet the growing energy demand. Petronet presently has a long term contract of 7.5 m tonnes of LNG a year from RasGas. In April, the company signed a short term contract to import 8 lakh tonnes of LNG over a 12 months period for supply to refineries. After South Korea, India is the largest importer of LNG from RasGas.
In the light of the falling price of crude, Oil marketing companies (OMCs) have cancelled the procurement tender for 1,200 m litres of ethanol. The OMCs are demanding a cut in the price of ethanol contracted earlier. OMCs had made a tender in July to procure 1,560 litres of ethanol from sugar mills. But sugar mills made an offer for only 620 m litres out of which OMCs accepted 350 m litres at a price of Rs 47.50 a litre. But since crude prices have fallen by 37% to $72 a barrel, OMCs are demanding a re-negotiation in the procurement price for the balance 1,200 m litres. In January 2013, the government had mandated 5% ethanol blending with petrol across the country with 10% blending in 10 states taking the total ethanol requirement to 1,560 m litres.
While RBI kept interest rates unchanged, the State Bank of India (SBI) has cut interest rates on retail term deposits by 0.25%. The new rates will be applicable from next week. As per the bank, term deposits below Rs 1 crore will have interest rates of 8.5% as compared to 8.75% earlier. On the other hand, interest rates on fixed deposits with maturities of five years and above will be brought down to 8.25% from 8.5% presently. The cut in deposit rates has been followed by other banks as well, given the slowing credit off take. Banks are expected to bring down lending rates as well. The Managing Director of HDFC Bank expects interest rates to come down by March 2015. The bank has already cut deposit rates by 0.5%.
The domestic equity markets will watch out for cues from the winter session of parliament when some important reform bills are waiting in wings to get passed. Even the success of the government's disinvestment program will set the tone for its future course. While these may be short term triggers, investors should not lose track of the long term fundamentals while investing in companies.