The week gone by was a positive one for the global markets. Except for US and India gains were seen across markets, with China's benchmark index leading the pack of gainers. Strong fund flows into China and speculation that new leadership will institute a number of reforms drove markets. The fact that China's manufacturing grew to a 14 month high also bolstered markets.
As for the rest of the regions, US markets were relatively flat with losses of 0.2% during the week. No progress over the deal to avoid fiscal cliff scheduled to start from January 01, 2013 was a dampener. While it is believed that both the sides (Republicans and Democrats) would reach a deal soon, serious differences between them could lead to further negotiations, thereby lengthening the time line.
With respect to India, the BSE Sensex was down 0.6% for the week. Markets are keenly eyeing the monetary policy scheduled on Tuesday. While the general consensus is that the rates would remain intact, it would be interesting to see whether Reserve Bank of India (RBI) has any surprise in store for the markets.
Amongst the other markets, Japan was up 2.2% while Singapore was up 2.0%. However, the UK markets were relatively flat with gains of 0.1%.
Barring socks from the auto space, none of the sectoral indices reported any material gains. In fact, most of the sectoral indices were down during the week with stocks from consumer durables and power losing 4.7% and 3.2% respectively for the week. However, banking and pharma stocks were relatively flat during the week.
Now let us have a look at few economic/political events that unfolded during the week. The BJP, Left and Trinamool Congress dealt a blow to the ruling UPA party after unanimously stalling another reform bill. They argued that the amendment to the banking regulations bill that allowed banks to participate in commodity futures trading was not vetted by a Parliamentary panel. The Finance Minister, P. Chidambaram introduced three new clauses to the legislation without referring it back to the Parliamentary standing committee. Of the three new provisions proposed, the most contentious one is related to lifting the ban on banks' proprietary trading in commodity futures. Commodity futures trading in India is highly speculative and volatile and banks' entry into this has been opposed by the Reserve Bank of India (RBI). The central bank believes that the Forward Markets Commission (FMC), which regulates commodity futures, lacks autonomy and independence. The other two clauses in the Banking Bill related to the term of the board of directors and bringing bank mergers under the purview of the Competition Commission of India (CCI) instead of the RBI. The issue of new banking licenses also needs to be addressed.
Retail inflation numbers for the month of November 2012 were reported recently. The same is believed to have stood at 9.9%, which is higher by about 0.24% as compared to the previous month. As per official data, retail inflation numbers in rural areas stood at 9.97% (9.9% in October 2012) while that in urban areas came in at 9.69% (9.46% in October). During the month, the oil and fats segment saw the highest inflation of 17.67%, while prices of sugar, pulses & products and vegetables were higher by 16.97%, 14.19% and 14.74% respectively. With retail inflation levels seemingly above the comfort zone, all eyes will be on the RBI governor as the (RBI) mid-quarter monetary policy review is due on December 18.
Now let us have a look at few corporate events that unfolded during the week. Recently, India's largest passenger vehicle manufacturer <>Maruti Suzuki had announced a price hike of upto Rs 20,000 across all its models. Along with Maruti, Japanese car maker Toyota and US car maker General Motors had also hiked car prices. As per reports, India's largest utility vehicle manufacturer M&M and premium car maker Mercedes Benz have also announced prices hikes which will become effective from January 2013. M&M is expected to raise prices by 1% to 2.5% in the new year. It is worth noting that while the auto companies have announced price hikes recently, most of them have been offering discounts and incentives currently so as to clear the current year stock before the year end. In fact, it is said that currently discounts are at their peak.
UK telecom major British Telecom (BT) has exited Tech Mahindra Ltd. by selling its residual 9.1% stake in the company. BT has sold its stake for Rs 871 per share and has received around Rs 10.1 bn on sale of approximately 11.6 million shares. Tech Mahindra Ltd was a joint venture of BT with Mahindra & Mahindra group to develop software. Earlier in the month of August this year, BT had sold 14.1% in Tech Mahindra at Rs 777.7 per share, giving it gross cash proceeds of around Rs 14 bn. BT's contribution to Tech Mahindra's revenues had come down to 33% of revenues in the September 2012 quarter, from 37% a year ago. Tech Mahindra is planning to merge with Mahindra Satyam. As per the management, the combined entity's dependence on BT as a customer will come down to around 18% of revenues
Public sector oil market companies, Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation Ltd.(BPCL) and Indian Oil Corporation (IOC) are gearing up to float a Rs 35 bn global tender to procure ethanol. This move comes after the Cabinet Committee on Economic Affairs (CCEA) has made 5% ethanol blending with petrol mandatory for oil marketing companies (OMCs). The ethanol blended petrol (EBP) programme is in effect in 13 states out of the 19 states mandated. The success of the tender will determine the feasibility of the nation-wide launch of the EBP programme, the deadline for which has been deferred to June 2013 from December 2012.
The advance tax figures for 3QFY13 have been announced recently. State Bank of India (SBI), one of the largest banks in India, paid an advance tax of Rs 17.0 bn compared to Rs 17.3 bn in the corresponding period last year. However, other banks like Bank of Baroda and Central Bank paid higher advance tax this quarter. HDFC, too, paid higher advance tax in the region of Rs 5.60 bn compared to Rs 4.75 bn in 3QFY12. Nonetheless, engineering major L&T paid lower advance tax of Rs 3.3 bn vs 3.5 bn a year ago. It may be noted that advance tax figures are a key barometer of how the company has performed during that quarter. While all the companies have not announced their figures until now whatever numbers are available as of date do not indicate any major earnings revival in the current quarter.
The last fortnight saw a flurry of Initial Public Offers (IPO) with companies like Care, Bharti Infratel and PC Jewellers hitting the market with their primary issues. The issue of Bharti Infratel was oversubscribed by 1.29 times while that of PC Jewellers was oversubscribed by 6.7 times. However, it was the Care IPO which stole the show witnessing huge investor interest with an oversubscription figure of 41 times. High oversubscription figures in the primary market signify that investor sentiments are high and they are willing to shell out money for quality issues. However, it would be interesting to see how these companies perform once they get listed on the bourses.
The next week would be an interesting one for the stock markets. RBI policy will be keenly eyed. Though the consensus is that the rates will remain intact, it would be interesting to see whether RBI has any surprise in store for the markets.