Further Rupee depreciation haunts markets

Sat, 17 Dec RoundUp

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Stock markets across the world witnessed yet another week of negative returns. Continuing concerns of Europe's debt crisis and downgrading of France's debt rating by Fitch led to disappointment across the markets. Fitch is in the process of reviewing the ratings of other European nations like Italy, Belgium, Slovenia, Ireland, Cyprus and Spain. It may in fact, downgrade these by the end of January.

The Indian stock market were down 4.5% during the week. Further depreciation of rupee against the US dollar was the main concern for investors. This along with slowing economy, increasing fiscal deficit, prevailing high interest rates and substantial pulling out of funds by the foreign institutional investors led to the markets reaching their 25 month lows.

Amongst the other world markets, European markets suffered the most with France (down by 6.3%) and Germany (down by 4.8%) being the top losers. Singapore, Japan and Hong Kong were able to contain their losses within 2%.

Source: Yahoo Finance

All the sectoral indices ended the week in the red. Capital Goods fell the most (down 10.3%) on a disappointing IIP (Index of Industrial Production) number that registered a fall of 5.2%. Consumer durables and realty stocks followed with fall of nearly 8% each.

Source: BSE

The week witnessed a couple of major economic developments. On one hand the Index of Industrial Production (IIP) declined 5.2% in October. This was first time since June 2009 that IIP registered a decline. The sectors that contributed the maximum to this downfall were manufacturing, mining and capital goods. On the other hand, there was some good news on food inflation. Food inflation eased to 4.35%. This implied a fall of 6.6% from the previous week's number and is at its lowest level since February 2008. The decrease it is believed is on account of increased inflow of seasonal vegetables in the markets.

In some more news from the economy, the Reserve Bank of India maintained status quo as regards interest rates. In its latest policy review, the central bank reversed its policy stance of raising rates to tame inflation. RBI is now more worried about the slowdown in the economy than about high prices. In fact, it even hinted at lowering rates in the near future. It may be recollected that RBI had raised interest rates 13 consecutive times in the past couple of years.

Now let's take a look at key corporate events during the week. The energy PSU Bharat Petroleum Corporation Ltd. (BPCL) wants to diversify into the space of petrochemicals. For this it is setting up a facility in Kochi at an estimated cost of Rs 50 bn - Rs 60 bn. The company is looking out for a multinational collaboration for the said project. BPCL is also aiming to up the existing capacity at its Kochi refinery from 9.5 m tonnes per annum to 15 m tonnes per annum.

In news from the automobile sector, auto companies are looking at raising the prices of their vehicles. Mahindra & Mahindra Ltd. (M&M) announced an increase across its entire range of vehicles. The automaker will up the prices by 3% from January 2012 itself. Maruti Suzuki, Renault, Nissan, Hyundai Motor, Ford, General Motor and Toyota Kirloskar are also contemplating such rate hikes. It may be noted here that the auto industry is under severe pressure due to rising input costs and higher interest rates (that make auto loans costly for borrowers). As per the Society of Automobile Manufacturers (SIAM), car sales are down 3.5% in the fiscal year so far. Raising the prices of cars at such a crucial time may however not prove to be rewarding for auto companies.

Movers and shakers during the week

Company	9-Dec-11	16-Dec-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Welspun Corp.	66	81	21.7%	214/66
Tata Communication	189	200	5.9%	266/180
Mphasis Ltd	324	340	5.0%	697/296
Videocon Industries	171	178	4.1%	225/164
Divis Labs	734	758	3.3%	835/596
Top losers during the week (BSE-A Group)
Sintex Industries	92	63	-31.7%	193/67
Essar Oil	67	48	-29.2%	141/52
Areva T&D	199	143	-28.0%	339/146
Lanco Infratech	12	9	-24.0%	66/9
Pantaloon	182	140	-23.3%	381/142

Source: Equitymaster
Arvind Ltd is getting into a joint venture (JV) with a German fibre glass company called 'PD Fibre Glass Company'. This is the textile company's maiden foray into the glass fabrics business. The JV firm "Arvind PD Glass Composites Pvt Ltd" will be an equal partnership. It is expected to service the requirements of the energy , automotive and infrastructure sectors. A new facility is being set up at Santej (in Gujarat) to manufacture 30,000 tonnes of fabric after 5 years. Initially set up at a cost of Rs 800 m, the JV is likely to generate business of Rs 2.5 bn in the next 3 years and later increase it to Rs 5 bn by the 5th year.

Lastly, Siemens announced plans of venturing into engineering, construction and procurement (EPC) business for solar photovoltaic plants in India. Although this is Siemens's maiden foray into this business in India, it has already executed solar projects of 160 megawatt across the world. It supplies equipment too for the solar projects. The engineering company is now looking at India as one of the fastest growing renewable energy markets of the world.