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A volatile week for the global markets
Sat, 20 Dec RoundUp

The week gone by was a turbulent one for most of the global markets. Geopolitical worries, collapse of the ruble, gyrations in the oil prices indicated that global stock markets were only heading downward. But, the Federal Reserve's assurance towards interest rates quickly changed sentiment for global markets.

The key driver for this week's rally was the US Federal Reserve's commitment to take a "patient" approach toward raising interest rates. US Federal Reserve Chair Janet Yellen said interest rates would be kept unchanged for "at least a couple of meetings". This gave the much needed impetus to the US market too, and the US stocks ended the week at highest levels since 2011.

China was the biggest gainer for the week (up 5.8%). The statistics bureau raised China's gross domestic product in 2013 by 3.4%. However, this wouldn't affect GDP growth for 2014, though it would change the total size of the economy for the current year.

The Indian indices closed flat in the week gone by. Not only global geopolitical factors but even events back home spooked the stock market rally. Trade deficit figures for the month of November swelled. Further, the Indian Indices also got hammered due to foreign institutional investors (FIIs) sell offs. However, the markets gained the momentum during the later part of the week on the back of Fed's announcement.

Key world markets during the week
Source: Yahoo Finance

Among the sectoral indices this week, IT and oil and gas stocks were clearly the top performers, while realty and FMCG stocks registered maximum losses.

BSE indices during the week
Source: BSE

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

The excise duty concessions to the automobile sector may not continue beyond December 31, 2014. It may be noted that the erstwhile UPA government had cut excise duty by up to 6% in a bid to revive demand in the interim budget in February this year. The subsequent NDA government had extended the sops, which were to expire on June 30, until December 31. Reportedly, in light of fiscal deficit considerations, the government is unlikely to extend these sops beyond the end of 2014.

Inflation numbers for the month of November 2014 were announced a while back. And it seems to be quite encouraging. As reported in the Hindu Business Line, inflation as measured by the whole sale price index stood at zero in the month gone by. In the previous month, the figure stood at 1.77%. This is the lowest figure in about five and a half years. The key reason for this coming down has been lower prices of oil fuel, food and, manufactured items. As per the data, food inflation stood at 0.63% during the month. However, given the poor monsoons this year, the possibility of supply shortages and their impact on prices do remain high. Further, the fuel and power index declined by 5.4% - in line with the global oil price trend. It may be noted that WPI inflation stood at 7.11% at the start of the year, and has been showing a steady decline ever since. While global factors seem to be one favourable aspect, what should also be kept in mind is that the numbers being reported this year are on a higher base.

As per the financial daily, the long awaited Goods and service tax (GST) is likely to be scheduled in the current session of parliament. However, there have been made some amendments after the centre agreed upon the two main demands of the states. One on petroleum products and two, compensation for revenue loss after the new indirect tax system is introduced. This is one more key reform Bill where the Centre has managed a broad consensus.

Movers and shakers during the week
Company12-Dec-1419-Dec-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Jaypee Infratech 20 22 11.7% 42/18
JSW Energy 94 102 9.0% 99/42
Power Fin Corp 286 300 5.0% 344/129
Petronet LNG 192 201 4.7% 209/103
Torrent Power 161 168 4.1% 182/79
Top losers during the week (BSE-A Group)
DLF Ltd 156 132 -15.5% 243/100
Jain Irrigation 78 68 -13.3% 133/56
Unitech 18 15 -13.0% 39/11
Pipava Defence 47 41 -12.7% 74/31
Jaiprakash Asso. 27 24 -12.3% 90/23
Source: Equitymaster

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

As per the financial daily, ICICI Bank which is one of the largest private lenders in the country, is in process of calibrating its global operations and shrinking its international balance sheet. The bank is selling its subsidiary in Russia, repatriating capital from its UK (United Kingdom) and Canada arms. Reportedly, the uncertain global macroeconomic environment, plus the strict regulations and limited growth opportunities seem to be of high risk. Thus, this seems to have made the bank uninterested in expanding its operations outside India.

According to a financial daily, the steep fall in Russia's currency - Rouble, is expected to impact couple of Indian pharma players. Among the various companies, Dr Reddy's and Glenmark are expected to get impacted the most. Russia is one of the fastest growing markets for Dr Reddy's. Plus on the margin front too, the market happens to be one of the higher margin geographies for the company. The sinking Rouble is expected to have negative impact on the company. Further, Dr Reddy's has also recently launched Valganciclovir tablets, USP in the strength of 450 mg in the US market and the product has been approved by the United States Food and Drug Administration (USFDA). The tablets are generic version of Roche's Valcyte tablets. As per IMS health, the latter had US sales of approximately US$ 440 m MAT for the most recent twelve months ending in October 2014.

As per various news articles, India's largest software firm Tata Consultancy Services (TCS), has stated that revenue growth would be muted for the Dec 2014 quarter. The company expects US dollar revenues growth to come in at 1.5% QoQ. The December quarter is a seasonally weak quarter for Indian IT firms due to the holiday season in the western world. TCS expects the banking, financial services and insurance (BFSI), retail, manufacturing and hi-tech verticals to witness some negative impact. However, the company expects Europe to deliver higher growth than the company average.

Auto manufacturers are expected to increase the prices from January 2015 onwards. The said hike is likely to be across the sector, since the costs have been rising. The same has been impacting the profitability of the companies. Since some time, weak sales have been preventing companies from increasing prices. Reportedly, the hike will come after a long time for some companies like Maruti Suzuki, Hyundai, Honda and Toyota.

India's largest telecom firm Bharti Airtel has taken yet another step in completely offloading its tower portfolio in Africa. The company has signed an agreement with leading mobile infrastructure firm IHS Holdings to sell 1,100 telecom towers in Africa under a renewable contract. The agreement is subject to regulatory approvals. The towers being sold are in the countries of Zambia and Rwanda. The proposed contract is for ten year duration. Bharti Airtel will receive about Rs 20 bn which the company will use to pare down its debt.

The growing geopolitical concerns have impacted the markets. Global growth concerns, crude prices and the US Fed's actions will be important events to look for. Back home, the markets will look out for any economic reform announcements. Plus the bills passed by the ongoing winter session of parliament will be important triggers. Having said that, we believe that investors should focus on stocks of companies having strong fundamentals while making investment decisions.

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