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The global markets ended on a mixed note in the week gone by. While markets in the developed economies ended in green, the indices in the emerging economies fell on concerns of foreign investors pulling out money from these markets post US- Fed rate hike.
The US economy advanced at a faster pace in the last quarter than expected. Gross domestic product (GDP) rose at a 3.5% annualized rate in the three months ended in September. The rate was revised up from last month's 3.2% estimate, and is the strongest quarterly pace of growth in 2 years.
This was seen on the back of bigger contributions from a range of factors including services spending, intellectual property, and construction by state and local governments.
While the above data came as a welcome breather for the US markets, what one shall note is the US economy has grown at about a 2% pace since the recession ended in 2009. This is the slowest average rate of any expansion since at least 1949. The US markets were up 0.5% for the week gone by.
The Bank of Japan (BOJ) kept its policy rates unchanged at the conclusion of its two-day policy meeting.
The central bank maintained the negative 0.1% interest rate imposed on banks for some excess reserves. It also kept the 10-year Japanese government bond (JGB) yield target at around zero, and kept annual rises in JGB holdings at 80 trillion yen.
In its economic assessment, the central bank upgraded its views on exports and output. However, the BOJ said that risks to Japan's outlook include developments in the US economy and the impact of US monetary policy on global markets. The Japan markets were up 0.1% for the week gone by.
Back home, the BSE-Sensex ended in red and was down 1.7%. The week started weak note, with DIIs supporting the market. However, the uncertainty regarding the demonetisation and the implementation of GST led to further weakness in the market. This has created a lot of uncertainty and volatility in the market. And we believe this will continue in the short run.
Now let us discuss some key economic and industry developments during the week gone by.
The Reserve Bank of India (RBI) has relaxed its decree on deposits exceeding Rs 5,000 in old currency. It has now said that questioning will only apply to those who haven't furnished know-your-customer (KYC) documentation.
Earlier this week, the RBI announced strict curbs imposed on depositing old notes in bank accounts stating that deposits of more than Rs 5,000 in old Rs 500 and Rs 1,000 notes can be made only once per account until 30 December. Along with this, it also asked banks to question the depositor in the presence of at least two bank executives on why he or she could not deposit the amount earlier. The above move had led to chaos amongst depositors as well as bankers.
One must note that ever since demonetization was announced, there have been numerous flip flop amid the changing narrative of demonetization. This could undermine people's trust in Mr Modi and central bank.
The Goods and Services Tax (GST) council cleared a substantial part of the central legislation for the proposed tax regime. Further, the issue of division of tax administration between the centre and states that can possibly delay the implementation of the new tax regime will be taken up.
The above developments mark as a progress towards the GST reform. The government is keen to roll out the new regime from April 1, 2017. However, pending issues have made the law not likely to be rolled out from April 1, 2017.
Earlier last month, the government finalised the tax rates for GST. The development came as GST Council decided upon a multi-layered tax rate system. The Council finalised a four-tier tax structure, with the tax rate on items of mass consumption at 5%. Other slab rates are 12%, 18%, and 28%. To get a detailed view on the Goods and Services Tax (GST), you can read Vivek Kaul's report, GST & You: What the Media DID NOT TELL YOU about the GST.
According to an article in The Economic Times, fertiliser sales have not been impacted by the cash crunch so far. Demonetisation of high-value currency notes does not seem to have majorly affected fertiliser sales as a lot of fertilizer sales are currently taking place on credit.
Only urea sales were low, at 26.9 lakh tonnes last month, marginally lower than the 27.4 lakh tonnes for November 2015. But sales of this most widely consumed fertiliser in India had registered a dip even during the kharif season (April-September). That decline has continued in the ongoing rabi season from October. This may have less to do with the 8 November demonetisation decision as much as two other factors, the reports noted.
Gold imports witnessed a fall of 30.5% to $15.74 billion in April-November of the current fiscal. The total imports of the precious metal in the corresponding period of 2015-16 stood at US$22.64 billion. According to the commerce ministry data, the gold imports however grew for the second straight month in November by rising 23.24% to US$4.36 billion.
The softening prices of the gold globally as well as locally are seen to be having an impact. This fall in imports is expected to keep a lid on the current account deficit. The increase in gold imports pushed the trade deficit to about two-year high of US$13 billion in November from US$10.33 billion in the same month last year.
Imports remained stable at around 100 tonnes in November despite a fall in the sales of jewellery because of the cash crunch after demonetisation. Rural demand too has been affected because of the currency shortage.
India is one of the largest gold importers in the world and the imports mainly take care of demand from the jewellery industry. In volume terms, the country's total official gold imports declined to 60 tonnes in April-July of this fiscal, much lower than 250 tonnes in the year-ago period. India imported 650 tonnes of gold in 2015-16.
Globally, gold showed some strength as the dollar weakened against a basket of currencies overseas, raising the appeal of the precious metal as a safe haven. Gold rose 0.46% to US$1,139.8 an ounce and silver by 0.03% to US$16.07 an ounce in Singapore.
The Employees' Provident Fund Organisation (EPFO) has lowered the interest rates on provident fund deposits to 8.65% for 2016-17, a 15 bps cut from 8.8% it paid last year.
The Central Board of Trustees (CBT) of the EPFO, in its meeting said the decision was taken in light of low surplus and the finance ministry's aim of lowering interest rates on other saving schemes.
EPFO's financial audit and investment committee (FIAC) had recommended a similar cut in interest rate as the body's surplus was not enough to pay an interest rate of 8.8 per cent as demanded by the trade unions.
In 2015-16, EPFO's income included a surplus from the previous year of Rs 16 billion. However, according to EPFO income projections, retaining 8.8% rate of interest for the current fiscal year would have left it with a deficit of Rs 3.8 billion. However, at the rate currently announced, there would be a surplus of about Rs 693 million.
|Top Gainers During the Week (BSE Group A)|
|Jai Prakash Power||4||4||4.6%||8/4|
|Top Losers During the Week (BSE Group A)|
Some of the key corporate developments in the week gone by.
Jet Airways is planning to raise US$100 million in US dollar-denominated debt by March 2017 to refinance rupee-based loans. The idea surfaced so that the airlines can almost halve its borrowing rate.
According to an article in The Economic Times, the Airlines have been looking forward to raising overseas loans. But all of its recent overseas debt deals have been done with the support of Abu Dhabi-based Etihad Airways, which holds 24% stake in Jet Airways.
According to an article in The Economic Times, Maruti Suzuki and Hyundai Motor India, the country's two top car makers, are hopeful of meeting their annual production targets despite a slump in demand after the government's demonetisation move.
RC Bharghava, the chairman of Maruti Suzuki confirmed that the company would meet its annual target of producing over 1.5 million units despite the demonetisation move.
The article goes on to say that the company is likely to end the current fiscal with a market share of over 47%, its highest in the last 15 years. Maruti Suzuki posted a YoY sales growth of 14% in November, owing to strong retail offtake in the festive month of October.
The company said growth was on account of replenishing stock at dealerships which had thinned due to strong demand in October.
Maruti Suzuki expects a correction in the number of dispatches in December, but is projecting healthy schedules for the first three months of the new year. The incremental capacity is coming from the new Gujarat facility and stocking of Ignis, the launch of which is likely to bring in the incremental numbers.
Wipro Ltd has recently split its India and Middle East business, which accounts for 10% of its revenue, into two separate divisions under new heads and merged one of the divisions focused on automation platforms with the larger technology unit.
Wipro decided to decentralize decision making as it is in the midst of its biggest push to embrace automation and is asking managers to identify processes that would not require engineers in each of the over 20,000 projects currently underway.
Sun Pharmaceuticals Industries Ltd announced its plans to acquire a branded oncology product, Odomzo from Novartis.
The company in its regulatory filings to stock exchanges said that an agreement has been signed with the subsidiaries of Sun Pharma and Novartis to buy the cancer drug Odomzo for an upfront payment of US$ 175 million and additional milestone payments over a period of time.
According to a press release by Sun Pharma, the acquisition of Odomzo will give the company its first branded oncology product.
The drug in question was approved by the US regulator US Food and Drug Administration in July 2015 and has marketing approval in over 30 countries globally, including Europe and Australia.
Odomzo is a hedgehog pathway inhibitor and used for treatment of adult patients with locally advanced basal cell carcinoma that has recurred following surgery or radiation therapy.
As per an article in The Economic times, Steel Authority of India Ltd (SAIL) along with Japan's Nippon Steel & Sumitomo Metal Corp and Kobe Steel Ltd is planning to team up for potential technical agreements to help the firm expand its global footprint.
In this regard, SAIL has already held an initial round of talks with Japan's top steelmakers. With defence sector using lot of steel, the steel produced through the tie-ups would be sold to the defence sector, the company stated. Notably, SAIL already supplies steel to the Indian navy and army, primarily for battle tanks.
Meanwhile, the company is in talks with two European steelmakers for similar partnerships. Besides these, SAIL is also ironing out details with the ArcelorMittal, for a proposed US$884.36 million joint venture.
Further, SAIL is planning to raise output of saleable steel in the year starting April 2017 by about 10% to 16.5 million tonnes. It is aiming for a 10% jump in 2017-18 exports, versus an estimated 700,000 tonnes shipped this year.
This comes at a time when the steel sector remains in the woods, accounting for 28% of the banking sector's stressed loans.
It was a dull week for the markets and bulls alike. The Nifty continued with its losing streak on Monday till Thursday and ended flat yesterday. For the week, the index ended down 1.8% at 7,990. Volumes remained dull throughout the week and are unlikely to pick up before new year. Going forward, it looks like the Nifty will trade in a range of 7,900 to 8,100. You can read the detailed market update here...
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