The positive sentiment arising from the US economy getting back on track as signaled by the scale back in stimulus program last week continued to dictate global stock markets. All the major indices ended on a firm note in the last week of 2013. The US markets extended the rally clocking gains of 1.6% for the week after data showed a record fall in the weekly jobless claims. Even the yield on the 10-year Treasury note climbed over 3%, the highest since July 2011 pointing to firming interest rates.
The European markets were the biggest gainers for the week with stock indices of UK, Germany and France registering gains of 2% each. Even the Asian markets remained upbeat with indices in Japan and China clocking returns of 1.9% and 0.8% respectively.
The Indian equity markets ended 0.5% higher on cues of strengthening US economy. This is likely to further benefit the country's software services sector that has been among the best performers in 2013.
Majority of the sectoral indices ended in the green with realty (up 3.4%), consumer durable (up 2.5%) and capital goods (up 2.4%) witnessing maximum buying interest. The small cap and midcap stocks outperformed the broader market recording gains of 3.6% and 2.5%, respectively during the week. Stocks from auto (down 0.4%) and oil & gas (down 0.1%) sectors were the only losers for the week.
Now let us discuss some of the economic developments of the week gone by.
Sluggish demand, firm interest rates and high fuel prices continued to adversely impact the automobile industry. According to the Society of Indian Automobile Manufacturers (SIAM), domestic sales of automobiles grew marginally by 2.7% YoY during the period April-November 2013 drive mainly by two wheelers sales. Two wheelers reported a 5.8% YoY growth in offtake largely on account of an 18.7% YoY jump in scooter sales. Sales of passenger vehicles fell by 5.3% YoY during this period. The commercial vehicles (CV) segment continued to be the worst performer clocking a 17.5% YoY slump in offtake during the period. This steep slide was marked by a 26.8% YoY decline in volumes of medium and heavy CVs. Even the festive season failed to revive the sector. The outlook for the rest of the fiscal for the industry remains subdued.
In order to rejuvenate the automobile industry in the country, the commerce & industry ministry will be announcing an incentive program for commercial vehicles on the lines of the US government's 'cash for clunkers' program. The department of industrial policy & promotion (DIPP) has proposed a Rs 10 bn scheme to provide incentives for the purchase of 1 lakh new commercial vehicles. Under the scheme, Rs 1 lakh subsidy will provided for replacing a 15-year old commercial vehicle and the subsidy will be directly paid to the manufacturer once the vehicle is sold. SIAM has welcomed the scheme and said that the scheme would provide a big relief to the industry. In similar lines, the government had earlier provided subsidies to states for the replacement of buses under the Jawaharlal Nehru Urban Renewal Mission (2005-14).
Sluggish demand for consumer goods is taking a toll on the steel sector. The steel production fell to a 14-month low in November to 6.25 m tonnes due to poor demand from white goods and automobile sectors. The aggregate steel production for the period April-November 2013 was up by 1.9% to 72.3 m tonnes on a marginal 0.4% rise in steel consumption. The steel industry has sought imposition of 30% export duty on iron ore pellets. Currently, exports of iron ore lumps and fines attract a duty of 30% but there is no duty on exports of pellets. It must be noted that iron ore exports increased sharply from 2.33 million tonnes in 1QFY14 to 5.33 million tonnes in 2QFY14, a rise of 129% quarter-on-quarter. Even the iron ore production was down 14% to 70 million tonnes during the six month period April-September 2013. This has impacted iron ore supply to domestic steel producers.
On a positive front, banks opened record number of 7,300 branches in 2013. This is the highest number of branches added in a year in a decade. The brick-and-mortar branches have failed to lose attraction even though alternative bank channels are gaining popularity. Reportedly, the government's financial inclusion programme to provide banking services across 6.25 lakh villages has led to banks setting up branches in rural and semi-urban regions. The expansion program has been aided by relaxation in branch licensing norms by the Reserve Bank of India. Among state-run banks, Canara Bank opened the highest number of branches at 723 whereas largest bank State bank of India (SBI) opened 627 branches in 2013. Among private banks, ICICI Bank opened the highest number of branches at 587 during the year.
Now let us move on to some more news from the corporate world.
NTPC is planning to add 19,000 MW of capacity out of which nearly 9,000 MW would be commissioned by 2017. Ten coal-based thermal power projects with capacity of 13,290 MW are currently under construction. Plants with an aggregate capacity of 5,000 MW are also being executed by the company in joint venture in the states of Bihar, Uttar Pradesh and Tamil Nadu. The company is also building solar power projects including a 50 MW Rajgarh solar photo voltaic plant in Madhya Pradesh. NTPC currently generates 42,454 MW of electricity from various energy sources.
SAIL wants to jointly explore coal-bed methane from its coal blocks and is in talks with oil & gas major, ONGC. The company has been exploring the possibility of tapping methane trapped in coal seams of its coal blocks after the government allowed Coal India to produce methane from existing coal mines. Earlier there were ownership issues as the coal ministry regulates coal reserves whereas coal bed methane comes under the ambit of the oil ministry. It may be noted that SAIL wants to develop new coal blocks at Tasra and Sitanala and expects to have a large scale output from these blocks by 2015.
Indraprastha Gas Ltd (IGL) has hiked consumer price of compressed natural gas (CNG) by Rs 4.50 per kg in Delhi and Rs 5.15 per kg in Noida, Greater Noida and Ghaziabad. IGL has also increased consumer prices of piped natural gas (PNG) to Rs 29.50 per standard cubic metre (scm) from Rs 27.50 per scm in Delhi. The price hike is attributable to rise in input cost owing to reallocation of domestically produced gas quantities by the central government for all city gas distribution firms in India.
In an attempt to salvage its tarnished image, Ranbaxy's parent company, Daiichi Sankyo, is contemplating bringing in technical experts from Japan to resolve the issues raised by the US FDA with respect to the formers' manufacturing plants. It must be noted that import alerts were issued in 2008 on two of the company's plants in Paonta Sahib (Himachal Pradesh) and Dewas (Madhya Pradesh) for violating the US regulator's good manufacturing practices (GMP) norms. Subsequently, the US FDA issued an import alert on the company's third plant in Mohali for the same reason. In addition to this, in May this year, Ranbaxy had pleaded guilty for manufacturing adulterated drugs and distributing them in the US market. For this, it had to pay damages to the tune of US$ 500 m.
SBI will raise funds to the tune of Rs 100 bn via share sale to institutional investors. The proceeds will be utilized by the bank to shore up its capital base. SBI is likely to conclude the share sale before the end of the current financial year 2013-14. However, SBI and the investment bankers are worried about the pricing of the qualified institutional placement (QIP) as most of the recent stake sales in state-owned companies have been at discount to market prices. To manage its QIP, SBI has appointed five foreign banks - Bank of America-Merrill Lynch, Morgan Stanley, Citi, JPMorgan and UBS.
The present government has been taking steps to infuse energy in the country's economy by clearing regulatory hurdles. But its sustainability will be reinforced by the outcome of the General Elections next year. The US economy has been showing signs of getting back on track. This is favourable for the country's IT sector. Therefore barring short term pangs, the long term investment outlook remains bright.