It was a mixed week of trade for global stock markets with key indices in Japan (up by 4.6%) and China (up by 3.7%) leading the gainers. The Japanese markets posted highest gains in 21 months as a weaker yen supported growth in exports. The US stock markets led the losses with 1.9% decline over the week as US lawmakers failed to finalize a solution for the fiscal cliff. Investors are concerned that the failure in negotiations will lead to massive tax increases and spending cuts that could drag the US economy into recession.
BSE-Sensex was up by 1.1% for the week. The gains were led by fuel hike reports and buying in rate-sensitive sectors such as banks and real-estate.
Amongst the other markets, France (down by 1.1%) and Germany (down by 0.3%) were on the losing side. The stock markets in Singapore (up by 0.9%) and Hong Kong (up by 0.7%) posted gains during the week.
All sectoral indices ended the week in the green with stocks in the oil and gas (up 2.0%) and realty sector (up 2.0%) leading the gains. The oil and gas sector was up on report that the government is looking at the option of increasing diesel and kerosene prices by Rs 10 per litre in phases. The realty sector gained on hope of a rate cut by Reserve Bank of India (RBI). The midcap index (up 4.9%) posted significant gains and outperformed the Sensex by a wide margin.
Now let us have a look at few economic/political events that unfolded during the week. The Government has announced a slew of measures to boost exports to bring down the surging trade account deficit. These include extension of 2% interest subsidy for one more year till March 2014. Besides, there will be an additional incentive on incremental exports, which would be made during January-March 2013 over the base period January-March 2012. However, it would not include deemed exports, service exports, third party exports, export-turnover of SEZ units etc. The government has also decided to introduce a pilot scheme of 2% interest subsidy for project exports. This will be through EXIM Bank for countries of SAARC region, Africa and Myanmar.
Now let us have a look at few corporate events that unfolded during the week. In order to rejuvenate its domestic passenger car division, auto manufacturer Tata Motors Ltd plans to invest more than Rs 75 bn over the next five years. A huge share of over 70% of the investment is earmarked for new product launches. As falling sales and erosion in market share continue to plague Tata Motors in the domestic passenger car market, the company is gearing to enter the mini SUV segment and revamp its Nano launch. The company is expected to launch new products over the next 12-18 months onwards.
In the pharma space, Dr. Reddy's Laboratories (DRL) has been slapped with a patent infringement case over cancer drug Ixempra by US-based drug company Bristol-Myers Squibb. As per market reports, Ixempra is used in the treatment of metastatic or locally advanced breast cancer and has a market size of around US$ 120 m. In its petition, Bristol-Myers Squibb has urged for a permanent injunction on DRL and its affiliates from commercially manufacturing and selling the drug in the US until the expiration of the patent. Besides, the US drug company has requested for the award of damages if DRL engages in manufacture and sale of the drug thereby infringing the patents of the drug.
The mining major Coal India Ltd is likely to miss its entire supply growth target planned over the next decade due to the absence of critical railway links. The miner was likely to fall short of its target for the 12th Five Year Plan by at least 120-130 m tonnes and by at least another 100 m tonnes in the 13th Five Year Plan. Coal India's expansion plans are ready but in the absence of railway links, the coal produced cannot be sold. Three major railway projects, which were to add about 300 m tonnes of additional supply capacity from new mining projects, are running way behind schedule. The railways have said that the projects were delayed because environmental clearances were yet to be received and will start work once clearances are received.
In a key development in the banking sector, the PSU banksState Bank of India, Punjab National Bank and Oriental Bank of Commerce have sought the finance ministry's intervention for power sector loans (to private sector companies) of the tune about Rs 2.3 trillion. The ministry has assured that it will help the banks by taking the matters to other ministries such as coal, petroleum and environment. Since defaults of such a large magnitude can jeaopardize the country's growth figures, the government would be looking at removing the hurdles and addressing the concerned delays to ensure there are no large-scale defaults come due to power firms.
In another key economic development, the Planning Commission has lowered India's economic growth forecast to 8% in the 12th Five-Year Plan. Earlier, the target was to achieve 9% growth which was further scaled down to 8.2%. As per the Prime Minister Manmohan Singh, the new target is still ambitious. He has also signalled a phased hike in energy prices to cut subsidies that have fuelled Centre's deficit.
Going forward, investors are likely to focus on India's current account data for the quarter ending September 2012 due on 31 December 2012. Globally, the key focus area will be the progress to avoid fiscal cliff in US that is nearing its deadline of December 31. Besides, the Purchasing Manufacturing Index data by China, US, Europe will be closely watched.