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Global markets closed on a mixed note in the week gone by. Stock indices in Germany (up 1.9%) and France (up 1.3%) were the leading gainers in the pack. While Singapore (down 2.6%) and Chinese (down 1.1%) stock indices were among the top losers.
During the week, the US Fed left the interest rates unchanged. At the same the central bank indicated higher possibility of upward revision in the rate later this year.
On the other hand, the Bank of Japan (BOJ) disappointed investors by offering a much smaller-than-expected round of additional stimulus. The Japanese Prime Minister had earlier promised additional stimulus package of nearly 28 trillion yen to boost the economy. Meanwhile, BOJ made no changes to interest rates. Interest rates in Japan continued to remain in the negative territory.
One must note that the Bank of Japan is currently printing 80 trillion yen (US$750 billion) a year to stimulate inflation after decades of deflation and stagnant growth. Despite all these measures, the inflationary expectations appear to be weakening. Vivek Kaul recently explained in his Diary how Japan became a giant laboratory experiment for novel monetary policies.
Back home the BSE Sensex continued to hover around the 28,000 mark and ended the week higher by 0.9%. As reported in Business Standard, foreign portfolio investors remained buyers in Indian equities with net purchases of Rs 17 bn on Thursday. For the upcoming week, the most crucial event to look out for will be goods and service tax (GST) bill. The government has listed the GST bill for consideration in the Rajya Sabha's agenda for next week.
Midcap stocks were in demand for the week. Among the sectoral indices, capital goods stocks witnessed maximum selling pressures, while consumer durables and auto were the top gainers in the pack.
Now let us discuss some key economic and industry developments during the week gone by.
Indian Meteorological Department (IMD) in its report on Thursday stated that the rainfall for the country as a whole was 4% below the long-period average. Further, there has been scanty rainfall in the areas of Gujarat and Saurashtra. However, the same is expected to pick-up in the coming week. To add to this, the report stated that there would be normal to above normal rainfall in the initial part of August in Central, North-West and Peninsular regions. Reportedly, 80% of the country's area has received normal to excess rainfall and 20% has received deficient rains. A normal monsoon will lead to higher disposable income in the hands of farmers, which in-turn will boost the rural consumption. To add to this, a normal monsoon will also help to keep the inflation at low levels. The possibility of a good monsoon would also increase the chances of the country's central bank retaining its easy monetary policy.
As per the reports, ONGC paid Rs 4,500 per tonne cess on crude oil it produced from almost all its fields including prime Mumbai High, till February 2016. In Budget for 2016-17, Finance Minister Arun Jaitley changed the cess from specific levy to an ad valorem rate of 20% of crude oil price. However, at the current oil prices, ONGC and other oil firms like Cairn are paying more than Rs 4,500 per tonne cess.
The move was to give relief to upstream firms but with oil prices inching upwards, the process has turned out to be reverse. ONGC and other upstream players have reportedly sought reduction in cess to 8 to 10% as the purpose of Budget exercise to rationalize the cess has been defeated even at current moderate crude prices. In a low crude oil price regime, cess imposes a significant economic burden on producers. In addition to cess, other statutory levies like royalty (10-20%), VAT (5%) and Octroi (4.5%) are also payable on production/sale of crude oil.
As per an article in a leading financial daily, a combined mission carried out by India and the U.S. discovered a major deposit of natural gas in the Indian Ocean. The U.S. Geological Survey (USGS) said it has assisted the Government of India in the discovery of large, highly enriched accumulations of natural gas hydrate in the Bay of Bengal.
Moreover, natural gas hydrates, an icy form of the fuel is potentially the first producible reserve of its kind in the waters. The research is the result of a partnership between the Government of India, the Government of Japan, and U.S. scientists. Reportedly, the next step is to determine whether production from the Bay of Bengal site is economic. Although it is possible to produce natural gas from gas hydrates, there are significant technical challenges. However, USGS said that the discovery will help unlock the global energy resource potential of gas hydrates as well help define the technology needed to safely produce them. One shall note that, the discovery also comes as countries like India and China seek to reduce their reliance on energy sources like coal. Such resources release twice the heat-trapping emissions as natural gas when burned. Going forward, whether the results from this expedition benefit the world in terms of energy resource production (Subscription Required) would be a key thing to watch out for.
|Top Gainers During the Week (BSE Group A)|
|Jindal Steel & Power||69||84||20.7%||28418/22495|
|Top Losers During the Week (BSE A Group)|
Now let us move on to some of the key result announcements during the week.
Bajaj Auto declared its result for the quarter ended June 2016. The net profits grew by 2.1% YoY to Rs 9.7 billion during the quarter. Further, net revenues grew by 3.5% YoY to Rs 60.8 billion during the quarter. The sales growth remained subdued on the back of weak exports. Overseas shipment of motorcycle and three-wheelers declined by 22% during the quarter. The decline was mainly on account of shortage of foreign currency and depreciation of the local currency in its key export markets like Nigeria and Egypt. However, the domestic demand was quite encouraging. Domestic sales of motorcycle and three-wheelers grew by 13% and 48% respectively during the quarter. The domestic sales of motorcycles grew on the back of new launches such as the new Avenger series and Bajaj V. Going forward, traction from Avenger and Pulsar in the premium category, KTM in the super sports segment, CT and Platina in the 'price' segment and 'V' in the value segment will be the key things to watch out for as far as motorcycles are concerned. As far as exports are concerned, the company will be looking at Brazil and South East Asia for its next stage of growth.
Bharti Airtel too reported its results for the quarter ended June 2016. The company's net profits declined by 31% YoY to Rs 14.6 billion during the quarter. The decline was mainly on the back of devaluation of Nigerian currency and higher spectrum costs. Nigerian currency has depreciated by 42% leading to a net forex loss of Rs 7.4 billion for the company. Further, a spectrum auction later this year too can dampen the financials of the company as it would require further investments. Too add to this, the company's interest cost has surged by 45% YoY to Rs 16.3 billion during the quarter.
The company's consolidated revenues grew by 8.4% YoY to Rs 255.4 billion, while the domestic revenues grew by 10.3% YoY to Rs 191.5 billion. Reportedly, mobile data traffic grew by 62.5% and data revenue increased by 34% YoY to Rs.46 billion from a year earlier. The entry of Reliance Jio Infocomm Ltd later this year is expected to erupt a tariff war among the telecom operators. This could also possibly dampen the financials of the company.
As per an article in Livemint, Dr Reddy's declared its result for the quarter ended June 2016. The net profits declined by 80% YoY to Rs 1.2 billion during the quarter. The profits fell on the back of weak sales in North America and loss of business in Venezuela. Sales from North America, accounting for 82% of the total sales of the company, declined by 16% YoY during the quarter. The sales declined in this geography on the back of cut-throat competition and pricing pressures. Further, sales from Venezuela plummeted to zero. Venezuela was the company's fourth largest country by sales. The government of Venezuela has imposed restrictions on transferring money to other countries as it has run out of foreign exchange reserves. To add to the woes, the warning letters issued by the US Food and Drug Administration (USFDA) have halted approvals for the drug filling made.As of 30 June, the company has 78 generic filings pending for approval with the USFDA. Issues pertaining to the warning letter and sales growth in the North American geography will be the key things to watch out for going forward.
In another news update, Maruti Suzuki too reported its results for the quarter ended June 2016. The net profits grew by 23% YoY to Rs 14.8 billion during the quarter. Net profits were higher on the back of lower material costs and a surge in other income. Further, sales grew by 12.1% YoY to Rs 146.5 billion during the quarter. The company had suffered a production loss of around 25,000 units in the month of June after a fire gutted the factory of vendor Subros Ltd, which makes air conditioning equipment. This had dampened the sales growth during the quarter. However, Maruti reiterated that it looks to grow its sales in "lower double digit" during 2016-17, outpacing the 8-9% growth estimate for the overall passenger vehicle industry. Further, the seventh pay commission, expectations of normal monsoon, and lower interest rates too will aid the sales growth of the company. Traction from the launch of new models through Nexa showrooms will be the key things to watch out for the company going forward
And here are some of the key corporate developments in the week gone by.
As per an article in The Economic Times, Cipla announced that it has acquired a portfolio of three products from Teva Pharmaceutical Industries Ltd in the US.
Recently, Teva Divested 79 Generic Drugs with Allergan Generics acquisition worth US$40.5 billion approved by US Federal Trade Commission (FTC).
As per the FTC, Aurobindo Pharma Ltd is also among the 11 firms that is bidding for over US$1 billion of Teva's assets being divested. Moreover, Teva expects this divestment to generate about US$2.9 billion. The companies acquiring the divested products include Impax Laboratories, Dr. Reddy's Laboratories, Sagent Pharmaceuticals, Cipla Limited, Zydus Worldwide, Perrigo Pharma International, Aurobindo Pharma USA and 3M Company, the reports stated.
Ajanta Pharma Limited announced the receipt of final approval for Omeprazole and Sodium Bicarbonate Powder for Oral Suspension from US FDA (Food and Drug Administration). It is a bioequivalent generic version of Zegerid Powder used in the treatment of acid reflux and ulcers. The company will be launching this product soon in 2 variants 20 mg / 1680 mg and 40 mg / 1680 mg powder sachets. In total, the company has 26 abbreviated new drug application (ANDA) of which it has final approvals for 12 ANDAs, 1 tentative approval and 13 ANDAs are under review with USFDA, the reports stated.
According to an article in a leading financial daily, BHEL has bagged orders worth Rs 44 billion for setting up 80 MW Solar Photovoltaic (SPV) power plants on engineering, procurement and construction (EPC) basis. The orders have been placed on BHEL by Neyveli Lignite Corporation Limited (NLC) and Bharat Electronics Limited (BEL). The SPV plants will be set up in Tamil Nadu (65 MW) and Telangana (15 MW). One must note that, BHEL had earlier bagged EPC orders from NTPC for a 50 MW SPV plant in Andhra Pradesh and Madhya Pradesh each. Significantly, with these orders, BHEL's solar installations will now stand at 300 MW, reports stated. This also takes the company further into the domain of SPVs power plants, a direction that the BHEL intends to increasingly foray into over the long term.
Going forward, economic uncertainties and liquidity pressures may keepthe Indian markets volatile. Further, there may also be temporary blips owing to ongoing result season. However, long-term investors need not be swayed by these events. Even factors like passing of GST and election results may only have temporary impact on markets. Moreover, if the markets correct, investors can look out to buy some fundamentally strong companies at attractive prices.
On a different note, today we are bringing you a video message from our colleague Anisa Virji at Common Sense Living. It is a compelling 5 minute video and it has something you do not want to miss! Click here for Anisa's message...
The Nifty traded on a positive note over the week and registered gains of about a percent. It even ended above the psychologically important mark of 8,600. The momentum on daily and intraday charts has slowed down, however, and one will need to wait and watch for the price to give a clear cut indication. Until then, it seems like the bulls can enjoy their day in the sun. You can read the detailed market update here...
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