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The global markets performed well this week. Bank of Japan (BoJ) indicated that it would adjust the monetary policy as needed to achieve its 2% inflation target with an eye on economic, price, and financial developments. To control the yield curve, it said that it would introduce a new policy tool called quantitative and qualitative monetary easing (QQE). The Nikkei 225 gained 1.9% in the week gone by.
European stocks ended the week in positive territory. The European Central Bank (ECB), in its meeting this week, kept the policy rates unchanged. On the inflation front, it said there is a threat of inflation in the coming month which would also mean the euro zone economy improving at a slower rate than expected. Stock markets in Germany and France were up by 1.2% and 1.5% for the week gone by.
The commerce ministry of China stated that trade environment will remain weak for the remainder of 2016. This comes as a concern for the Chinese economy which faced lower than expected trade data for the month of September. The release of data pointed to weaker Chinese demand both at home and abroad. It also revived concerns over the latest depreciation in China's yuan currency.
Earlier this month, China declared to cut red tape and ease rules for foreign investors in order to boost the economy and counter a decline in private investment. Not only that, the Chinese government also decided to block new projects in sectors that are plagued by overcapacity. The Shanghai Composite index gained 0.9% in the week gone by.
Back home, the BSE-Sensex ended the week on a robust note and was up 1.5%. Indian exports grew by 4.62% YoY in September to US$ 22.9 billion. The export sectors, which recorded positive growth, include engineering, gems and jewellery, handicrafts, textiles, and chemicals registered growth of 6.51%, 22.42%, 23%, 12.62%, and 6%, respectively. On the other hand, Indian imports contracted by 2.54% YoY to US$ 31.22 billion during the last month. The above mismatch left a trade deficit of US$ 8.33 billion in September 2016. The trade gap, however, was lower than US$ 10.16 billion recorded in September 2015.
Now let us discuss some key economic and industry developments during the week gone by.
According to a leading financial daily, the Goods and Services Tax (GST) Council's third round of deliberations ended without a decision on the rates structure. Most states objected to a proposal to levy an additional cess on ultra-luxury goods.
Also, the GST Council was unable to finalize how it will divide its administration between state and central authorities.
The decision has now been pushed to early next month. Finance Minister Arun Jaitley told a media conference that the GST Council will meet next month on November 3-4 to decide on the GST rates structure.
Early this week, it was reported that the government is looking for a four tier tax structure with the highest incidence of tax at 26%.
As per us, GST could be a potential game changer for the Indian economy if implemented in the correct manner. All things considered, it could add another 1-2% to GDP growth every year on a sustainable basis. However, the four tier tax structure would complicate things and hamper its implementation. This would have a negative impact on the benefits of this massive tax reform.
The implementation of GST must be a high priority for the government in order for it to be effective. The government will have to address some key issues between various states and ensure that the GST proves to be a boon and not bane for the country.
To know more about GST, please read Vivek Kaul's report - GST & You: What the Media DID NOT TELL YOU About the GST.
As far as financial markets are concerned, we have reminded our readers that GST should not change one's perception about businesses and the way they value them. In other words, following a bottom-up approach and picking undervalued stocks during such times could prove to be best play.
The Reserve Bank of India (RBI) has turned its focus on growth. This we say as the minutes of the newly minted Monetary Policy Committee (MPC) showed that broad concerns over economic growth and relief from the pullback in inflation spurred the bank's recent rate cut decision.
As per the minutes, the MPC was concerned about the economic growth, and saw the downturn in retail inflation and slack in the economy as an opportunity to cut the key policy rate.
The focus on economic growth by the RBI will mean chances of further rate cuts in its upcoming monetary policies.
On the inflation front, the minutes suggested that all members were reasonably sure of achieving the 5% consumer price index (CPI) inflation target by March 2017, even if some upside risks exist.
The RBI, early this month, surprised Indian stock markets by cutting the policy repo rate by 25 basis points. Post this development, the rate now stands at 6.25% from 6.50% earlier. The MPC, which includes six members, voted unanimously on the decision.
To keep a tab on the inflation story in India and other macroeconomic trends, we recommend the Vivek Kaul Letter (subscription required). Vivek addresses a range of big issues in this unique newsletter - rising inflation levels, the government's handling of oil prices, the mess in public sector banks, the current state of India's real estate bubble...and a lot more!
|Top Gainers During the Week (BSE Group A)|
|ICICI BANK||241.85||277.7||14.8%||290 / 181|
|ADANI PORTS & SEZ||254.45||285.75||12.3%||318 / 170|
|BHEL||133.2||141.7||6.4%||220 / 90|
|WIPRO||474.5||499.2||5.2%||607 / 470|
|TATA STEEL||411.9||427.3||3.7%||432 / 211|
|Top Losers During the Week (BSE Group A)|
|ASIAN PAINTS||1,207.85||1,153.50||-4.5%||1,230 / 785|
|HERO MOTOCORP #||3,482.20||3,360.55||-3.5%||3,740 / 2,375|
|M&M||1,357.05||1,327.00||-2.2%||1,509 / 1,092|
|TATA MOTORS||555.45||544.55||-2.0%||599 / 266|
|RELIANCE IND.||1,078.20||1,064.40||-1.3%||1,129 / 889|
Here are some of the key results in the week gone by.
Bajaj Corp, the maker of its flagship product Bajaj Almond Drops Hair Oil (ADHO) reported its results for the quarter ended September 2016. The company reported a flattish topline growth of 3.5% YoY during the quarter. However, the net profits grew by 23.9% aided by benign raw material prices and higher other income. The company's operating profits grew by 3.8% YoY during the quarter, while the operating margins stood at a healthy 34.15%.
However, the company sees the sustainable margins to be in the range of 25-30%. Going forward, the company wants to concentrate its energies in the international market. Currently, exports contribute to around 5% of their turnover.
They want to take this ratio to around 20-25% in the next three-four years. They plan to do this by taking their No-Marks (skin care) brand in the international geographies. The company also stated that initial response of the product in the international geographies has been very good.
Yes Bank has reported results for second quarter ended September 30, 2016. The Bank has reported 31.3% rise in its net profit at Rs 8.01 billion for the quarter ended September 30, 2016 as compared to Rs 6.1 billion for the same quarter in the previous year.
Total income of the bank increased 24.7% to Rs 49.82 billion for Q2FY17 from Rs 39.95 billion for the corresponding quarter in previous year. The Bank's gross NPA for the July-September quarter of the current fiscal increased to 0.83% as compared to 0.61% in the same quarter of the previous year. Besides, bank's net NPA stood at 0.29% in Q2FY17.
UltraTech Cement reported its results for the quarter ended September 2016. The company's net profits grew by 25.2% YoY to Rs 6.1 billion mainly on the back of higher other income. The company's volume growth and sales numbers too came in as a disappointment. The volumes grew marginally by 1% YoY during the quarter.
Having said, the September quarter is generally weak for every cement company as construction activities come to a halt on the back of the rainy season. Net sales dropped by 2.5% YoY during the quarter to Rs 57 billion on the back of subdued volumes. Operating profits grew by 19% YoY during the quarter, aided by higher operating margins. Operating margins grew by 3.8% during the quarter to 24.14%.
Reportedly, the improvement in the margins was mainly due to petroleum coke (petcoke) inventory acquired at a lower cost.
However, it is imperative to note that petcoke prices have increased considerably in the recent months and that could lead to a dent in the margins going forward. The completion of acquisition of cement assets of Jaypee Group coupled with a rise in construction activities in rural and urban areas will be the key things to watch out for going forward.
Some of the key corporate developments in the week gone by.
According to a leading financial daily, Coal India (CIL), is planning to put up more coal for e-auctions. Even as global coking coal, prices crossed US$190-a-tonne mark recently, CIL decided not to increase its prices, to remain competitive and become a substitute to imports.
This festival season, Coal India will reportedly put up 20 million tonnes (mt) coal for e-auction, where both the regulated and the non-regulated sectors, including traders, will be able to participate. Coking coal constitutes a third of steel sector's total costs. The volatile global coking coal prices are straining the balance sheets of steel companies in the country.
Meanwhile, CIL sees sales picking up in the coming days as the onset of winters in northern India would mean an increase in power consumption. Production growth at Coal India was flat in the first half of 2016-17 although the company achieved 90% of its targets. Despite a marginal fall in sales, it achieved 88% of its sales target for the period. CIL managed to produce 230 MT of coal and sold around 249 MT during the period, thereby reducing stocks by some 19 MT.
Over the past several weeks, power producers have reportedly been refusing to lift additional coal from pit heads. As a result, coal stocks at power plants hit a low of 16 days against 22 days during the same time last year.
As per an article in the leading financial daily, Wipro Limited announced that it has signed an agreement to acquire Appirio for a purchase consideration of US$500 million. Appirio helps companies move applications to hosted servers offered by Amazon, Google and Salesforce.com.
Reportedly, the deal aims to unlock transformational synergies in the applications space and help enterprises create new business models. In an increasingly digital world, as consumer expectations continue to be reshaped by experiences, this acquisition will strengthen the company's portfolio. Also, it will help retain existing clients and ultimately revive growth.
Notably, about half of Wipro's revenue comes from business applications. The rest flows from business process outsourcing and other work. When this deal is done, Wipro's existing salesforce and workday cloud practices will come under the Appirio brand. Wipro's existing Oracle, SAP, and Microsoft service practices will run separately. Further, the acquisition is subject to customary closing conditions and regulatory approvals and is expected to be closed in the quarter ending December 2016. One must also note that, Wipro has spent US$1.13 billion to buy four companies, including Appirio since April last year. The company acquired Denmark-based Designit for US$95 million, it paid US$78 million to buy Germany's Cellent and a Florida based Healthplan Services for US$460 million.
Tata Motors is working to substantially increase its market share in the commercial vehicle segment in South Africa by ramping up sales network in the region. The company has crossed the milestone of having 600 touch-points in the region, which currently contributes to around 27% of the total commercial vehicle sales in the country.
The company currently has a market share of around 36% in the country. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand, South Africa and Indonesia. Over the last six months, the company has also opened around 20 touch-points which includes eight full-fledged dealerships across Tamil Nadu, Kerala, Telangana among others.
Reportedly, the new outlets have started contributing around 6% of overall volumes in the region. It has the largest network of sales network in the country with over 1,800 touch-points. The company is also expected to further its presence in the intermediate and light commercial vehicle space with the ULTRA brand along with a series of introductions planned in the pick-up and small passenger and cargo vehicle space.
It was quite an action packed week with the Nifty dropping almost 100 points on Monday only to recover all of it on Tuesday. Nifty opened with a gap on Tuesday and ended the session with gains of 150 points. Finally, it ended the week with gains of more than a percent at 8691. It seems like the levels of 8,700 to 8,750 could act as resistance in the immediate term. You can read the detailed market update here...
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