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After recording a poor performance in the last week the global stock markets continued their downward journey in this week as well. All the stock markets except for Japan were down during the week. The US stock markets were down 1.8% during the week. Fears of looming fiscal cliff continued to worry the investors. Also, the data for industrial production fell by 0.4% in October due to hurricane Sandy. This further fuelled negative sentiments in the markets. Escalating tensions in Middle East also sent jitters across the globe including US.
The Indian equity markets were down 2% during the week. Global economic fears and weak industrial output for the month of September took a toll on markets. The industrial output contracted by 0.4% in September due to poor performance of the manufacturing, consumer and capital goods sector.
Amongst the other markets, Brazil was down 3.4%, Germany was down 3% while UK was down 2.8%. However, Hong Kong stood its ground and was down by only 1.1%.
Coming to the performance of sectoral indices, only consumer durables and small cap stocks ended the week on a positive note. Stocks from the consumer durables space were up by 1.5% while those from the small cap space were up by 0.6%. Auto stocks were down by 3% while metal stocks were down by 2.7%.
Now let us have a look at few economic developments during the week. The Index of Industrial Production (IIP) figures were announced during the week. The IIP slipped by 0.4% in September 2012 on a YoY basis. The dip has been on account of 1.5% fall in manufacturing which constitutes about 76% of the industrial production. The mining and electricity sectors clocked growths of 5.5% and 3.9%, respectively. Capital goods registered the steepest fall of 12.2% whereas consumer goods posted a marginal fall of 0.3%. During the period April-September 2012, the IIP has expanded by a mere 0.1%.
Inflation figures for the month of October were also announced recently. The retail inflation stood at 9.75% for the month of October. This was marginally higher than 9.73% that prevailed in the previous month. Rising prices of food items such sugar, pulses and vegetables have been the main culprit for rising inflation. In fact, sugar witnessed the highest price rise during the month. Sugar prices were up by 19.6% yoy in the month of October. Prices of edible oil and pulses were also up by 17.9% yoy and 14.8% yoy respectively. Even clothing and footwear items displayed a rise in prices on an annual basis.
However, the good news is that the retail inflation in urban areas moderated to 9.46% from 9.72% in the previous month. Though the moderation in urban inflation was not substantial it was comforting. It may be noted that in light of persistently high inflation Reserve Bank of India (RBI) had kept its repo rate unchanged in the last monetary policy review. Now, if inflation does not cool down in the near future, RBI may well adopt a cautious approach in its next policy review too.
Now let us have a look at few corporate events that unfolded during the week. The 2G spectrum auction kicked off during the week, but it was met with a poor reception with no bidders in many key circles including Delhi, Mumbai and Rajasthan at the end of the first initial rounds of bidding. It may be noted that five telecom operators including Bharti Airtel, Vodafone, Telewings (Telenor promoted), Videocon and Idea Cellular had applied to participate for the auction which ended on the second day on November 14, 2012.
The government managed to rake in merely Rs 94.07 bn against an ambitious target to raise Rs 300 bn as only 101 out of the 144 blocks could be sold. While Idea Cellular won spectrum in 7 circles including Assam, Kolkata, West Bengal, Jammu & Kashmir, Odisha, Tamil Nadu and the north east, Bharti Airtel won spectrum in only one circle in Assam. On the other hand, while Telenor and Videocon got spectrum in 6 circles each, Vodafone won spectrum in 14 circles. Only 20% of the total value of the spectrum (GSM and CDMA) at a base price of Rs 480 bn was sold. The reason for the low percentage was mainly due to the fact that there were no takers in the three big circles of Delhi, Mumbai and Karnataka. These 3 circles together accounted for over 48% of the total base price. Moreover, CDMA auction could not take place on account of no interest among operators. Had the government not put the Delhi, Mumbai and Karnataka circles up for auction, its total earnings would have been 67.92% of the reserve price for the 18 circles being auctioned.
It may be noted that the pending pharma policy has been sent back to the Group of Ministers (GoM) to address the concerns raised by the finance ministry. The policy is awaiting the approval of the cabinet. The GoM is headed by Agriculture minister Sharad Pawar. We may recollect here that the new pharma policy aims to cap the prices of 348 essential medicines at the weighted averages of all the drugs in the particular segment with more than 1% market share.
Gas Authority Of India Ltd. (GAIL) is planning to offer upto 30% stake in its 1,550-km natural gas pipeline from Surat in Gujarat to Paradip in Odisha to Indian Oil Corporation (IOC). Earlier this year, GAIL had secured rights to lay the pipeline to connect the west and east coasts. The pipeline would have a capacity to transport up to 60 million standard cubic metres of gas per day. GAIL will have 36 months to lay the pipeline and commission it. The pipeline would cost GAIL Rs 90 bn. If IOC accepts GAIL's offer, it would contribute for its share. GAIL was investing US$ 6 bn in creating natural gas infrastructure.
After the poor show in 2G auction worries over containing the fiscal deficit have escalated. However, finance minister P Chidambaram is confident that he will be able to hold the deficit at 5.3% of GDP. Disinvestment program totaling to Rs 300 bn will help in the same. On the growth front he exuded confidence that in the next 2 quarters it shall pick up. While the comments of the finance minister are encouraging it remains to be seen whether it will see the light of the day. Rising inflation is keeping interest rates high. This is delaying the capex cycle and thereby hurting growth. On the other hand, the disinvestment program is getting delayed for lack of market sentiments. In the current environment, many PSUs are not getting the right valuations. As a result of which the disinvestment program has gone off track.
The earnings season of 2QFY13 did not throw in any positive surprises. Also, the deficit worries and growth concerns have magnified due to flop auction show and hawkish stance of RBI. Further, the fiscal cliff worries in US have gripped the world markets. Thus, the overall situation does not look bright at least in the near term.