It was a mixed week for global stock markets. The global and European stock indices were capped by uncertainty in US. The U.S stock markets closed the week a little unchanged (up 0.1%) as concerns regarding a stalemate in U.S budget talks weighed on the economic growth prospects. Weak economic data from Brazil and Canada further added to the global fears. The sentiments over the outlook for Europe have improved post a deal between Greece and the global lenders earlier this week. This has boosted Euro that touched a seven month high against the yen and is up 0.2% against the dollar.
The Indian stock markets were up 4.5% during the week, posting highest weekly gains since June. The market performance was backed by the hope of reform measures to cap India's twin deficit and higher FII inflow. This was amidst a weak GDP data for the second quarter. Amongst the other markets, Singapore (up by 2.7%), Japan (up by 0.8%) and Germany (up by 1.3%) were the top gainers. China turned out to be the worst performer and led the losses with a decline of 2.3%.
Now let us have a look at key economic developments during the week. The Indian Gross Domestic Product (GDP) growth data for the quarter ending September 2012 was released yesterday. GDP growth declined to 5.3% from 5.5% in the first quarter of the current financial year. For the first six months of the year (April-September), the economic growth stands at 5.4%, lower than 7.3% growth in the corresponding period last year. The weak data suggests that this could be the worst fiscal year in the decade. The economists and policy watchers are apprehensive about growth prospects going forward. On the other hand, it has also raised hopes of some monetary easing at the next meeting of the central bank to stimulate the economy.
In another development, the finance ministry is considering a proposal to raise excise duty and service tax by 2% to 14% each in the Union Budget for 2013-14. Such a move could help the ministry collect around Rs 300 bn. The Budget is also likely to see roll back of certain exemptions. The customs duty on oil may be restored (done away with in June 2011) while peak customs duty might be retained at 10%. All these steps aim to improve government's tax-to-gross domestic product (GDP) ratio. However, an increase in all these taxes is also likely to slow down growth that has already slipped to 5.3 % in the second quarter of this financial year. In 2011-12, too, the ministry had increased excise duty and service tax by 2% each.
A major development took place in the energy sector as the Government is planning to sell all LPG cylinders and kerosene at market rates by 2013-14. This will lead to direct transfer cash to the bank accounts of cooking gas (LPG) and kerosene customers irrespective of Aadhaar identification. The implementation will start with a pilot project in Andaman and Nicobar Islands by April 2013 and is likely to be extended to the rest of the country in a year. The twin proposals are likely to discourage diversion of subsidized cylinders for commercial use and adulteration of diesel with cheap kerosene and could save the exchequer Rs 150 bn a year. The ministry is also considering raising the cap on the number of subsidized cooking gas cylinders as it believes that six cylinders are not enough.
Now let us have a look at few corporate events that unfolded during the week.
The state owned oil and gas producer Oil and Natural Gas Corporation Ltd's (ONGC) subsidiary ONGC Videsh Ltd (OVL) plans to buy US energy giant ConocoPhillips' 8.4% stake in the Kashagan oilfield in Kazakhstan's Caspian Sea area for US$5 billion. If it materializes the deal will mark the biggest overseas acquisition by ONGC's overseas investment arm. Both ONGC and ConocoPhillips have said that they hope to complete the deal in the first half of 2013. However, as per the industry sources, it will take much longer. The deal would be considered done only after the governments of both Kazakhstan and India approve it. It also depends on some of the partners in the consortium operating the field giving up their pre-emption rights. The acquisition is likely to add an average annual production of about 1 million tonnes (MT) of oil for OVL for a period of over 25 years, with a peak of about 1.6 MT. As per the company, this would increase further during the second and third phases of development.
Bharti Infratel, the tower arm of Bharti Airtel, plans to raise up to US$8.3 bn in one of India's biggest initial public offerings (IPO) in two years. The proceeds will be used to fund expansion and acquisitions. The IPO for 189 m equity shares will remain open from December 11-14, 2012. The price band is Rs210 to Rs240 per share. The minimum bid lot has been fixed at 50 equity shares and in multiple of 50 shares thereafter. For retail investors, the discount will be at Rs10 per share and will not exceed 5% of the issue. The company plans to spend Rs 11 bn to 12 bn over the next two years towards capex.
The world's largest coal producer, Coal India Ltd has lined up Rs 500 bn worth of investment plans for the next 5 years. This follows the Government directive to PSUs to invest their surplus funds. Currently, the company is sitting on a cash reserve of Rs 610 bn. The company has earmarked Rs 245 bn capital expenditure out of the envisaged investment of Rs 500 bn over the next five years mainly to increase capacity. The Rs 245 bn would be spent mainly on developing more than 100 underground and opencast mines in seven coal producing subsidiaries in the 12th Five Year Plan (2012-17). The company is also looking at international opportunities to invest.
In some other news from the corporate world, Tata Steel will go for restructuring to counter difficult economic conditions in Europe. As a part of this restructuring drive, it is planning to cut 900 jobs in the UK, majority of which will be of administrative and management personnel at its integrated production plant in Port Talbot, South Wales. Tata Steel also intends to revamp its redistribution and processing hubs and reduce the total number from 16 to 6. The company will reduce shifts at its long-products operations in Rotherham, and its tubing business in Hartlepool to adjust production levels to lower demand. It will also re-start a blast furnace at Port Talbot early next year, following a Rs 22 bn investment programme and restart a hot strip mill at its Llanwern site in South Wales.
The leading drugmaker GlaxoSmithKline Plc will buy up to an additional 8% stake in India's GlaxoSmithKline Consumer Healthcare Ltd for about US$940 m by paying Rs 3,900 per share in an open offer. The move aims to deepen GSK's footprints in the emerging markets and non-prescription consumer health. This will help it to reduce its reliance on traditional prescription drug markets in Western economies where sales are slowing. Post the offer, GSK's stake in the Indian consumer products arm will rise to 75 % from 43.2 %. As per Indian regulations, controlling shareholders can own up to a maximum 75 % in a listed company without having to make an offer for the remaining 25% stake, which has to be in public hands for the company to remain listed. GSK said it does not plan to de-list the Indian unit. The offer period for Indian deal will begin in January 2013.
Coming back to the economic news, the government has so far raised Rs 9.3 bn through disinvestment in PSUs during the current fiscal. With a target of Rs 300 bn for the year, this is just 3% accomplishment so far. During the current fiscal, the government disinvested 10% in National Buildings Construction Corp (NBCC) and 5.58% of Hindustan Copper (HNCP) out of its shareholding. It realised an amount of Rs 1.2 bn and Rs 8.1bn respectively totaling to Rs 9.3 bn. Pricing and timing of the issues is something that the Government has not been very good at judging by historical records. It usually waits till the end of the year to try and meet its mammoth targets. A few more divestments in the pipeline include a 12.15% sale in National Aluminium Co. Ltd (NALCO), 9.33% in trading firm MMTC Ltd and 10%in explorer Oil India Ltd.