Global markets bounce back

The stock markets around the world ended the week on a strong note on hopes of early resolution of the Greek crisis. During the past week, the Greek Prime Minister finally agreed to the third bail-out package with its creditors. The bailout package of US$ 96 bn is based on strong austerity measures and quick passage of reforms by Greece. In a positive development, the Greek parliament has given its nod for the bail-out plan and the European Central Bank has extended its emergency funding for the country's banks. The European markets were the biggest gainers with France and German indices clocking gains of 4.7% and 4.2%, respectively. The UK market was up by 2.1% for the week. Even the US markets were up by 3.3% as lower jobless claims reinforced expectations for a US rate hike by the end of 2015.

Among Asian markets, the Japanese index was the biggest gainer posting the biggest weekly gain of 4.4% since October. The Chinese stocks rallied by 2.1% for the week amid speculation that the government is boosting funds to provide liquidity support to the markets. The Indian markets were up by 2.9% for the week aided by the cabinet proposal for the merger of limits for foreign direct and portfolio investments to ease norms for foreign investments.

Key world markets during the week
Source: Yahoo Finance

All the sectoral indices ended the week in positive territory with stocks in IT, pharma and consumer durable sectors witnessing maximum gains.

BSE indices during the week
Source: BSE

Now let us discuss some of the key economic and industry developments in the week gone by.

India's merchandize exports fell for the seventh month in a row in June. In value terms, the exports were down by 15.8% to US$ 22.9 bn. The decline is on account of a 53% decline in petroleum product dispatches to US$ 6.1 bn. Even engineering goods exports declined by 6% to US$ 5 bn. However, exports of gems & jewellery and drugs increased by 6% and 11%, respectively during the month. The cumulative exports for the period April-June 2015 was down by 16.8% to US$ 66.7 bn. On a positive note, the trade deficit declined to US$ 32.2 bn as compared to US$ 33.1 bn in the corresponding quarter last year on the back of a 39.5% fall in oil imports.

Movers and shakers during the week
Company9-Jul-1517-Jul-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Core Education6713.7%16/6
Tata Chemicals44148610.0%495/331
Max (I) Ltd4885359.6%544/292
Crompton Greaves1811989.4%231/153
Hexaware Technologies2522759.1%335/137
Top losers during the week (BSE-A Group)
Jaypee Infratech1816-10.4%39/12
Bajaj Holdings Investment1,4641,402-4.3%1635/1230
Sun TV279268-3.9%470/258
Shriram Transport Finance931897-3.6%1286/762
Titan Company359348-3.1%448/321
Source: Equitymaster

The finance ministry has planned to infuse Rs 120 bn into state owned banks that are currently bogged down by the pile up in the stressed assets. This is in addition to Rs 79.4 bn allocated in the budget towards capitalization. The funds will be allocated to the banks that are in urgent need of capital, irrespective of the efficiency criteria. Beneficiaries in the first infusion may include Syndicate Bank, Central Bank of India and Allahabad Bank. Capital infusion is required in the state owned banks as a steep rise in bad loans has hampered their lending operations to support the government's economic revival programme.

In order to further improve the affordability of medicines, the drug price control order has been extended to 39 more drugs ranging from diabetes treatment to antibiotics. The price control list already includes more than 500 drugs. Reportedly the latest price cap will apply to medicines manufactured by foreign drugmakers such as Abbott Laboratories and Glaxosmithkline Plc and domestic drug manufacturers such as Lupin, Cadila and Ipca.

Now let us move on to some of the key sectoral and corporate developments of the week gone by.

Zee Entertainment has announced its results for the quarter ended June 2015. The company has reported a 27% YoY growth in operational revenues to Rs 13.4 bn. But margins for the quarter reduced to 23.3% as against 29.3% in the corresponding quarter for the last year. The contraction was on account of higher operational costs which increased by 51.4% on a YoY (year-on-year) basis. The company has reported a 15.4% YoY growth in its consolidated net profit to Rs 2.4 bn for the quarter.

Lupin is planning to make huge spends in Research & Development (R&D) to move up the value chain from generic to specialty business. As per the management, the company will spend 10% of its turnover on R&D. Currently, the company's R&D spend is at 8.5% of sales. In comparison, the average R&D spends for the industry is around 5-7% of sales.

Dr Reddy's Laboratories has launched a generic drug 'Memantine Hydrochloride' used for the treatment of dementia of the Alzheimer's type. The generic drug has been introduced in the US markets. The company has launched the tablets in the strength of 5 mg and 10 mg after getting the approval from the United States Food and Drug Administration (USFDA).

Tata Motors' UK subsidiary Jaguar Land Rover (JLR) has cut the price of its premium brand Range Rover Evoque in China. China is the biggest market for JLR and the price of the base model has been reduced by 11%. JLR operates in China in a joint venture with local auto maker Chery and produces the Evoque sports utility vehicle in Jiangshu province. Sales fell 20% to 23,526 vehicles in the March 2015 quarter, compared with a 36% increase in the year-ago quarter. China's contribution to JLR's overall sales fell to 23.5% in the March 2015 quarter from 29.6% in the corresponding year-ago period.

To meet the growing demand, Eicher Motors is planning to ramp up the capacity of Royal Enfield by up to 52,000 units a month by December from the current capacity of 36,500 units. The company has been clocking over 40% sales growth on an average every month since the beginning of this year. It has bought land for the third plant near the existing plant for around Rs 700 m. The move will reduce the long waiting period for the bikes, which is around five months on an average due to high demand.

The Indian equity markets will continue to be impacted by factors such as the rate hike by the US Fed, crude prices and macroeconomic stability in the Eurozone. Back home, the fate of key tax proposals such as land acquisition and national tax reforms that are expected to be debated in the monsoon session of the parliament will set the tone for the markets. However, investors should not get carried away by these short term fluctuations but instead focus on investing in fundamentally sound stocks available at reasonable valuations.

A flat end to the week

The Indian indices began the day's proceedings on a flat note and the morning session saw them inching upwards. However, profit booking was witnessed during the final hour of trade, leading to the markets to close the day on a flat note. BSE-Sensex closed higher by 18 points (up 0.06%), while NSE-Nifty closed on a flattish note.

The BSE Mid Cap and BSE Small Cap indices end with gains of 0.2% and 0.44% respectively.

Asian markets finished on a positive note, led by China which was up by 3.4%. The European stock markets have opened the day on a weak note. The rupee was trading at 63.495 against the US$.

As per a leading business daily, Prime Minister Office (PMO) has stepped in to directly oversee key road projects in the country. This after an assessment made by the PMO that several road projects are running way behind schedule despite getting all the necessary clearances. Stalled infrastructure projects, largely due to funding issues are the key reason for the investment cycle in India not picking up. Despite increased budgetary allocations to the road sector and speedy approvals, many critical highway projects are still stuck. The transportation ministry has been the biggest spending ministry so far in fiscal year 2015-16 but the money has not enabled projects to get off the ground.

Stocks in the engineering sector ended the day on a mixed note with Punj Lloyd and Jyoti Structures being the leading gainers, while Emco Ltd and Welspun Corp were the top losers in the pack. As per a financial daily, Crompton Greaves is in advanced talks to sell its overseas power assets. After selling its consumer products business, the company is now in the advanced talks with a global PE firm First Reserve to sell these overseas assets. Reportedly, the company will be selling the unit by Oct 2015. The company has been taking several steps to reduce its losses of its international operations and bring down its debt for a while now. This asset sale is aimed towards the same.

Indian markets remain range bound
01:30 pm

Indian indices are trading slight above the dotted line in the post noon trading session. Sectoral indices are trading mixed with stocks from the engineering and banking sectors leading the gainers. However, software stocks are witnessing maximum selling pressure.

The BSE-Sensex is trading up 35 points (up 0.1%) and the NSE-Nifty is trading up 4 points (up 0.1%). The BSE Mid Cap index is trading up 0.4% and the BSE Small Cap index is trading up 0.6%. Commodity prices are trading on a negative note. Gold price, per 10 grams, is trading at Rs 25,742 levels. Silver price, per kilogram is trading at Rs 34,490 levels. Crude oil is trading at Rs 3,242 per barrel. The rupee is trading at 63.48 to the US dollar.

Engineering stocks are trading mixed with BEML Ltd and Punj Lloyd leading the gainers. According to financial times, Titagarh Wagons has announced its foray into metro coach and high-speed train manufacturing with the acquisition of the Italy-based Firema Transporti. By this acquisition the company is planning to aggressively participate in upcoming tenders for manufacturing metro coaches both in India and globally. Further on a separate note, the company has successfully raised Rs 1.5 bn through issuance of equity shares by way of qualified institutional placement. The stock of Titagarh Wagons is currently trading up nearly 10%.

Stocks in the textile space are trading on a mixed note with Welspun India and Arvind Ltd witnessing buying interest. As per a leading financial daily, chemical-based industrial intermediaries manufacturer SRF Ltd is going to seek shareholders approval to raise Rs 20 bn. This will be raised through issuance of redeemable non-convertible debentures in one or more series on a private placement basis. The purpose for this, as stated by the company, is in order to supplement its capital expenditure and for general corporate purposes. Presently, the stock of the company is trading up by 0.6%.

Metal & banking out of favour
11:30 am

Indian share markets after opening on a weak note continued to trade flat. Barring metal and banking stocks, all the sectoral indices are trading in the green. IT & pharma stocks are the biggest gainers today.

BSE-Sensex is up 8 points and NSE-Nifty is trading marginally down. S&P BSE Midcap is trading 0.3% up and S&P BSE Smallcap index is trading up by 0.6%. The rupee is trading at 63.48 to the US dollar.

Majority of the FMCG stocks are trading firm led by Gillette India and Kokuyo Camlin. As per a leading financial daily, oral care major Colgate Palmolive's attempt to patent a nutmeg mouthwash formula has been quashed after Council of Scientific & Industrial Research submitted evidence in the form of references from ancient books that the herb and its extracts were used for oral diseases in the Indian system of medicines. The Science & Technology Ministry has said that submissions against the claim by Colgate were also made by other third parties. The stock is presently trading up 1%.

Energy stocks are trading on a mixed note with the gainers being led by Essar Oil and Chennai Petroleum. As per a leading business daily, GAIL plans to spend close to US$ 1.5 bn on acquiring shale gas asset in the US with a view to meeting gas demand in India and its other markets. It also hopes to partially offset the risk associated with the market linked pricing of 6 m tonnes of LNG per annum that it has contracted to purchase from the US. The stock of GAIL is trading almost flat currently.

Indian Markets open flat
09:30 am

The major Asian stock markets have opened the session on a positive note with markets in China (up 1.4%) and Hong Kong (up 1.0%) leading the gains. US and European stock markets too closed their trading session on a positive note yesterday. The rupee is trading at 63.48 per US dollar.

Indian stock markets have opened the day on a flat note. BSE Sensex is trading up by 21 points (up 0.1%) and NSE-Nifty is trading up by 7 points (up 0.1%). BSE Mid Cap is trading marginally down by 0.2% while BSE Small Cap index is trading marginally up by 0.3%. Sectoral indices are trading mixed with stocks in engineering and banking witnessing maximum buying interest.

Stocks in the automobile space are trading mixed. As per a leading financial daily, Tata Motors reported a growth of 1.3% in its global sales including Jaguar Land Rover for the month of June at 76,602 units. For the passenger vehicles category the global sales stood up by 3% at 45,519 units. However, sales of luxury brand Jaguar Land Rover witnessed a decline of 3.1% during the month while sales of commercial vehicles stood flat at 31,083 units. Stock of Tata Motors is trading marginally down.

Software stocks have opened the day on a mixed note. According to financial times, information technology services company Mindtree has announced two acquisitions with a spending of Rs 4250 m. The company has reported to acquire a British technology consultancy company Bluefin Solutions and a US-based analytics firm Relational Solutions. It will be paying Rs 4230 m to Bluefin Solutions and Rs 630 m to Relational Solutions. By these acquisitions the company is targeting to expand its offerings in the digital space which accounts for 34% of its overall revenues. Stock of Mindtree is trading up by 3.3%.

Start-up norms fail to woo promoters?

India's start-up activity has been booming since some time now. A number of start-ups in India have managed to attract attention and raise venture capital funding. Large part of these funds is raised abroad and these funds are still curiously scouting for their next India deal.

An article in The Economic Times highlights about the growing magnitude in the fund raising of these start-ups. The start-ups, mostly internet businesses, have raised over Rs 509 bn in venture funding since 2012. This is far more than the amount raised by the mature companies going public that is around Rs 134 bn through initial public offerings (IPOs) for the same period.

With the increasing activity in these start-ups and to make the capital funds domestically available, the capital market regulator had recently announced a new set of relaxed norms for start-ups to list on a proposed Institutional Trading Platform (ITP).

As per the proposal in the ITP guidelines, SEBI is has relaxed the disclosure norms. Importantly, the regulator has removed profitability clauses for such start-ups. Further, they have set a minimum investment floor of Rs 10 lakh. Over and above the lock-in period, minimum allottees and so on are part of these norms. The regulator also has kept small, retail investors out. The companies opting to list themselves can shift to stock exchanges in three years, given they are at par with the norms with the exchanges.

However, these relaxations do not seem to be very enticing for the community. Some promoters still believe that these norms are not at par with the international standards and the regulator needs make them more relaxed to encourage startups to list on this platform. According to some experts, while the profitability norm has been relaxed for initial years, it still remains at the core of the system.

In our view while, these norms might make difficult for the start-ups to access the funds from the domestic market, however when the question of accessing capital markets comes into play, protecting the interests of investors also becomes extremely important. Given the business dynamics of these new-age start-ups, SEBI has outlined a number of sweeping changes in the regulatory requirements for them. However it appears to be quite clear that investors' interest is not relaxed.