2012 begins on an optimistic note

Sat, 7 Jan RoundUp

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The first week of 2012 witnessed a change in investor focus from the European woes to the developments in the US economy. A series of data including lower unemployment rate in the US helped the world markets post considerable gains this week.

The Indian stock markets were up by 2.8% during the week. All the sectors ended in the green apart from FMCG which were down marginally by 0.1%. Positive global cues along with lower food inflation number helped boost investor confidence in the market during the week. In fact, food inflation entered into the negative territory (-3.36%) for the first time in about 6 years, raising hopes that the Reserve Bank Of India (RBI) could start cutting interest rates soon.

Amongst the other world markets, the investor sentiments were optimistic. Barring the markets in China (down by 0.5%), Japan (down by 0.8%) and France (down by 0.7%), nearly all the global stock markets ended the week higher from where they started.

Source: Yahoo Finance

Source: BSE

Let us take a look at key economic developments. Government of India gave a New Year gift to the stock markets this week. On last Sunday, an announcement was made thereby allowing qualified foreign investors (QFI) including overseas individuals to invest directly in Indian stock markets. This has been done with the intention of widening the profile of investors and attracting more foreign funds in the wake of foreign institutional investors (FIIs) money being withdrawn from the markets. The move is also expected to reduce market volatility and deepen the Indian stock markets. Earlier, QFIs were permitted to invest only in mutual find schemes. The foreign nationals could earlier invest into Indian markets through opening accounts with SEBI registered FIIs or through participatory notes.

Now let's see what made news in the corporate world. Indraprastha Gas Ltd. (IGL) has approached major oil and gas companies for a long term natural gas supply. These companies include British Gas, Shell, Gas Authority Of India Ltd. (GAIL) and Bharat Petroleum Corporation Ltd. (BPCL). The ultimate objective of this is to ensure that gas is available at affordable prices to the end consumers. IGL receives gas supply from abroad at higher prices because Reliance Industries Limited (RIL)' gas supplies have declined substantially. At present, the gas prices are between US$ 4.2 per unit to US$ 18 per unit.

In news from the cement, Associated Cement Companies (ACC) declared its cement production numbers. The company reported an increase of 6.3% YoY in cement production in December 2011. The company's dispatches during the month were up by 8.9% at 2.1 m tonnes. For the period January to December 2011, the production has gone up by 11.6% YoY and dispatches by 11.9% YoY. Meanwhile, the cement industry is still suffering from overcapacity and the problem is likely to persist for the next 2-3 years. Also, disappointing economic scenario has affected construction and infrastructure sector adversely thereby affecting demand for cement.

FMCG major Nestle India has announced plans of starting contract farming for coffee in south India. The plan by the name of Nescafe Plan is a global initiative by the FMCG company. This would bring coffee farming, production and consumption together. The initiative is expected to optimize the supply chain of Nestle whereby it would be working closely with farmers and help them teach techniques of producing high yielding and disease resistant plantlets made for local conditions. Nestle has set up coffee demo farms and training centers in Karnataka.

Automobile company Mahindra & Mahindra Ltd. (M&M) is likely to launch six new models by the end of the next fiscal. This would include a compact sports utility vehicle (SUV) and a shorter version of its sedan Verito. It will venture into the eco-friendly technology segment through the launch of electric car NXR. M&M will introduce 49 tonne truck Navistar and a van based on the platform of commercial vehicle Maxximo too. Three of these products will be launched by the end of 2012.

In some more news from the automobile sector, Tata Motors is planning to expand its operations in Myanmar. The auto company is intending to assemble and sell buses and light commercial vehicle in the country. Tata already has a truck assembly plant in Myanmar. With Myanmar expected to go for political reforms thereby attracting more investments, Tata Motors does not want to miss the opportunity. It is also looking at options of manufacturing in Thailand, Indonesia and Myanmar.

Result season is around the corner but our expectations are not too high from the Indian companies facing problems of increased input costs and high interest rates. Although the inflation has started showing signs of slowdown, we will have to wait for RBI to start reducing interest rates. In its recent policy review, the RBI has indicated chances of rate cuts in future but it will be quite a while before it actually happens and gets reflected in corporate financial statements.

For testing some of the systems, both the major stock exchanges conducted a special trading session today. At the time of closing, the BSE-Sensex was down marginally by 19 points (0.1%) while the NSE-Nifty was down by 7 points (0.1%).