World markets remain buoyant

Sat, 21 Feb RoundUp

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Positive signals from developed economies propped up world markets in the week gone by. The major global stock markets witnessed gains during the week. After various discussions, the Eurozone Finance ministers approved a four-month extension on Greece’s bailout on Friday. Though the extension will not be final until Greece government makes some submissions. This deal is expected to eliminate the immediate risk of Greece economy running out of money.

The stock markets in US were up by 0.7% during the week, and ended at record highs on Friday. Lifted by depreciating yen, the Japan markets (up 2.3%) surged to 15-year high levels. After witnessing some rally, the oil prices tumbled during the week on the back of higher supply from US.

Back home, the Indian stock markets ended the week on a positive note. While the Indian indices continued to surge during the week, Friday witnessed selling activity, weighed down by oil and gas stocks.

Key world markets during the week

Source: Yahoo Finance

The oil and gas stocks witnessed sharp correction, led by Reliance Industries, as its employees were among 5-arrested people in a case involving leakage of official documents by the government employees and other officials. Among the pack of gainers, power and capital goods witnessed maximum buying interest.

BSE indices during the week

Source: BSE

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

As per a leading financial daily, the Reserve Bank of India (RBI) has permitted nominated banks to provide gold loan to jewellers. It is to be noted that domestic jewellers were facing liquidity constraints for the past one and half years as it was mandatory for them to make the full payment for the gold purchased due to the restrictions imposed on gold imports. According to All India Gem and Jewellery Trade Federation, the present move is likely to bring down the funding cost for jewellers as gold will be made available to them on loan by just giving bank guarantee. In addition, RBI has clarified that there would be no restrictions on the import of gold coins.

As per a leading business daily, the Indian government will soon come out with strategies to improve bulk drug manufacturing capacity in the country. This with the intention of reducing dependence on China for import of bulk drugs. It may be noted that currently India imports upto 80% bulk drugs from China. Further, the committee set up by the government for this purpose has now submitted its recommendations. The Department of Pharmaceuticals is now examining it and is slated to come out with its strategies shortly. These strategies are likely to be included in the country's proposed bulk drug pharma policy.

As reported in one of the leading financial daily, there could be a further delay in the telecom spectrum auctions scheduled for the first week of March 2015. Three leading telcos, Bharti Airtel, Idea Cellular and Reliance Communications have separately moved to the courts over various proposed guidelines of the auctions. Idea Cellular has alleged the auction rules will affect availability of spectrum. Bharti Airtel has alleged that the rules make it ineligible for participating in certain key circles. Reliance Communication has insisted that the government should increase the amount of spectrum in the 1,800 MHz band. This could potentially lead to a face off among telcos and the government before the auctions.

Export figures for the month of January were announced recently. And they were quite disappointing to say the least. Exports declined 11.2% YoY, their biggest decline in the past 3 years, to US$ 23.9bn. Fall in the export of petroleum products, gems & jewelry and pharma items led to a fall in growth. Many exporters believe that high cost of credit and absence of interest subvention benefit led to such a massive decline. If the decline of such quantum persists in continuing months then it would be difficult for the government to meet its export target of US$ 340 bn.

Movers and shakers during the week

Company	13-Feb-14	20-Feb-14	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Suzlon Energy	19	26	33.7%	37/10
Jindal steel	152	194	27.6%	350/127
Pipava Defence	65	83	27.6%	85/33
Jaiprakash Associates	11	12	15.4%	27/10
Multi Commodity	860	973	13.1%	1009/425
Top losers during the week (BSE-A Group)
CESC Ltd	698	613	-12.2%	828/434
Hero Motorcorp	2,852	2,660	-6.7%	3272/1907
Godrej consumers	1,170	1,104	-5.6%	1195/701
Petronet LNG	187	177	-5.5%	222/115
Aurobindo pharma	1,118	1,058	-5.4%	1275/480

Source: Equitymaster
Now let us move on to some of the key corporate developments of the week gone by.

According to a leading financial daily, GAIL India Ltd has not found any bidder for its US$ 7 bn tender to hire newly-built LNG ships to ferry gas from the US after postponing tender deadline thrice. GAIL's Rs 423 bn tender to hire nine newly-built liquefied natural gas (LNG) tankers drew a blank due to the government's condition of building a third of the ships in India. GAIL had in August last year floated a global tender to charter nine newly-built ships for transportation of natural gas in its liquid form at sub-zero temperature (LNG) from the US. The tender, however, required bidders to build one-third of the ships in India, a condition that found no takers. Officials of the company said may now have to re-float the tender without the 'Make in India' condition.

Bharat Forge has announced 51:49 JV with Israel's Rafael Advanced Defence Systems for manufacturing high-tech defense components. This deal has come within months of the government allowing 49% FDI in defense manufacturing sector. As per a leading business daily, this venture will make Spike anti-tank guided missiles for the Indian armed forces and would involve technology transfer from the Israeli JV partner firm. The fact that Rafael has been working with Indian defense for about two decades will be an advantage. As per the company's management, it will be looking to scale up investments in this JV over time.

According to a leading financial daily, YES Bank is planning to raise Rs 5 bn with a greenshoe option through the country's first 'green' infrastructure bonds. The tenure of these bonds is 10 years and the interest rate is sub-nine per cent. The amount raised will be used by the bank to finance infrastructure projects in renewable energy such as solar power, wind power, biomass, and small hydel projects. KPMG in India will be providing the assurance services annually, on the use of proceeds in line with green bond principles. The bonds are rated 'AA+' by ratings agencies.

As per news report, the State bank of India (SBI) is about to complete the due diligence process on its decision to grant a loan of Rs 62 bn to Adanis soon. The loan issue came under scanner as Adanis are believed to be close to PM Modi and the MoU between SBI and Adanis was signed when the PM was in Australia. The money borrowed via loan will be used to fund the capex of coal mine project in Australia. It would be interesting to see if the executive committee of SBI sanctions the loan or not.

Cipla Ltd has been awarded a tender worth Rs 11.7 bn for antiretroviral drugs by The Global Fund to Fight AIDS, Tuberculosis and Malaria. Cipla has been selected as a 'panel supplier' under a supplier partnership agreement. The contract is effective from January 1 and will run for three years. The supplies will begin from the fourth quarter of FY15. The antiretroviral drugs will be manufactured in Cipla's facilities in India.

In the week gone by we saw the global stock markets go through a roller coaster ride on back of various central bank policies. In the upcoming week, the domestic equity markets will watch out for cues from Union Budget session scheduled on 28th Feb 2015. There could be considerable volatility on the bourses in the run up to the same. However, investors should not be swayed by short term moves in the markets and must remain invested in fundamentally strong companies for the long term.