Global Markets Cheer Softer US Fed Reserve Tone

Sat, 18 Mar RoundUp

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Most of the global financial markets ended the week on a positive note. The US Fed raised rates for the second time in three months on Wednesday by 25 basis points to a range of 0.75% to 1%. The move to lift the target overnight interest rate was taken on the back of steady economic growth, strong job gains and confidence that inflation is rising to the Fed's target. The dollar remained under pressure for a third straight session. This is because the US Fed quashed hopes for a further bull run in the currency by keeping a gradual pace to its monetary tightening policy. The US markets were up 0.3% for the week gone by.

China also hiked rates on Thursday, while the UK and a European Central Bank policymaker hinted at higher rates. The People's Bank of China raised the rate for its six-month and one-year medium-term lending facility and open-market repurchase operations by 0.1%. The stock market in China was up by 0.8% for the week gone by.

The UK's main bluechip index, the FTSE 100, clocked up a new all-time high and increased 1% during the week. The main indices in France and Germany closed at their highest levels since mid-2015.

Back home, BJP's landslide victory in Uttar Pradesh, US Fed's less hawkish tone and an update on Goods and Services Tax (GST) pushed the Nifty 50 index to its fresh lifetime high. The BSE Sensex was up 2.4% for the week, while the NSE Nifty was up 2.5%. Midcap and Smallcap stocks outperformed the frontline indices to gain 4% and 3%, respectively.

Key World Markets During the Week

On the sectoral indices front, realty , consumer durables and FMCG sector stocks led the gainers this week. On the other hand, stocks from telecom sector witnessed maximum selling pressure.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by

In a recent development, the Reserve Bank of India (RBI) has lifted all limits on savings bank cash withdrawal post notebandi. In a two-stage process, the weekly withdrawal limit per account had been raised to Rs 50,000 from Rs 24,000, with effect from February 20. Further, all limits on ATM withdrawals were slated to cease from March 13. While this comes as a welcome breather, the effects of notebandi in India are still felt. And the same has also left room for doubt regarding the economic growth.

According to a leading financial daily, the US Trade Representative (USTR) in its voluminous annual report on trade has said that India's GDP growth along with indirect taxation reforms could support considerably more US exports to the country in future. It also said that the Goods and Services Tax (GST) regime in India, could provide an impetus to the creation of a common internal market that significantly lowers transaction costs. USTR has stated that India's new National Intellectual Property Rights (IPR) Policy could protect US innovations.

It also pointed out that while these reforms are encouraging, there has also been a general trend of tariff increases in India, which reflects an active pursuit of import substitution policies and also said that the US will press India to make meaningful progress in relation to these ambitious goals in 2017. However, it noted that the existing Indian trade and regulatory policies have inhibited the development of a more robust trade and investment relationship.

Moving on to news about the economy. According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Consumer Price Index (CPI) rose to 3.6% in February, snapping a four-month downtrend. CPI inflation rose to a three-month high of 3.6% from 3.2% in January. The inflation numbers were up on the back of expensive food and fuel items, even as manufacturing products saw a decline in inflation.

In the February, monetary policy review, the RBI paused on rates as it expects inflation to firm up due to the rapid pace of remonetisation. The likelihood of RBI cutting the policy rates in April remained subdued. The next meeting of the monetary policy committee is scheduled for April 5-6.

In the other news, the goods and services tax (GST) council cleared the two supporting Bills - State GST Bill and Union Territory GST (UTGST) Bill. Nod for the above laws, along with changes in the Central GST and Integrated-GST laws, has paved the way for the introduction of the legislations in Parliament and state assemblies as early as next week.

The above developments have set the stage for implementing the landmark tax reform by 1 July 2017.

In news from information sector. The United States may take time longer than expected earlier to tighten laws for overseas professionals in the country, White House press secretary Sean Spicer has indicated. The news comes as a sigh of relief for Indian companies that they may be able to benefit from the existing H-1B visa policy for their workers this year.

One must note that Indian IT companies are facing the brunt of immigration restrictions proposed by the Trump administration. Large Indian IT companies, on an average, generate more than 50% of their revenues from the US clients. They have built a strong client base over the years in the US market. If the suggested changes for immigration get cleared, the cost component for the Indian IT companies will go up. The need to reduce their US exposure and move to other geographies is a given.

However, we believe that it is unlikely that the companies will substantially bring down their focus on the US. Instead, companies may look out for other means to reduce costs or protect margins. That said, Indian IT companies will also need to rise to Trump's challenges. But fortunately, most were already gearing up for this. Trump may have only accelerated their defence.

Movers and Shakers During the Week

Company	10-Mar-17	17-Mar-17	Change	52-wk High/Low
Top Gainers During the Week (BSE Group A)
MAHINDRA FINANCE	275.2	311.25	13.1%	405/231
RELIANCE CAPITAL	535.45	601.4	12.3%	613/358
APOLLO TYRES	178.95	198.9	11.1%	235/139
RURAL ELECT.	152.3	168.3	10.5%	169/76
SUZLON ENERGY	17.15	18.95	10.5%	19/12
Top Losers During the Week (BSE Group A)
COAL INDIA	316.55	298.75	-8.5%	350/272
JAYPEE INFRATECH	11.65	10.7	-8.2%	14/5
JAIPRAKASH POWER	5.8	5.41	-6.7%	7/4
JAIPRAKASH ASSO.	14.95	14.0	-6.4%	17/5
BHARTI AIRTEL	364.8	346.8	-4.9%	401/284

Source: Equitymaster

Some of the key corporate developments in the week gone by

In news from stocks in the pharma sector. Alkem Laboratories was in focus this week. The stock was one of the few losers in an otherwise strong trading session, as the US Food and Drug Administration (USFDA) issued three observations on account of violation of good manufacturing norms to the company's Baddi plant.

The USFDA had conducted an inspection at the company's manufacturing facility located at Baddi, from 2nd March 2017 to 10th March 2017. After inspections, the US regulator issued a form 483 with three observations.

The company said it would put together a detailed response with adequate corrective and preventive measures to address the USFDA Observations and the same is proposed to be filed within the timeline stipulated by the regulator. Alkem Laboratories own and operate 14 manufacturing facilities across five locations in India and two manufacturing facilities in the United States.

Glenmark Pharma was also in focus this week as the drug major announced its Ankleshwar plant received US Food and Drug Administration (USFDA) clearance. Glenmark Pharmaceuticals Ltd's active pharmaceutical ingredients (API) manufacturing plant at Ankleshwar in Gujarat, in which the USFDA had earlier observed certain violations of norms, has now been cleared by the US drug regulator.

The facility received an Establishment Inspection Report (EIR) on Tuesday. The EIR is issued by the USFDA only if it finds the facility to be deemed acceptable.

Moving on to the news from stocks in the Auto sector. According to a leading financial daily, Tata Motors' subsidiary, Jaguar Land Rover (JLR), has started construction work on a £200 million redevelopment of its design and engineering centre at Gaydon in Warwickshire.

The expansion represents the first major construction project at one of the company's non-manufacturing sites in over a decade. The development is intended to become one of the world's foremost automotive product, engineering and design sites - fitting for a company with ambitious plans for continued global growth.

In recent years Jaguar Land Rover has invested heavily in its UK vehicle manufacturing facilities at Castle Bromwich, Halewood and Solihull to support the introduction of all-new vehicles. It has also made significant progress in building its international manufacturing presence over the last year, with a new manufacturing facility under construction in Slovakia and the opening of its plant in Brazil.

Moving on to the news from stocks in the banking sector. SBI received Board approval to raise Rs 150 billion to shore up its equity capital in the bank for next year. The Bank's board gave the approval to raise the same by way of FPO / Rights Issue / ESPS / ESOS/ QIP / ADR / GDR and any other mode or a combination of these on March 15, 2017.

The Board also gave approval to infuse Rs 11.60 billion in its credit card joint venture - SBI Cards Payment Services and GE Capital Business Process Management Services. Moreover, SBI has already started the process to merge its five associate banks with itself from April 1, which would require it to raise funds.

Moving on to the news from stocks in the engineering sector. According to a leading financial daily, Larsen & Toubro's electrical and automation unit has bagged an order worth Rs 5 billion from the Qatar Rail Company (QRAIL) for Phase 1 of Doha Metro. The scope of the order encompasses supply, installation, testing, integration, commissioning and five-year maintenance of network-wide building automation and control systems (BACS) for 37 stations.

Reportedly, the frame agreement is through nine contracts with design & build contractors for the stations and tunnels along multiple lines.

Diversification continues to help L&T (Subscription Required) negotiate and get better terms and margins for projects. Apparently, this is because it is less desperate to win orders as compared to a company which are present in only a couple of sectors. Its reputation, extensive technical prowess, and large skilled workforce have enabled L&T to command a certain premium from customers and vendors alike.

In news from stocks in the telecom sector. According to a leading financial daily, Idea Cellular Ltd and Vodafone India are on the cusp of an initial agreement to merge the two entities. The two firms plan to announce a preliminary agreement as soon as this month. The initial accord is unlikely to spell out the merged entity's shareholding structure as imperative processes, including due diligence are still underway.

According to the article, Kumar Mangalam Birla will be the chairman of the new entity. Vodafone could decide to sell part of its stake in the merged company, while the Birla's would likely offer to buy shares from other investors after the merger to bring their holding to about 26%.

In a statement made in January, Idea and Vodafone Plc confirmed merger talks between the two telecom majors. Aditya Birla Group - Idea's controlling holder - and Vodafone would have equal rights in the new company. The deal, however, would exclude Vodafone's 42% stake in Indus Towers Ltd. A transaction may require the carriers to shed some spectrum and subscribers to ensure regulatory approval under India's competition rules.

And here's an update from our friends at Daily Profit Hunter...

The Nifty 50 Index traded strong for the week. It started the week with a 157 points gap up on state assembly election result. The index remained muted the next day and then opened 45 points gap up on Thursday. The positive momentum continued until Friday opening, when the index again opened 54 points up. But the final day of the week saw some profit booking, ending the Friday session marginally higher. The index finally closed at all-time high with 2.52% gains for the week. The 8,950-9,000 levels, which acted as a strong resistance, will now act as a strong support for the index. You can read the detailed market update here...

Nifty 50 Index at Its All-time High

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