India leads the world markets

Sat, 20 Mar RoundUp

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All world markets expect France and Brazil gained during the week. However, the gains during the week were subdued. During the week one of Germany's central bank's directors said that Greece should declare insolvency if it is not able to service its debt. This signals a hard line against help for heavily indebted EU countries. The concern here is that bailing out Greece would encourage the weak euro zone members to rely on the EU to fix their problems. This would let their governments shirk from the responsibilities of taking stiff measures that are required to control spending. RBI on Friday announced that it would raise repo and reverse repo rates by 25 basis points. This brought jitters to the world's equity markets. The concern being that this could encourage other high-growth countries to follow suit to control inflation. Higher interest rates could however, make loans more expensive and hurt profits.

India was the top performing index in the world this week with a gain of 2.4%. Amongst the remaining world markets, Singapore gained 1.2% while US gained 1.1% during the week. China and Hong Kong closed higher during the week by 1.1% and 0.8% respectively. Japan closed the week with a gain of 0.7% while Germany was up by 0.6%. UK markets closed in the green this week, up 0.4%. The markets that closed in the red this week were France and Brazil. While France was marginally in the red, Brazil fell by 0.7%.

Source: Yahoo Finance

Moving on to the sectoral indices in India - Barring stocks in Realty, stocks in all other indices closed the week in the green. BSE-Metal index was the top gainer for the week with an increase of 3.6%. BSE-Oil & Gas and BSE-IT indices followed close with a gain of 3.5% and 3.3% respectively. BSE-Pharma and BSE-Sensex with the gain of 2.7% and 2.4% were amongst the best 5 indices of the week. While BSE-Reality index was the only loser of the week with a fall of 1.4%, BSE-Smallcap and BSE-PSU indices turned in a subdued performance with a gain of 0.7% each. BSE-Power and BS-FMCG were the other laggards in performance this week with a gain of 0.6% and 0.5% respectively.

Source: BSE

Engineering major L&T bagged a Rs 20.4 bn order from the state run Mangalore Petrochemicals. The latter is a unit of ONGC. The scope of the contract includes setting up a new complex, which will manufacture aromatic products like paraxylene and benzene at the Mangalore Special Economic Zone in Karnataka. The project is likely to be the country's single largest paraxylene unit and is expected to be ready for commissioning by December 2012. While a positive for L&T, resulting in higher sales in the long term, the key would be timely execution. In fact, the company's overall sales were negatively impacted in 3QFY10 as execution of various projects went through rough patches leading to consequent delays.

NTPC plans to double its gas based power generation capacity to over 8,000 MW by 2017. NTPC's current gas based power generation capacity is 3,955 MW. The expansion in capacity will be possible if the company is assured of supply of the fuels by petroleum ministry from all sources including RIL's KG-D6 fields. In an effort to expand its gas based power generation capacity, NTPC plans to add 1,000 MW to its gas based plant located in Kerala and 700 MW to another plant located in Rajasthan. In addition, the company is also contemplating adding 1,400 MW to its Auraiya plant in UP and another 1,400 MW to its Badarpur plant. NTPC aims to increase its power generating capacity to 75,000 MW in FY 2017. It may be noted that the company currently has an installed capacity of 31,134 MW.

The flagship product of the joint venture between Mahindra & Mahindra and Renault, the Logan, is likely to see some alterations made to it. This would mainly be due to poor sales volumes of this car since its launch. It has been reported that M&M had been asking its partner to make certain changes to the vehicle for a while now. This includes shortening the length of the car as well as increasing localization. However, Renault has not been in favor of making these alterations, as it did not wish to make changes to the vehicle only for one region (India). This is considering that the car is sold worldwide and is believed to be selling well. The Logan in its present form, measures about 4.2 metres. As per reports, the company is internally evaluating the shortened version of the car, which is likely to be less than 4 metres long. This would enable the company to price the car at a more attractive rate considering that it would qualify for the lowest excise slab of 10%. Renault is believed to already have set an ambitious target of selling 15,000 units during FY11. During the year till date i.e. from April to February this year, the JV company sold barely 6,000 units.

Bharti Airtel has issued a term sheet to banks to raise up to US$ 8.5 bn in offshore loans to fund the Zain acquisition deal. As per the report, the six-year offshore facility has four tranches and carries a blended average life of 4.75 years, with a margin ranging from 176 basis points to 179 bps over Libor. This means that the company has opted not to borrow from the domestic market. It is believed that the company has received strong response from offshore lenders. In addition, it is reported that these funds would reduce execution risk (considering that payments would be made in foreign currency).

Coming to global markets, the news that Greece may have to seek assistance from institutions like the IMF to carry out its planned deficit cuts has led to investors staying on the sidelines. Greece has expressed doubts on its ability to resolve its debt problems if it has to continue borrowing money at high interest rates. Greece, which routinely has to pay a premium of at least 3% more than benchmark rates to borrow money, acknowledged last year that it had cheated with its economic statistics to hide the depth of its fiscal problems. Greece's new austerity measures are intended to bring its deficit down from 12.7% to 8.7% of GDP this year.

In another news, US has kept up pressure on China to let the Yuan appreciate as the latter discussed possibilities with its exporters of coping with a stronger exchange rate. Apprehensions of China's artificially pegged currency rate leading to overcapacity problems and asset bubbles have led to several economies demanding China to unshackle its currency from a 20-month-old peg against the US dollar.

Movers and shakers during the week

Company	12-Mar-10	19-Mar-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Jai Corp Ltd	237	274	15.6%	350 / 78
Idea Cellular	60	69	14.4%	92 / 46
Indian Hotel	94	103	10.3%	110 / 36
Chennai Petro	254	277	9.1%	281 / 88
Hindustan Copper	483	525	8.6%	657 / 98
Top losers during the week (BSE-A Group)
IndiaBulls Real Estate	174	160	-8.1%	298 / 92
Mahindra & Mahindra	1,137	1,073	-5.6%	1,197 / 358
Moser-Baer India	79	75	-5.1%	115 / 44
Indian Overseas Bank	93	89	-4.4%	141 / 44
Kotak Bank	77	746	-4.0%	878 / 259

Source: Equitymaster
Coming to economic news, as per reports, Food inflation numbers for the week ending March 6 were announced recently. Food inflation stood at about 16.3%, which is lower as compared to the preceding week's figure of 17.8%. This decline has been mainly due to lowering prices of pulses and vegetables. While vegetable prices declined by about 10% as compared to the previous week, prices of pulses decreased by about 4%.

While food prices managed to decline to a certain extent, this decline was offset by the increase in fuel inflation, which stood at 12.7% as compared to 11.4% during the previous week. This was mainly led by an approximate 17% and 15% increase in petrol and diesel prices. The rise in fuel prices is a result of the budgetary announcement of a hike in excise and customs duty on petrol and diesel. It may be noted that food inflation number would have gone down even more had it not been for the rise in fuel prices.

While nearly all the world markets have gained over the week, we believe that due to higher inflation, rising interest rates would result in consolidation in the markets. Further, if Greece is allowed to fail, it will raise the risk profile of the region resulting in higher interest costs, putting further pressure on the EU economies.