Global markets slide

Sat, 28 Mar RoundUp

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Global equity markets bore the brunt of increased geopolitical tension after air strikes in Yemen by Saudi Arabia and its Gulf Arab allies. Therefore barring a few Asian indices, all the other major indices tumbled in the week gone by. The US and UK markets were down by more than 2% each. Even Germany and France markets fell by 1.4% and 1%, respectively for the week. Oil prices also rose above $50 a barrel on concerns that the conflict would close a key shipping route for oil tankers located between Yemen and Djibouti.

Among Asian indices, China, Singapore and Hong Kong managed to hold their heads above water. The Chinese index was the biggest gainer on expectations of fresh money inflows after its government waived off the $1 bn limit on foreign fund investment under the Qualified Foreign Institutional Investor Scheme. The Japanese index was down by 1.4% in the light of nationwide consumer price index hitting zero and sparking fresh fears of deflation.

Source: Yahoo Finance

Rising tensions in the Middle East exerted pressure on Indian indices that fell for a third week in a row, by 2.8%. All the sectoral indices have ended in red with IT, banking and energy stocks being the biggest losers for the week.

Source: BSE * Closing on 28th February 2015

In line with weakening prices globally, the government announced the first ever reduction in domestic natural gas prices. Effective 1st April, natural gas price has been slashed by 9% to $4.56 per million British thermal units (mmBtu) based on gross calorific value. In October 2014, the government had fixed the price of natural gas at $5.05 mmBtu on the basis of international hub rates. On the basis of net calorific value, the price would be reduced from $5.61 per mmBtu to $ 5.01 per mmBtu. The reduction in natural gas prices is expected to benefit the power and fertilizer sectors.

With an aim to revive stranded power projects, the Cabinet approved financial support to private companies for importing liquefied natural gas (LNG). Reportedly, 31 power stations having a combined capacity of 14,305 MW, that have been hit by lack of gas, can bid from the Power System Development Fund (PSDF) to operate at 30% of the installed capacity using imported LNG gas. PSDF collects fines from states for grid indiscipline and currently has a kitty of Rs 95 bn but the support has been capped at Rs 35 bn for FY16. Under the arrangement, power companies that successfully bid for financial support will receive LNG at a reduced price which will be borne by the importer and the transporter. This is likely to generate 79 bn units of electricity valued at Rs 420 bn and enable debt laden companies to pare debt.

The government has allocated the development of 17 mega food parks spread across the country to state governments and private firms. Out of the total project cost of Rs 20.3 bn, the central government grant will be Rs 8.5 bn. A mega food park extends facilities to food processors, farmers, retailers and exporters. Food processing units are expected to invest Rs 40 bn for their set-up in the parks.

ONGC has earmarked an investment of nearly Rs 400 bn in the KG Basin over the next 4 years. The company plans to explore 25 million standard cubic meters per day (mmscmd) by the end of 2018. ONGC has also said that it will look for investment opportunities in oil exploration by 2019. Additionally, the company wants to oversee Corporate Social Responsibility and enhance skill development in Krishna East and Godavari West. These programs will take place in association with the Andhra Pradesh Government.

Tata Motors owned JLR group is planning to invest about 600 m pounds in the United Kingdom in its Coventry Headquarters. Two-thirds of the proposed investment, of around 400 m pounds likely to be invested towards up-gradation and introduction of new models while the balance in the creation, engineering and manufacturing of low-ultra emission products Tata Motors had earlier stated that it is planning to manufacture the Land Rovers in its Pune plant.

<>IPCA Labs have received a US FDA import alert for two of its units located in Pithampur and Silvassa. However as respite, two drugs from the Silvassa unit, that contributed about 70% to US sales in FY14, have been exempted. In the past, IPCA's Indore and Ratlam units too had received similar alerts.

In the domestic market, Glenmark has been prohibited to sell anti-diabetes drugs as its pricing breaches the patent of US drug maker Merck Sharp and Dohme (MSD). Glenmark's anti-diabetes drugs namely Zita and Zita-Met are being sold at less than a third of the price of U.S Company, MSD's Januvia and janumet. The reason the price of the latter's medicine is high is because of the custom duty paid by the company. However, Glenmark will be allowed to sell ant-diabetic drugs that are already present in the market.

On a positive note, Suven Life Sciences has won three patents from Canada, Japan and Korea. The patents are for drugs used in the treatment of neurodegenrative diseases and have validity up to 2030. Till now, Suven has secured a total of 18 grants from Canada, and 16 from Japan and Korea each.

<>Suzlon has received a shareholders' approval to sell German company Senvion and also to issue 1 bn preferential shares. The company was acquired by Suzlon in 2007 for a consideration of Rs 73 bn. The proceeds from the sale will be used to pare the company's debt.

Global factors such as geo-political tensions and Fed rate hike are expected to impact equity markets. Back home, the outcome on the land acquisition reforms and further rate cuts by RBI will set the tone for future course for domestic markets. However investors should not get swayed away by these broad macro events but rather base their decisions on individual company's moat and financial performance.