A Mixed Week for Global Markets

Sat, 2 Apr RoundUp

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Global markets ended mixed this week. US Fed Chairperson Janet Yellen's statement that the Fed would be cautious while hiking interest rates were were treated positively by markets. Despite weak economic data from around the world, markets have emained resilient largely due to the assurances by central banks that easy money policies will continue for the foreseeable future. The US Dow Jones Industrial Average was up 1.1% for the week.

However, the European markets were down this week. The British FTSE, the German DAX and the French CAC, ended down 0.7%, 1.6% and 3.2%. Asian markets were mixed. The benchmark Chinese index was up 0.5% for the week while the Hong Kong was down 0.8%.

Crude oil prices fell 4.5% this week as tensions between Saudi Arabia and Iran have led markets to believe OPEC will be unable to arrive at a deal to limit oil supplies.

Back home, the Indian markets were up 1.3% for the week. The markets rallied on the anticipation that the Reserve Bank of India (RBI) may cut interest rates at it's policy meeting on 05 April.

Key World Markets During the Week

Sectoral indices ended mixed for the week. The realty sector led the gains while the pharma sector led the losses.

BSE Indices During the Week

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

The government has set the target of 'zero import' of urea in the next three-four years. This comes as India recorded highest-ever production of fertilizer at 245 lakh tonnes during 2015-16.

This record production is said to likely to reduce the import of the fertiliser by about 20 lakh tonnes, thereby saving at least Rs 40 billion for the government.

Fertilizer minister Ananth Kumar regarding this achievement said that we need about 310 lakh tonnes of urea annually and to meet this demand we import about 80 lakh tonnes. However, this will reduce to 60-65 lakh tonnes this year. He further added that now the target should be how we can become self-sufficient in the next three years and may even reach a level of production to export it.

It was reported that the above remarkable achievement in domestic urea production took place in the last nine months after the government took a series of policy decisions.

The Reserve Bank of India (RBI) has revised the overseas borrowings or external commercial borrowings (ECB) framework for Indian firms.

As reported, RBI has expanded the source of funding for the infrastructure sector by allowing them to raise shorter-term external commercial borrowings (ECBs).

RBI in its circular said that the companies in infrastructure sector, non-banking financial companies-infrastructure finance companies (NBFC-IFCs), NBFCs-asset finance companies (NBFC-AFCs), holding companies and core investment companies (CICs) will be eligible to raise ECB under Track 1 of the framework. The framework comes with minimum average maturity period of 5 years and is subject to 100% hedging.

The central bank further said that for the purpose of ECB, exploration, mining and refinery sectors will be deemed as in the infrastructure sector. These companies will be able to access ECB as applicable to infrastructure sector.

It further noted that companies in infrastructure sector shall utilize the ECB proceeds raised under Track I for the end uses permitted for this Track. However, NBFCs-IFCs and NBFCs-AFCs will be allowed to raise ECB only for financing infrastructure.

In view of India's comfortable foreign exchange reserves, we believe that the decision to ease the guidelines is a step in the right direction. However, the companies opting for this route must be cautious of the fact that a depreciation in the value of the rupee vis-a-vis the US Dollar could significantly impact the cost of borrowing (in the absence of hedging).

The finance ministry extended the safeguard duty on steel imports until March 2018. Earlier, the government had imposed a provisional safeguard import duty on steel products in September 2015 for a period of 200 days. This has been extended till March 2018.

This step is taken to protect the domestic steel industry from the cheap Chinese imports. Reportedly, steel imports grew 71% in fiscal year 2015, with China accounting for almost 36% of the total imports.

This is in addition to various measures taken previously to protect the domestic steel industry. In February, the government had imposed a minimum import price (MIP) on 173 steel products ranging between $341 to $752 per tonne. Further, a bailout package is being framed and will be ready in the next two months. This too will provide a cushion to the steel manufacturers.

Movers and Shakers During the Week

Company	23-Mar-16	1-Apr-16	Change	52-wk High/Low
Top Gainers During the Week (BSE A Group)
Jaiprakash Associates	7	9	19.6%	27/6
Adani Power	30	35	15.4%	50/20
HDIL	68	77	14.4%	143/54
DLF	107	121	13.4%	169/73
Allahabad Bank	51	58	12.1%	110/40
Top Losers During the Week (BSE A Group)
Mphasis	496	467	-5.7%	534/363
Ipca Labs	606	573	-5.5%	888/525
Bharti Airtel	350	335	-4.3%	452/282
M&M	1,243	1,195	-3.9%	1,441/1,092
United Spirits	2,586	2,498	-3.4%	4,029/2,232

Source: Equitymaster

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

NTPC has commissioned the Unit - 4 of 195 MW of Muzaffarpur Thermal Power Station of Kanti Bijlee Utpadan Nigam (A subsidiary Company of NTPC) on March 24, 2016. With this, the total installed capacity of Muzzafarpur Thermal Power Station has become 610 MW and the total installed capacity of NTPC group has become 45,993 MW. The plant is owned by Kanti Bijlee Utpadan Nigam Ltd, a joint venture between NTPC and Bihar State Power Generation Company Ltd, in which the two companies have 64.57% and 35.43% shares, respectively.

In another development, NTPC also commissioned Unit I of 250 MW capacity of the Nabinagar Thermal Power Station in Bihar. The power plant is owned by a subsidiary of NTPC called the Bhartiya Rail Bijlee Company Ltd. NTPC now has a total installed capacity of 45,798 MW. During the fiscal 2015-16, NTPC's generation capacity has increased by 1,200 MW. The company recently reported an 8% YoY decline in revenues for the quarter ended December 2015, while profits declined by 19% YoY (Subscription Required).

Glenmark Pharmaceuticals has received final approval from the US Food and Drug Administration (USFDA) for oral contraceptives and leukemia treatment injection.

The company stated that it has been granted final approval by the USFDA for drospirenone and ethinyl estradiol and for levonorgestrel tablets.

Drospirenone and ethinyl estradiol are generic versions of Bayer Healthcare's Yasmin tablets. Further, levonorgestrel tablet is generic version of Teva Branded Pharmaceutical Products' Plan B one-Step tablets.

As per IMS data, Yasmin tablets achieved annual sales of around US$131.7 million and Plan B one-Step tablets achieved annual sales of around US$45.2 million for the 12 months' period ended January 2016.

Moreover, the company stated that it has also got USFDA's final approval for bendamustine hydrochloride injection, therapeutic equivalent to Cephalon, Inc's Treanda. Under the terms of prior settlement agreement, the company will be able to launch bendamustine hydrochloride injection on November 1, 2019, or earlier under certain circumstances. According to IMS Health, sales data for the 12 months to January 2016, Treanda achieved annual sales of around US$92.6 million.

Glenmark's current portfolio consists of 112 products authorized for distribution in the US marketplace and 57 ANDAs (abbreviated new drug application) pending approval with the USFDA. The company does not have any regulatory issues, as seen for most of the pharma companies. As we had stated in our result analysis report of the company (subscription required) ... 'With robust filings in place, we believe the company will be able to overcome the impact of global headwinds over a period of time.'

Bharat Heavy Electricals Ltd (BHEL) has successfully commissioned the second 40 megawatt (MW) hydropower generating unit at the Teesta low dam hydroelectric project (HEP) stage IV in West Bengal. This comes just a month after the commissioning of the first 40 MW hydroelectric generating unit by the company for the same project.

Teesta HEP is being set up by National Hydroelectric Power Corporation (NHPC) on the river Teesta. The order for Electrical & Mechanical (E&M) works of four units of 40 MW each was placed on BHEL by NHPC. BHEL's scope of work in the project consists of design, manufacture, supply, installation and commissioning of complete E&M works including vertical shaft Kaplan Turbines. The equipment for this project is supplied by BHEL units at Bhopal, Jhansi, Rudrapur, Mumbai & Bengaluru. Further, the execution of work on site is being carried out by the company's power sector eastern region.

For NHPC, BHEL is also currently executing the 4x200 MW Parbati HEP Stage-II in Himachal Pradesh and the 3x110 MW Kishanganga HEP in Jammu and Kashmir.

Significantly, hydro generating sets of more than 29,000 MW of various ratings have been contracted on BHEL in India and abroad. In India, the company has so far commissioned nearly 400 hydro generating sets of various ratings with a cumulative capacity of around 20,000 MW.

One shall note that BHEL has bagged orders worth Rs 120 billion in the March quarter so far. This includes orders from the state electricity boards (SEBs) from which the company is witnessing a spate of orders. The company seems to clock further order growth on this front in the coming days. For our latest view on the stock, please visit here (subscription required).

Sun Pharmaceuticals has announced acquisition of 14 established prescription brands from Novartis AG and Novartis Pharma AG in Japan.

According to the agreements entered between the parties, a wholly-owned subsidiary of Sun Pharma will acquire the portfolio consisting of 14 established prescription brands from Novartis for a cash consideration of US$293 million (Rs 19 billion). It was reported that these 14 brands have combined annualised revenues of approximately US$160 million and address medical conditions across several therapeutic areas.

The acquired brands will be marketed by a reliable and established local marketing partner under the Sun Pharma label. As per the terms of the agreements, Novartis will continue to distribute these brands for a certain period, pending transfer of all marketing authorisations to Sun Pharma's subsidiary.

With this aforesaid acquisition, Sun Pharma will be able to gain a strong foothold in Japan, the world's second largest drug market after the US. This deal marks Sun Pharma's second association with Japan. Earlier, the company had acquired Ranbaxy Laboratories from Japan's Daiichi Sankyo in 2014.

This development will surely help Sun Pharma diversify its global presence and further provide a window to widen its product portfolio in the future. To know our view on the stock of the company, you can read our result analysis of the company here (subscription required).

Tata Steel has put its entire UK business on the block in order to stem heavy losses.

Reportedly, after a marathon board meeting in Mumbai, the board of the company stated that the financial performance of its UK arm had deteriorated substantially in recent months. As a result, the company is now exploring all options for portfolio restructuring, including the potential divestment of Tata UK, in whole or in parts.

Company's European business has remained under pressures, owing to the UK steel crisis. Cheap imports from China and some other countries such as Russia and South Korea is putting intense pressure on the company's margins. Reportedly, according to the Times, a 400-million-pound rescue deal to sell the plant to Greybull Capital is "on track". To read our view on this development please click here.

HCL Technologies has agreed to acquire engineering solutions company Geometric in a share swap deal valued at US$150-200 million. HCL will acquire the 31.09% stake held by Godrej Investments and Godrej & Boyce Manufacturing Company.

For HCL, the deal will strengthen its engineering services capability, a segment that reportedly earned the company over US$1 billion revenue in 2014-15. Geometric provides services in product lifecycle management, global engineering services and offshore software development solutions. Geometric has customers like Dassault, Volvo and Aerolia, a part of the Airbus group.

HCL Technologies reported a 2.4% QoQ increase in sales and an 11.2% QoQ rise in net profits (Subscription Required) during the December 2015 quarter.

In the coming week, the markets are anticipating a cut in the repo rate by the RBI. But will the RBI oblige? And if so, then what will be the quantum of the cut? What do you think?

While the market seems to be expecting a 25 basis points rate cut, Ajit Dayal, in a recent article in The Honest Truth is willing to challenge the consensus. If you want to know more about why he thinks 1% rate cut is possible, click here.

However, this is just a part of the picture. In a recent article in Vivek Kaul's diary, Vivek Kaul makes a point exactly the opposite of what Mr Dayal is making, i.e., RBI should not cut the repo rate by 1%; or at least not all at once. His reasons are equally sound - the strongest being that banks have not passed the cut in deposit rates to the lenders and that the entire thing needs to be viewed from the point of view of savers as well. To know more about Vivek's views on interest rates, please click here.

Who do you think is right - Ajit or Vivek? Click here to vote.

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

The Nifty index started the weak on a jittery note but held above 7,600 and ended the week on a flattish note. It seems that the index is trapped in a range of 7,600 to 7,800. And until it moves decisively out of this range, the choppy action will continue. Traders should take cues from the RBI policy meeting scheduled early next week. You can read the detailed market update here...

Indian Indices End the Week on a Bearish Note

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