A mixed week for global markets

Sat, 26 Jun RoundUp

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The past week was a mixed one for stocks across the world. While most of the Asian markets fell on a weekly basis, some key markets reported gains. Sentiments were mixed on concerns over the decline in US housing sales. However, China and Hong Kong bucked the trend with gains of about 2% each. Gains in these markets were on the back of the People's Bank of China signaling an end to the currency's two-year-old peg to the dollar. The Japanese markets declined by about 3% this week on the back of its currency strengthening for the third consecutive week, thereby raising concerns over the impact on exports.

The Indian markets ended on a flat note this week. A substantial portion of the gains that the markets witnessed during the week, were shed on Friday as the BSE-Sensex ended lower by about 155 points (almost 1%). A key reason behind the same was that the India's Prime Minister, Manmohan Singh expressed concerns about the strength of the global recovery. Concerns over the rise in interest rates also played their part in the decline.

Source: Yahoo Finance

Moving on to the sectoral indices in India - Stocks from the IT, banking and engineering space saw the most pressure this week as the BSE-IT, BSE-Bankex and BSE-Capital Good indices reported weekly losses of about 1% each. Stocks from the consumer durables, energy and healthcare spaces were amongst the top gainers this week. The BSE-Consumer Durables Index, the BSE-Oil & Gas Index and the BSE-Healthcare Index reported gains of 3%.

Source: BSE

Moving on to key corporate developments during the week - Stocks of oil marketing companies (OMCs) stole the show this week as BPCL, HPCL and IOC ended higher by 19%, 18% and 13% respectively. Yesterday, the Empowered Group of Ministers (EGoM) approved the hike in fuel prices. While petrol prices have been hiked by Rs 3.5 per litre, diesel prices have been hiked by Rs 2 per litre. Further, LPG cylinder prices have been hiked by Rs 35 per cylinder, while that of kerosene is hiked by Rs 3 per litre. It is reported that the government will continue to subsidise LPG. It has freed petrol prices whereas diesel prices will be market driven.

In other news, a leading business daily had reported during the week that Maruti Suzuki is facing a tough time for its exports. Apart from the overall Euro crisis that is haunting the region, other factors such as the weaker Euro as well as the withdrawal of scraping incentives are reasons for the same. In fact, the company has lowered its export target by 5% for FY11 due to these problems. But, the target will remain flat as compared to FY10. The company does not expect a decline in exports during the current fiscal as it plans to focus on other geographies. These include South Africa and Algeria. However, it may be noted that Maruti enjoys better margins domestically. Moreover, this year the domestic market is expected to grow by 14% to 15%. As such, the possibility of the company reducing margins is less. However, the same depends on many other factors such as input costs, amongst others. As per the company's management it is aiming to hold its 50% market share this year and it will be able to produce 1.2 m units.

Moving on to news from the FMCG space, during the week, a leading financial daily reported that there are concerns looming over Godrej Consumer Product Limited's (GCPL) integration of its buyouts. The company has acquired as many as seven companies in the last five years. However, the success of these buyouts lies in their integration. For addressing these concerns, GCPL has set up a separate team to develop, process and execute the integration of GCPL's international empire. The team, headed by Shailesh Deshpande, with experience in handling international operations of Asian Paints, is expected to have a blueprint ready by July. While it seems that GCPL went on an indiscriminate buying spree, the fact is that the company did its due diligence. In fact, all buyouts took place only after confirming whether there was a cultural fit with the company. Needless to say, the crucial part for GCPL will be the smooth transition of its business empire under a common umbrella so that its business can function as a whole and it can exploit the synergies from its acquisitions.

The stock of Reliance Communications saw some action this week on the back of a couple of developments. The key one was that of the company looking to sell nearly 26% stake to French telecom and media major Vivendi. This move would be for bringing down the debt levels of the company. Another company that is believed to be in talks with the Indian telecom operator is UAE based Etisalat. However, since it has an interest in another Indian telecom company, the belief is that the Vivendi stake purchase would be less complicated. However, whatever may be the outcome, the acquirer will have to give an open offer to purchase 20% additional stake in RCom, according to SEBI guidelines. It must be noted that quite a few rumors have been circulating over who will be partnering or buying stake in RCom. Not so long ago, news of a South African major being interested in acquiring RCom was making the rounds. However, all said and done, the outcome of this development will only help RCom strengthen its balance sheet. However, issues over equity and earnings dilution do remain for investors.

Pharmaceutical company, Lupin is reportedly looking for acquisitions in Brazil and Mexico to increase its presence as well as expands its revenue from Latin America. The company plans to spend US$ 50 m (Rs 2.3 bn) to US$ 75 m (Rs 3.4 bn) on each purchase. As per the company's management, Lupin is looking for companies that have a strong marketing relationship with physicians. However, the management has not given a specific timeframe for the same. It may be noted that Latin America and Europe contribute about 10% to the company's revenues. This move would be good for the company as it would allow it to target emerging markets for revenue growth as well as diversify its revenues.

Movers and shakers during the week

Company	18-Jun-10	25-Jun-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
BPCL	522	621	19.1%	658 / 410
HPCL	340	401	18.0%	425 / 298
REI Agro	28	33	17.5%	61 / 26
IOC	334	377	12.9%	395 / 259
Alstom Projects	591	662	12.0%	680 / 438
Top losers during the week (BSE-A Group)
HCL Tech.	387	358	-7.3%	449 / 169
Corporation Bank	550	514	-6.5%	590 / 291
Wipro	410	391	-4.7%	452 / 217
Bharat Electronics	1,787	1,709	-4.4%	2,252 / 1,320
Jindal Steel & Power	670	643	-4.1%	778 / 391

Source: Equitymaster
Just as there were some hopes that India's food inflation was showing signs of cooling off, the numbers are contradictory again. India's food price index rose 16.9% in the year to June 12. This is higher than the previous week's annual reading of 16.1%. This again raises the chances of the RBI hiking interest rates. The RBI's attempts to rein in inflation so far have been unfruitful. Only a good monsoon this year can offer some scope for higher food grain production and lower prices. With the rise in fuel prices, food inflation as well as the wholesale price index (WPI) is likely to rise further. As per the finance ministry, inflation may rise by almost a percentage point or 100 basis points. At the same time, the ministry expects the inflation levels to cool off in about 6 to 9 months, as this move to free up fuel prices will result in lower fiscal and revenue deficits. In May, the inflation rate as measured by the WPI stood at about 10.2%.

During the week, a leading business daily had reported that India requires US$ 1 trillion in the next five years to ramp-up and create infrastructure, for it to record a strong economic growth rate. The Indian economy is expected to grow by 8.5% this fiscal, up from 6.7% in FY09 after the 2008 global financial crisis. In the three years preceding FY09, India's economy had expanded by over 9%.

Even if India receives the funding for the same, one key concern needs to be addressed. That is of execution. The government already has a big fiscal deficit staring in its face. This means all concerned parties will have to get their act together to bridge the gap.