Global stock markets end in the green

Sat, 6 Jul RoundUp

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Global stock markets have been volatile for the past several weeks on worries about a credit crunch in China and, more long term, fretting about how assets will perform should the US Federal Reserve begin to taper its US $85bn a month bond purchases. Chinese interbank lending rates have returned to normal levels, easing some concerns about the health of the world's second-biggest economy.

US stocks moved higher in a shortened trading week. Positive economic data appeared to drive stocks higher. Stocks jumped after the US Labor Department reported that employers had added 195,000 jobs in June, slightly above consensus expectations. US markets were up by 1.5% during the week.

In Europe, two heavyweight central banks (BOE and ECB) have stepped forward to apply some monetary balm by making clear interest rates will stay at unusually low levels for a long time. The dovish signals from the Bank of England and European Central Bank have boosted stocks and clobbered the currencies for which they are responsible. The stock markets in UK posted the sharpest gains of 2.6%.

The Indian equity markets closed the week in the green with the shares in the FMCG space leading the gains. The Indian stock markets were up by 0.5%. The Chinese market was also up by 1.4% over the week. The Japanese market registered strong gains and closed the week up 4.6%.

The Indian stock markets witnessed strong buying in Jaypee Infratech, Reliance Communication, United Breweries, & TTK Prestige shares during the week.

Source: Yahoo Finance

Majority of the sectoral indices ended in the green with FMCG (up 6%), pharma (up 2.7%) Auto (up 1%), witnessing the maximum gains. Private Sector Units (PSU) (down 2.2%), Banking (down 1.7%) and Metal (down 1.4%) were the biggest losers during the week.

Source: BSE

Now let us discuss some of the economic developments of the week gone by.

India's manufacturing sector activity remained broadly flat in June as new orders declined for the first time in over four years and power cuts and fragile economic conditions weighed on the sector's performance. The HSBC/Markit purchasing managers index for the manufacturing industry stood at 50.3 in June, slightly higher than 50.1 in May. However, output witnessed a decline for the second consecutive month. For the last two months, the index is barely managing to remain above the crucial 50 mark that divides growth from contraction, but has held above the mark for over four years now. The May PMI reading for the manufacturing sector was the lowest since March, 2009. During the month of June, the total new orders fell for the first time since March, 2009. Export business, however, rose at the sharpest rate since January as demand from key foreign clients strengthened.

The pace of growth in India's services sector shrank sharply in June on deceleration in new business, signaling that sustained economic recovery is yet to set in. The seasonally adjusted HSBC Purchasing Managers' Index (PMI) for services posted a reading of 51.7, compared with May's three month high of 53.6. Service sector activity grew at a slower clip as new business flows moderated, which made businesses less optimistic about the year ahead.

Now let us move to some news from the corporate world.

Auto major Mahindra & Mahindra (M&M), has raised prices of some vehicles its portfolio by an average 0.5%, effective July 2013. The company's attempt to pass on increase in input costs to customers comes even as volume offtake took a hit in the month of June 2013. The company's auto sales numbers for June 2013 slid by 7.82% at 38,092 units as against 41,322 units during June 2012. Passenger Vehicles segment (which includes the UVs and Verito) registered a drop of 12.9%, having sold 17,232 units in June 2013, as against 19,792 units during June 2012. M&M's domestic sales stood at 36,207 units during June 2013, as against 38,951 units during June 2012. The 4 wheeler commercial segment which includes the passenger and load vehicles registered a 5% YoY growth.

Movers and shakers during the week

Company	28-Jun-13	5-Jul-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Jaypee Infratech	21	26	25.3%	62/20
United Breweries	683	856	25.3%	1023/473
TTK Prestige	2,982	3,586	20.3%	3956/2841
GSK Consumer	4,748	5,571	17.3%	6020/2179
Reliance Communication	116	135	16.8%	137/47
Top losers during the week (BSE-A Group)
Gitanjali Gems	262	183	-30.1%	650/193
MMTC Ltd	108	80	-26.4%	890/84
Guj Mineral Development Corporation	125	113	-9.1%	222/115
Hindustan Copper	72	66	-8.6%	311/65
Jaiprakash Power	19	17	-8.5%	47/16

Source: Equitymaster

Lupin is planning to expand its footprint in Latin America. It will preferably acquire companies in Brazil, Mexico, Argentina and Chile. All these acquisitions will be financed by internal accruals. The pharma major has a history of acquiring firms that suit its business plans, the last acquisition being Japan's speciality injectables company I'rom Pharmaceutical in 2011.The Mumbai-based Company is also targeting to buy brands in key therapeutic areas. In this regard, it is in talks with several companies in the US. Lupin is the 5th largest and fastest growing generics player in the US (5.1% market share by prescriptions, IMS Health) and the 3rd largest Indian pharmaceutical company by sales. The Company is also the fastest growing top 10 generic pharmaceutical players in Japan and South Africa.

Larsen & Toubro's (L&T) subsidiary, L&T Construction has secured new orders worth Rs 30.6 bn across various business segments in June 2013. The Company's Building and Factories Business has secured orders worth Rs 18.1 bn for the construction of an office space, residential building and a hospital from customers across the country. The Water and Renewable Energy Business has bagged orders worth Rs 6.3 bn. In the Power Transmission and Distribution Business, orders worth Rs 4.4 bn have been received from the Delhi Metro Rail Corporation. Additional orders have also been received in domestic and international markets of ongoing projects. New orders worth Rs 1.8 bn have been secured in Heavy Civil infrastructure and Metallurgical and Material Handling Businesses from various ongoing projects

The foreign direct investment (FDI) limit in the telecom sector has been approved to be raised to 100% by the Telecom Commission (TC), the highest decision-making body in the telecom ministry. Now, the approval of the cabinet is being awaited to allow 100% foreign ownership in the telecom sector. Currently, the FDI limit stands at 74%. Herein, the automatic route allows for 49% of investment in an entity. For further stake increase, an approval is required from the Foreign Investment Promotion Board (FIPB). It must be noted that the telecom sector is currently reeling under the burden of a huge debt of nearly Rs 1.9 trillion. Allowing more FDI in the sector is likely to provide some relief to the sector.

State Bank of India (SBI), the country's largest lender has ruled out the possibility of a cut in its base rate. The Finance Ministry has urged the public sector banks to consider reducing lending rates to stimulate credit growth in the system. However, SBI would prefer to maintain status-quo since the base rate of the bank already stands lowest in the industry at 9.7%. Lenders have remained hard-pressed to pass on the rate cut benefits to end consumers. That's because the increased provisioning norms and the spike in cost of money have taken a toll on the banks' margins. Nonetheless, public sector lenders other than SBI have reassured the Ministry to review their lending rates and may be re-align them with SBI's rates. The average base rate of all other banks fall in the range of 10.2%-10.25%. SBI stands ahead of the curve, offering the lowest rate at 9.95% on its home loan portfolio as well.

The global stock markets had a good week after the ECB and BOE said that will continue their monetary easing program. The strong jobs data in the US also increased the likelihood that the U.S. Federal Reserve will begin cutting its massive monetary stimulus, known as quantitative easing, as early as September, favoring the U.S. currency. This might be bad news for India as foreign capital might flow out of the country and batter the Rupee further.