Bernanke's statements boost the markets

Sat, 13 Jul RoundUp

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A few weeks back, the US Fed had hinted about likely pullback of it quantitative easing (QE) program. This had led to significant fall in global financial markets. However, this week Ben Bernanke, US Fed chairman seems to have taken a U-turn. As per his latest comments, the central bank might be continuing the monetary easing program, for a foreseeable period of time. This resulted in sharp rally in the global markets during the week.

US Fed, believes, that it is still far away from achieving its employment and inflation targets. As a result of this, the global markets, gold as well as oil witnessed sharp increase while the US dollar plummeted. Other than this, the US stocks rallied to record high levels. In addition, as two major banks - JP Morgan and Wells Fargo, reported results above the expectations. US markets were up by 2.2% during the week.

After witnessing better momentum throughout the week, European markets were down on Friday by 0.1%, thus trimming down the weekly gains to 2.7%. This was due to the mixed economic data and new concerns about the political risks in the euro zone. Markets were impacted as Portugal's opposition socialists demanded for a renegotiation of the country's bailout terms. The downfall was further fueled by the negative sentiments pertaining to Chinese economic data which will be announced in the next week. However Germany witnessed sharp increase and was the top gainer during the week. Helped by strong performance and enhanced outlook reported by the car maker Daimler, German index was up by 5.2%.

The Indian equity markets closed the week in the green with the shares in the consumer durables and IT sector leading the gainers. The Indian stock markets were up by 2.4%. The result season started on a positive note, with Infosys declaring its June quarter result which was better than the market's expectations.

The Indian stock markets witnessed strong buying in Infosys, Reliance Power, Mphasis, Power Financial Corporation & HCL Technologies stocks during the week.

Source: Yahoo Finance

Majority of the sectoral indices ended in the green with Consumer durables (up 3.2%), IT (up 3.0%) Capital goods (up 2.5%), witnessing the maximum gains. Private Sector Units (PSU) (down 0.6%), Oil and gas (down 1.3%) and Auto (down 2.2%) were the biggest losers during the week.

Source: BSE

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

Growth in industrial production (IIP) for the month of May contracted to -1.6 % vs. 1.9% for the month of April. This negative data raises the questions about the economic recovery in the current fiscal. The manufacturing sector, which contributes approximately 76% of industrial production, fell to -2% vs. 2.8% in the previous month. And the mining sector too contracted to -5.7% vs. -3% in the previous month of April. Only the power sector grew at 6.2% vs. 0.7% in the previous month. The data is much beyond the estimates suggested by various institutes or bodies.

The government also released Consumer Price Index (CPI) inflation data. The June CPI food inflation was at 11.84% while the CPI inflation came in at 9.87%. This was higher than 9.31 % in the previous month.

According to a survey conducted by Associated Chambers of Commerce & Industry of India(ASSOCHAM), proposed investments by domestic and foreign businesses slumped by 75% in FY13. This reflects the tough macroeconomic environment and sluggish reform process that has derailed the capital investment engine in the country. As per ASSOCHAM survey, the country attracted 677 investment proposals valued at Rs 1.4 trillion during 2012-13. This is much lower than 2,828 investment proposals worth Rs 6 trillion received in the previous year. Among states, Maharashtra and Kerala attracted the largest share of investments at 20% and 10% of overall proposals in FY13. However, states such as Andhra Pradesh, Haryana, Karnataka, and Tamil Nadu witnessed a fall in proposed investments during the year.

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

Infosys Ltd, India's second largest software exporter has posted a 0.8% QoQ decline in net profit for the 1QFY14. Contract wins and foreign exchange earnings have boosted earnings for the quarter. The revenues came in at Rs 113 bn which was a growth of 17% YoY and 8% QoQ. Infosys has left the FY14 dollar guidance unchanged. The company also maintained its forecast of 6%-10% revenue growth for the financial year 2014. During the quarter, the company maintained its margins and continued with making investments in the business. However, going ahead margins would come under pressure on account of compensation increase for FY14. Further, Infosys' top client contributed 3.9% to the company's total revenues during the quarter. While the company observed gross addition of 10,138 employees, the attrition rate at 16.9% remained a concern during the quarter.

Wockhardt Ltd has been facing rough weather since some time. Recently, the has received an import alert from the UK (United Kingdom) drug regulator MHRA (Medicines and Healthcare products Regulatory Agency)on its Waluj facility located at Aurangabad. This is the same facility where some time back the USFDA (United States Food and Drug Authority) had issued import alert. As per the company, this alert accounts for approximately Rs 1 bn of the sales of the company. However, the company is looking for alternative site transfers immediately and thus expects very negligible impact due to this ban.

As per the leading source, the leading engineering company, ABB India Ltd, the power equipment manufacturing company, has bagged a contract from a Dutch firm, Fastned, which builds electric-vehicle charging stations. This will aid the company in supplying over 200 electric chargers. As per company's statements, Fastned is building a network of 200 electric-vehicle charging stations along highways in Netherlands and will be equipped with several multi-standard fast chargers. The first ABB terra fast chargers are expected to be delivered in September and the construction of the stations, which will have solar canopies, is scheduled to be completed by 2015.

This comes as a positive move for ABB Ltd. The company has observed mixed earnings performance for 1QCY13 with a decline in profits, but a good show on the topline front. Short cycle orders have aided in strong topline growth, while higher interest costs have impacted the profitability growth. The company has witnessed pressures on the orders front due to the absence of large size orders. While it's a long way to go for the company to clock steady-state margins, such contracts may help boost the order book and add up to the earnings performance of the company. ABB India Ltd's share is up by 0.5%.

Movers and shakers during the week

Company	5-Jul-13	12-Jul-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Infosys	2,454	2,802	14.2%	3010/2163
Reliance Power	68	77	13.3%	108/59
Mphasis	372	413	10.8%	513/335
Power Fin Corp	138	149	8.3%	227/125
HCL Tech	794	860	8.3%	863/473
Top losers during the week (BSE-A Group)
Gitanjali Gems	183	142	-22.6%	650/142
MMTC Ltd	80	62	-22.5%	817/62
GSK Consumer	5,582	4,687	-16.0%	6020/2179
Strides Acrolab	868	771	-11.2%	1225/702
Jet Airways	445	416	-6.6%	689/321

Source: Equitymaster
According to a leading financial daily, Tata Steel has reported a 26% jump in sales at 2.005 million tonnes (MT) in the first quarter of this fiscal ended June 30. The company had sold 1.585 MT during the April-June quarter of previous fiscal and 2.279 MT during the January- March, 2013 period. Production of saleable steel of the company also rose by 23% to touch 2.145 MT during the April-June period of the current fiscal from 1.740 MT a year ago. Tata Steel had produced 2.263 MT saleable steel during January-March 2013 quarter. Total hot metal production of the company was higher by 20% to 2.464 MT during the reporting quarter compared to 2.053 MT a year earlier. Crude steel production was also accordingly up by 22% to 2.223 MT during the April-June quarter of the current fiscal compared to 1.817 MT a year earlier.

As per the financial daily, Bharti Airtel has sued telecom ministry for serving penalty notice to the company. The department of telecommunications (DoT) had received demand notice of Rs 6.5 bn. Reportedly, the company believes that the penalty charged is "devoid of any merit", and thus the department has no clear justification on the stated facts and in law. DoT said that it had found that the company was routing its national and international calls as local calls (SLD) This activity is alleged to have caused a loss to the government exchequer and state run Bharat Sanchar Nigam Ltd (BSNL) in 13 service areas

Pharma major Sun Pharmaceutical recently announced that the USFDA (United States Food and Drug Administration) has given final approval to its subsidiary Caraco for an Abbreviated New Drug Applications (ANDA) for generic version of Prandin tablets. The drug is generically known as repaglinide. Sun Pharma was first to file the drug and thus is eligible for 180-days exclusivity. The said drug is therapeutically equivalent to Novo Nordisk's Prandin brand. The annual sales of this drug are $ 200 m and are used for patients suffering from Type II diabetes.

The global stock markets had a good week after the Bernanke's statement on the monetary easing program. This had helped rally in the Indian markets too. However, the recent poor economic data might impact the Indian markets negatively.