Major global stock markets end in green

Sat, 20 Jul RoundUp

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The major global stock markets ended the week in the green. The US stock markets were up by 0.5% over the week on reports of positive economic data and Mr Bernanke's efforts to calm the waters about its stimulus programme. The factory activity in the Mid-Atlantic region seems to be picking up in early July. Also, new claims for jobless benefits came down last week. The coming week for the US markets will be busy as companies report interim results.

The stock markets in China were down 2.3% and led the losses as economic concerns and lack of policy action to stimulate growth weighed heavy on the markets. The stock markets in Japan gained around 0.2% over the week.

Mr Bernanke's soft stance on tapering boosted the European stock markets and most of them ended in the green. The stock markets in France and Germany up by 1.8% and 1.5% respectively over the week. Among other stock markets, Brazil led the gains (up 4.1% over the week).

Source: Yahoo Finance

Corporate earnings reports continued to influence the Indian equity markets with the Sensex ending the week in the green (up 0.9%). Among sectoral indices, shares in the FMCG and IT sector led the gains, up 10.7% and 6.9% respectively. However, stocks from the banking and realty sector witnessed maximum losses, down 5.7% and 4.6% respectively.

Source: BSE

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

In an attempt to boost investor sentiments and support rupee in a tough economic environment, the Government has raised the FDI (Foreign Direct Investment) ceiling in 12 sectors. This includes telecom and defence sectors. In the financial sector, the FDI limit has been raised for asset reconstruction companies and credit information bureaus. The cap is also likely to be raised in insurance and pension to 49%. However, the move will be depend upon parliamentary approval. For several other sectors such as oil and gas refining and stock exchanges, the government has decided to allow FDI without prior approval. The Government has deferred a decision on raising limit in civil aviation from 49% to 74% on account of security concerns in ground handling and customs.

The Reserve Bank of India (RBI) effectively raised interest rates by raising the cost of borrowing for banks. The RBI increased banks' cost of borrowing short term money through the Marginal Standing Facility (MSF) rate and Bank Rate each by 200 basis points (2%) to 10.25%. However, the policy rates were kept unchanged. Thus, the window of borrowing for banks from it has been narrowed to just 1% of deposits at Rs 750 bn. The move intends to restore stability to the foreign exchange market and make debt securities attractive for global investors. The measure will force banks to look for funds from markets and offer higher rates for depositors. Hence, interest rates on short-term borrowings, commercial papers, deposit rates and loans rates may go up 25-50 basis points (0.25% - 0.5%) in the next few weeks. The home and auto loans will also become expensive.

A lot of companies reported their quarterly earnings during the week Let us take a look at the performance of some of them.

Bajaj Auto Ltd announced results for the first quarter ended June 2013. The company reported a mere 1% YoY growth in total revenues for the quarter on account of the persistently sluggish conditions in the domestic auto industry. However, a weaker rupee helped the company especially in terms of relatively better profitability. Net profits were up 2.7% during the quarter. As far as exports are concerned, while revenue growth in dollar terms was flat, in rupee terms sales were up 10% YoY. The company managed to maintain its market share in exports. As reported in a leading business daily, the company expects the depreciating rupee to further benefit it in the coming quarters.

Tata Consultancy Services (TCS) has reported its first quarter results for FY14. Consolidated net sales grew by 9.5% QoQ, aided by a 6.1% volume growth. Operating margin increased by 0.6% QoQ to 26.9% during the quarter as compared to 26.3% seen during the previous quarter (4QFY13). On an absolute basis, the operating profit increased by 12% QoQ. Net profit grew by 5.9% QoQ on an absolute basis while the net profit margin dropped marginally to 21.3% from 22% witnessed in the last quarter. The increase in the operating profit (EBIT) was mitigated to some extent by the fall in 'Other Income' which declined by 40.6% QoQ. This restricted the increase in the absolute amount of Net Profit to 5.9% QoQ. The rise in net profits would have been slightly higher if not for the sequential increase in effective tax rate from 23% at the end of 4QFY13 to 24% at the end of 1QFY14.

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

Bharat Petroleum Corporation Ltd (BPCL) has chalked out plans to invest Rs 9 bn in two capital expansion projects. The company will set up a 229 km LPG pipeline from Kochi to Coimbatore at a cost of Rs 6 bn. This is expected to reduce the road transportation of gas and connect the company's bottling plants in Pallakad and Coimbatore. In the second project, the company will invest Rs 3 bn at its Irumpanam installation unit in Kochi refinery to raise the storage capacity to 4 m tonnes. These capital expansion projects are in addition to Rs 14.2 bn expenditure plan for the Integrated Refinery Expansion Project (IREP). Under IREP, the company wants to scale up its refining capacity from 9.5 million metric tonnes per annum (MMTPA) to 15.5 MMTPA. Both these projects are expected to be launched along with IREP project that is scheduled to be commissioned by September 2015. BPCL stock is presently trading 0.6% up.

Lupin Pharma has entered into a strategic partnership with Merck and co (MSD) to co-market 23-valent Pneumococcal polysaccharide vaccine (PPV) for the Indian markets. As per the partnership, Lupin will have a non-exclusive license to market, promote and distribute MSD's said drug. The drug is indicated for patients suffering from Pneumoccal disease. Reportedly, recent study shows that the fatality rate due to invasive pneumococcal disease in adults is 26.4% which is much higher than that in children. This calls for the need for prevention medication in order to address the disease. Pneumococcal disease is a type of infection which is caused by bacteria called 'Streptococcus pnumoniae'. This infection results into various types of pneumococcal diseases with Pneumonia being the most common. Pneumococcal disease kills more patients worldwide than any other vaccine preventable diseases. Lupin was trading up by 1.7%.

Movers and shakers during the week

Company	12-Jul-13	19-Jul-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Opto Circuits	23	28	22.4%	164/18
Hindustan Unilever	601	687	14.2%	718/428
GSK Consumer	4,687	5,283	12.7%	6020/2577
Godrej Consumer	849	953	12.1%	977/570
Bayer Corpscience	1,547	1,733	12.0%	1769/767
Top losers during the week (BSE-A Group)
Gitanjali Gems	142	110	-22.5%	650/110
Financial Tech	765	631	-17.4%	1224/617
Ashok Leyland	18	15	-14.8%	28/15
MMTC Ltd	62	53	-14.3%	817/50
Yes Bank	490	425	-13.3%	547/322

Source: Equitymaster
Now let us take a look at the important developments across different sectors.

Nine drug makers are likely to be slapped with a heavy penalty of Rs 25 bn by National Pharmaceutical Pricing Authority (NPPA) over allegedly selling anti-asthma drug Doxofylline without prior price approval. The decision follows a recent Supreme Court order against the industry that brought the widely prescribed drug under price control. The penalty will be calculated in retrospect from 2009, when the price of the drug was fixed by NPPA. As per some official sources, the notice has already been sent to four drug companies - Ranbaxy, Cipla, Cadila and Glenmark - for allegedly overcharging on sale of their individual brands containing Doxofylline. NPPA has sought details and data from others and is likely to issue notice to the rest of the firms as well.

As per a leading financial daily, Mr B K Chaturvedi, a member of Planning Commission has stated that the government could consider asking state-owned upstream explorers such as Oil and Natural Gas Corp. Ltd (ONGC) and Oil India Ltd (OIL) for a subsidy mechanism. The mechanism would ease the impact of the hike in the price of natural gas on power and fertilizer companies. He suggested that the move to raise gas prices will certainly have an impact on power and fertilizer segments. He said that a lot of gas is produced by ONGC, OIL and others. So, there (incomplete sentence).

In the coming week, the stock market movements in the US and India will be influenced by corporate results and economic data releases. The upcoming elections in Japan, housing data release in the US and PMI releases for Eurozone economies will also influence the global stock markets next week.