Massive sell off in global markets

Sat, 22 Aug RoundUp

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Global markets witnessed a mega correction this week due to multiple factors. Investors panicked as concerns about the Chinese economic growth became widespread. Fears about the US Fed raising interest rates next month also contributed to the fall. Due the huge correction in commodity prices, the currencies of commodity exporting nations have also come under severe pressure.

The US markets suffered its biggest one day fall since 2011 on Friday. The CBOE volatility index (VIX) saw the sharpest week on week jump ever recorded as over US$ 1 trillion of investor wealth was eroded. Wall Street has remained buoyant thus far amid negligible growth in corporate profits. However, investors are now showing willingness to exit overheated stocks.

European markets were hammered this week. The crisis in Greece re-ignited with the government resigning and fresh election being called. All key European indices were down between 5% and 8% this week.

The Indian markets held up reasonably well this week. Global investors have not yet abandoned India in the way they have fled other emerging markets. However, we believe volatility will continue to remain high in the near future.

Source: Yahoo Finance

Source: BSE

In a positive development, the Reserve Bank of India (RBI), with an aim to further widen the reach of banking services and in an effort to push the government's goal of financial inclusion, has given in-principle approval to eleven entities to open payments banks. This new format of the banks will provide basic savings, deposit, payment and remittance services to people without access to the formal banking system. The in-principle approval will be valid for eighteen months, after which the entities will be given formal licenses, given that they fulfill conditions stipulated by RBI.

The government has asked PSU banks to look for possible merger options before the proposed Bank Board Bureau (BBB) comes into existence. The BBB is portrayed as a new umbrella structure that will guide policy, functioning and appointments of the PSU banks. The finance ministry has asked the banks to see opportunities where synergy benefits exist and look at providing common services. BBB will engage with the banks and convince them about desirable merger and acquisition strategies which will help in better operations and growth of these banks. However, if the banks are not able to pursue the proposals of this board, then the government may have to take a decision.

Stocks in the power sector were under pressure this week, after the Aam Admi Party (AAP) demanded an immediate tariff cut and criminal action against distribution arms of Anil Ambani and Tata Group companies. The demand came after findings of the draft CAG report were leaked. As per this draft report these distribution companies (discoms), inflated their costs massively by about Rs 80 bn. The conflict had pushed Delhi close to a blackout as discoms defaulted in making payment to the power suppliers, who in turn had threatened to switch of the power supply.

Sun Pharmaceuticals has received US Food and Drug Administration (USFDA) approval for its supplementary New Drug Application (sNDA) for XiminoTM (Minocycline HCl) extended-release capsules 45 mg, 90 mg and 135 mg. These extended capsules are indicated for inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 12 years of age and older. The approval is said to further strengthen the company's branded dermatology portfolio in the US. The company expects the product to be available for patients during the fourth quarter of 2015.

Housing Development Finance Corporation (HDFC Ltd) the country's largest mortgage lender, has agreed to sell 17,95,39,209 equity shares of Rs 10 each of HDFC Standard Life Insurance Company (HDFC Life) to Standard Life (Mauritius Holdings) at a price of Rs 95 per share aggregating to 9% of the issued and paid-up share capital of HDFC Life, subject to receipt of requisite approvals. Post the said sale of stake in HDFC Life, the company's holding in HDFC Life will be 61.65% and that of Standard Life (Mauritius Holdings) will be 35%. HDFC offers a whole gamut of products like loans to individuals, loans to corporate, construction finance, and lease rental discounting. The financial conglomerate has subsidiaries and associates in insurance (general and life), asset management, education finance, venture funds and banking services.

Hero MotoCorp has decided to develop its Halol plant in Gujarat into an export hub. The Halol plant will not only help support the western market more efficiently, it will help the company reach global destinations faster, since it is within close proximity of ports. By the year 2020, the company aims to surpass 100 m units in cumulative production with annual bike and scooter sales of 12 m units. Reportedly, the company is also planning to have more than 20 manufacturing and assembly plants globally with sales in more than 50 countries by that year.

Tata Power India's largest integrated power company has increased its consumer base to two million consumers in FY15, achieving 618,000 consumers in Mumbai and over 1.4 million in Delhi. The company has steadily been adding consumers across categories due to its diligent customer service and the most competitive tariff offering to consumers with a monthly consumption of up to 300 units. The increased Mumbai consumer base was aided by the addition of 19,000 direct and 105,711 changeover consumers during FY15. In Delhi, the company's consumer base spans across an area of 510 square kilometer in Northern and North Western Delhi.

Cipla Ltd has declared its results for the quarter ending June 2015. Revenue surged by 41.6% YoY and the profits for the quarter zoomed up by 120.8% YoY. The stupendous performance was led by robust growth in the Exports of formulations which grew by 78.5% YoY for the quarter. Major part of the growth in this segment was driven by non recurring sales in the US market. The Cipla's board had approved the divestment of its consumer healthcare business to a wholly owned subsidiary for a consideration of Rs 1 bn.

We believe global markets are likely to remain under pressure going forward. None of the concerns of global investors are likely to go away anytime soon. Indian markets too will continue to experience the fallout of this turmoil. However, long term investors need not be too concerned. Times like these could offer good opportunities to enter good quality stocks at reasonable valuations.