Bernanke's silence silver lining for mkts

Sat, 27 Aug RoundUp

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Global stock markets finally found some ground to hold on to after weeks of disappointment. The growing worries about an impending recession in the US gave way to hopes of revival in the world's largest economy. The US stock markets closed the week up by nearly 4% post the much awaited speech by Ben Bernanke, the Federal Reserve Chief on Friday. The Fed Chief in his speech has indicated that further stimulus measures could be taken in an extended policy meeting in September. The markets were weary that QE III (Quantitative Easing) could be avoided this time as the earlier QE II had resulted in high inflation.

Indian stock markets fell for the fifth straight week and were down by 1.8%. This was largely due to the global concerns growing ahead of US Federal Reserve Chief Ben Bernanke's speech regarding quantitative easing. Amongst the other world markets, France was the maximum gainer (up by 2.3%) followed by China and UK. However, Singapore has managed an increase of only 0.5% over the last week.

Source: Yahoo Finance

Moving on to the performance of the sectoral indices, red marks were seen across stocks. Metal and Banking stocks were the top losers down by nearly 5% each followed by stocks from the Realty and PSU space. Capital goods suffered the least during the week (flat).

Source: BSE

Now, let's take a look at key sector developments during the week. Hotel tariffs in Noida and Delhi shot upto Rs 40,000 a night in five star properties. The first ever Formula 1 Indian Grand Prix is slated to be held in Noida in October 2011. The event is supposed to last for 3 days starting October 28, 2011. The teams and organizers have thus made their bookings for a fortnight. The event being held for the first time in India is creating a lot of interest and all the major five star hotels in the vicinity have been sold out. It may be note that the normal tariff for a night is Rs 7,500 implying a 4 times jump. Also, normally during Diwali occupancies are low and they tend to pick up post the festivities. But, in the event of F-1, things seem to get rosier for the hotels.

In more news from the corporate world, power equipment maker BHEL is targeting a networth of Rs 238 bn this fiscal. This will enable it to bag the prestigious Maharatna status. Once the target networth is achieved, the state run company will have an average networth of over Rs 150 bn for next 3 years. BHEL is presently a Navratna company and can take independent investment decision to the tune of Rs 10 bn. Approval from the government is not mandatory. A Maharatna company has such liberty upto Rs 50 bn, thus BHEL will be able to carry on with its acquisition plans more aggressively.

In the IT sector, NASSCOM, the representative of the industry has stated that the industry would grow at a rate of 16-18% in 2011-12. This is despite the unfavorable environment in the major markets of the US and the European regions. As per NASSCOM, customers want to expand into other geographies and provide newer solutions. The IT sector is expected to garner revenue of US$ 68-70 bn this year. The domestic market too will contribute to the growth growing by 15-17%.

Pharma major Biocon's subsidiary Clinigene International has entered into a joint venture with Spaulding Clinical Research of the US. It is aimed at providing early clinical solutions to pharmaceutical and biotech clients. For Spaulding, it means a reliable and cost effective medium of setting its footprint in the global phrama market. The US pharma company has an expertise in clinical pharmacology, cardiac core lab and medical device manufacturing. The development is said to be a strategic one which will result in mutual benefits for both Spaulding and Biocon.

As per Mr S Jaipal Reddy, the Oil minister of India, state run fuel retailers are in for a major financial problem. They may post a Rs 1.2 trillion revenue loss on selling diesel, domestic LPG and kerosene at government rates. Indian Oil, Hindustan Petroleum and Bharat Petroleum currently lose Rs 5 per litre of diesel, Rs 23.7 per litre of kerosene and Rs 247 per LPG cylinder. Recent hikes in prices of diesel, kerosene and LPG have not been sufficient to curtail the loss of these Oil Marketing Companies. Reduced customs and excise duties have also not been of much help. These companies face a cash crunch to meet their working capital requirements. These then resort to borrowings from the market thereby placing an interest burden on their books.

Movers and shakers during the week

Company	19-Aug-11	26-Aug-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
GTL Infra	11	12	11.6%	47/11
Sterling Biotech	64	71	11.1%	125/57
Guj. Mineral Dev.	161	177	9.7%	180/105
Ultratech Cement	980	1,059	8.1%	1155/893
Bajaj Auto	1,401	1,504	7.3%	1637/1210
Top losers during the week (BSE-A Group)
Jet Airways	293	253	-13.6%	910/261
Voltas	127	110	-13.2%	260/113
Reliance Capital	389	344	-11.5%	867/387
Suzlon Energy	38	34	-10.3%	60/36
Union Bank	257	232	-9.8%	420/244

Source: Equitymaster
In economy related news, food inflation in India is touching the double digit mark again. It rose to 9.8% for the week ended August 13, from 9.03% in the previous week. It was observed by a Parliamentary panel that food worth more than Rs 500 bn gets wasted in India every year due to lack of storage and processing facilities. The post harvest losses of fruits and vegetables are high at 35%. The agriculture rich country is unable to reap the advantages that it has because of basic infrastructure issues in the sector. The levels of food processing are abysmally low in India as compared to the other countries. In India it stands at 2.5%, 78% in Philippines, 65% in USA and 23%in China. This is despite a dedicated ministry Food Processing Industries in function at the Union Government for the last two decades.

Near term problems on the economic and political front may continue to linger. However, with the BSE- Sensex having dropped below 16,000 levels we believe that the time is ripe for long term investors to look for and fetch some attractive bargains in stocks with solid fundamentals.