Emerging markets outperform peers

Sat, 15 Sep RoundUp

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The past week was a positive one for most of the major global economies, and a spectacular one for the emerging economies in particular. The sentiments at the start of the week were positive given the announcement of ECB's decision to buy bonds to support the struggling Eurozone. The major positive development this week was the US Fed's announcement of the third round of Quantitative Easing or QE3 as it is popularly called. Brazil and Hong Kong were amongst the top performing global markets, followed by Japan and Germany. The Chinese market however underperformed this week.

Apart from Indian investors taking positive cues from the developments globally, the Indian markets performed well during the end of the week on the back of the government seemingly biting the bullet in terms of raising diesel prices. And it did so by as much as 15%. The market gave this development a thumbs up as it is attempted towards improving the fiscal condition of the nation. India's benchmark index, the BSE-Sensex rose by 4.4% as compared to last Friday's closing levels.

Source: Yahoo Finance

Moving on to the performance of sectoral indices - Barring stocks from the power and healthcare spaces, all sectoral indices ended on a higher note this week. Amongst the top performing indices were the metal, realty and capital goods indices. The BSE-Bankex and BSE-Auto indices followed suit.

Source: BSE

Moving on to the key corporate news of the week - IT major, Infosys announced that it is set to acquire Zurich based SAP implementation and management consultancy, Lodestone for a consideration of about US$ 350 m. Lodestone has clients across manufacturing, automotive and life sciences segments. It has 850 employees including 750 consultants. Infosys' acquisition will be in line with its 3.0 strategy whereby it wants to expand its consulting and systems integration business. Post the deal, Infosys is expected to have around US$ 1 bn coming from its SAP practice.

The management of auto major, Ashok Leyland stated that it foresees production constriction for its light commercial vehicle (LCV) Dost. Dost has been the company's bestselling LCV. The company has sold 20,479 units of Dost since its launch a year ago and now claims a 31% market share in the eight states that it operates in. The company will be able to look at exports only in the next financial year as it is already struggling to keep pace with the domestic demand with an average waiting period of two months. Its LCV line is expected to ramp up to peak production of 55,000 units in the next financial year. Currently, it is not clear if company would rejig operations or add shifts to meet the shortfall.

It was also reported that the Society of Indian Automobile Manufacturers (SIAM) is planning to lower its growth projections for FY13 on the back of a lacklustre performance in auto sales in the year till August. The overall passenger vehicle (PV) sales fell by 4% (passenger vehicles includes cars, utility vehicles and vans). While a key factor for this was the lockout at Maruti's plant at Manesar since the company is a market leader in the PV space, the decline would have been sharper had it not been for the 71% growth seen in diesel-dominated utility vehicles (UV) sales. Commercial vehicle sales rose 4% in August, led by a 13% growth in light CV sales. Sales of heavy CVs continued to be impacted as the economic activity slowed down. Two-wheelers in August recorded negative growth for the first time in over three-and-a-half years, with sales volumes falling by 4.5% to 1.05 m units. Indeed, firm interest rates, fuel prices and slowdown in the economic activity have dampened demand and adversely impacted the fortunes of the sector. However, the sector is cyclical and while these are near term headwinds, the long term growth prospects of the sector remain intact.

Moving on to news form the banking sector, India's largest bank State Bank of India (SBI) announced its aggressive plans to expand its workforce over the next one year. The bank is planning to add 20,000 personnel across both the officer and clerical cadres, which would increase its work force by 10%. As of June 2012, the bank had about 214,000 people on its pay roll. It is believed that SBI is targeting to open 1,200 branches this year. As such, a majority part of the staff being hired is for the same. In FY11 and FY12, the average employee per branch stood at 16 and 15 respectively. Also, this strong hiring plan is aimed towards readying itself for the future given that about 35 to 40% of the staff is expected to retire within a period of five years (across all levels).

Movers and shakers during the week

Company	7-Sep-12	14-Sep-12	Change*	52-wk High/Low
Top gainers during the week (BSE-A Group)
Adani Enterprises	155	188	21.2%	627 / 152
Unitech	19	21	14.5%	38 / 17
Hindalco	105	118	12.3%	165 / 100
GTL Infrastructure	6	7	11.2%	14 / 6
Tata Motors	243	270	11.1%	321 / 140
Top losers during the week (BSE-A Group)
Tulip Telecom	87	66	-23.4%	167 / 66
Torrent Power	172	159	-7.5%	253 / 146
Sterling Biotech	6	6	-6.2%	89 / 5
Lupin	609	575	-5.6%	632 / 410
KSK Energy	66	63	-5.0%	109 / 33

Source: Equitymaster
Moving on to key developments in the economy - The wholesale price index (WPI) for the month of August 2012 rose to 7.55%, a higher than expected rate. In July the same stood at 6.87%. Hike in fuel prices, weak rupee and high commodity prices were some of the main reasons that fuelled inflation. Given that the Reserve Bank of India (RBI) is quite clear that rate cuts would be difficult in an inflationary environment, it is up to the government to take steps to remove bottlenecks on the supply side and bring the deficit down. This is if inflation from a long term trend is to come down. Further, the central bank is likely to have its hands full on the US Fed's recent announcement of QE3. This is bound to bring surplus cash to the Indian economy and put further pressure on inflation.

IIP (Index or Industrial Production) numbers for the month of June 2012 displayed a poor show by the manufacturing, mining and capital goods sectors, with industrial production grew by a mere 0.1% during the month. With this data, the YTD (year to date) data i.e. data for four month period April to July this year contracted by 0.1%. During the corresponding month last year, the growth in IIP was a low 3.7% during the month and 6.1% during first four month period of FY12. Forming nearly three-fourth of the index, the manufacturing sector contracted by 0.2% in July. Last year, the sector's growth figure stood at 3.1% YoY. During the April - July period, growth for the sector contracted by 0.6% (6.5% in the four-month period of FY12). The capital goods sector continued its dismal performance, declining by 5% in July as against a decline of 13.7% last year. Mining output dipped by 0.7% as against a growth of 0.7% in the same month a year ago.

With this data being released, all eyes will be on the RBI's mid-quarter policy review, which is scheduled for Monday next week. However, as per a leading business daily, this modest uptick in IIP for the month could imply that the Reserve Bank of India (RBI) would leave policy rates unchanged and that the central bank would consider cutting rates during the mid-year review meeting in the month of October 2012.