Indian stock markets hail reform agenda

Sat, 6 Oct RoundUp

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Barring Japan and Brazil, the global stock markets closed the week on a positive note. The US stock markets were up 1.3% during the week. The rise came in on the back of a strong unemployment data. The unemployment rate in US fell to 7.8% in the month of September. For the first time in the last four years the rate fell below 8%. Retail sales in US also picked up signaling that spending in the economy is on a rise. These are encouraging signs considering the political and economic uncertainty in US.

The Indian stock markets ended the week on a flat note with gains of 0.9%. After announcing foreign direct investment (FDI) in aviation and retail just a few days back the government continued with its reforms process. It has now opened up FDI in pensions, increased FDI in insurance and approved the new Companies Bill. While this is a step in the right direction it would be interesting to see if the reforms get a nod in the parliament. Most opposition parties as well as some key allies of the government are against these reforms dubbing them as anti-people. Concerns over the approval of these reforms and a freak trade in NSE-Nifty resulting from an erroneous order kept the weekly gains under check.

Amongst the other markets, France (up 2.9%) was the biggest gainer followed by Germany (up 2.5%). However, Japan and Brazil were down by 0.1% and 1.0% respectively.

Source: Yahoo Finance * The Chinese markets are shut from 01 Oct to 07 Oct on account of autumn festival and national day

Barring the stocks in IT (down 0.2%) and pharma (down 1.3%) space, all sectoral indices witnessed gains during the week. Realty and capital goods were the biggest gainers registering gains of 5.6% and 3.5% respectively during the week.

Source: BSE

Now let us have a look at key economic developments during the week. Despite political pressures the government continued with its reforms agenda. It opened up FDI in pensions, increased FDI in insurance and approved the new Companies Bill during the week. Opening up of foreign ownership in pension and insurance will attract more capital into India. This is beneficial to the country in the long run. However, it would be interesting to see if these reforms ultimately get enacted or not as they have to be approved in the parliament. And opposition is in no mood to relent. It is dubbing these reforms as anti-people and opposing the same.

Now let us have a look at the trade deficit figures. India's exports fell by 9.7% during the month of August 2012 to US$ 22.3 bn. Imports on the other hand, declined at a slower pace of 5.1% to US$ 38 bn, thereby widening the trade deficit to about US$ 15.7 bn. This is higher than July's figure of US$ 15.5 bn. Oil imports increased by almost 3% to US$ 12.8 bn, while non-oil imports declined by 8.7% to US$ 25 bn. As for the data relating to the year till date, total exports stood at US$ 119.9 bn, lower by 5.96%. During the same period, imports slid by 6.2% to US$ 191.1 bn. Given the data, it seems that India may find it difficult to meet the export target of US$ 360 bn; six months into the year, the target is still away by about 66%.

If Microsoft has things its way, Indian IT companies could be facing a whopping US$ 5 bn payout over the next decade. The software biggie Microsoft Corporation has suggested a whopping fee of US$ 10,000 (over Rs 5 lakh) for a new category of H-1B visas and US$ 15,000 (more than Rs 7.5 lakh) for permanent residency or Green Card. Both these categories of H-1B and Green Cards, according to the Microsoft plan, would have an annual capacity of 20,000 and would be restricted to STEM (science, technology, engineering and math). The money thus raised would be used for the STEM education programs which would target long term improvements in such education in the United States. This proposal will affect Indian companies the most as they grab the maximum such visas and will have to bear the cost if this proposal is affected. This suggestion was revealed at a Washington-based think-tank gathering last week by Brad Smith, general counsel & executive vice president, legal & corporate Affairs, of Microsoft.

National Thermal Power Corporation (NTPC) has signed the new fuel supply agreement (FSA) with Coal India. As per the FSA, trigger point of new units at existing plants will be 80%. For units that came up before January 2010, the trigger point is 90%. Earlier, NTPC had declined to sign the agreement stating the pact was skewed in favour of Coal India. We may note here that NTPC consumes almost half of Coal India's produce. A few power producers backed NTPC's earlier stand and they are now expected to follow in the footsteps of NTPC and sign the FSA.

Tata Steel is planning to invest GBP 400 m in its European unit during the current financial year. This is despite the slowdown in demand for steel in the European continent. The company is investing to improve the performance of the operations in Europe and in areas which can provide quick returns. The investments in Tata Steel Europe will be partly funded from internal resources. The company is hoping that the steps being taken by governments in Euro-zone economies to mitigate the financial crisis may help in improving the demand in the near term.

Movers and shakers during the week

Company	28-Sep-12	5-Oct-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Essar Oil	51	61	19.1%	88/45
Adani Enterprises	201	235	16.8%	508/152
India Bulls Real Estate	58	67	16.0%	84/40
India Infoline	58	66	14.5%	78/43
MRPL	61	68	12.5%	75/50
Top losers during the week (BSE-A Group)
Koutons Retail	11	9	-18.3%	28/6
MTNL	32	30	-6.6%	45/21
Cadila Healthcare	872	821	-5.9%	964/629
Sterling Biotech	7	6	-5.2%	81/5
RCF	60	57	-5.2%	78/42

Source: Equitymaster
Now, let us discuss some developments in the auto space. India's leading passenger vehicle manufacturer Maruti Suzuki has increased prices across all its models by around 1%. As such, the price hike ranges from Rs 2,500 to Rs 5,250 for various models. The price hikes have been brought into effect to counter the adverse impact of foreign exchange fluctuation and rising cost of inputs. Maruti sells a wide variety of passenger cars ranging from M800 priced around Rs 2.04 lakh to the luxury sedan Kizashi with a price tag of about Rs 17.5 lakhs. Apart from Maruti, other automobile players that have raised prices include Audi, Mahindra & Mahindra (M&M), Renault, General Motors (GM) India and Honda Cars.

While the reform roadmap undertaken by the government so far is significant, investors are hoping for more such policy changes in the taxation (goods and service tax) and environmental space (land acquisition bill). All these would decide the future course of Indian stock markets.