Mixed Week for Global Indices

Sat, 15 Oct RoundUp

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The performance of global markets this week was a mixed bag. In China, September producer prices unexpectedly rose for the first time in nearly five years and consumer inflation beat expectations, easing some concerns about the health of the world's second-biggest economy. Earlier on Thursday, worries about China's growth slowdown and weak global demand rattled investors after the country released weaker-than-forecast September trade data. Exports from China tumbled nearly 10% year-on-year, and imports dipped 1.9% from the previous year. September's export drop marked the sixth consecutive monthly decline and the biggest drop since February. The release of the trade data knocked down global stocks and commodity prices as it revived concerns about the tepid global economy at a time when the Federal Reserve appears ready to raise US interest rates again. The data also increased downward pressure on the yuan, which is hovering near a six-year low against the dollar. The Shanghai Composite Index gained 2% for the week gone by.

European stocks ended the week in positive territory. Equities slid midweek following data that showed an unexpected decline in Chinese exports that created worries about another slowdown in global growth prospects. However, stocks bounced back at the end of the week on positive inflation data coming out of China. Stock markets in Germany and France were marginally up by 0.9% and 0.5% for the week gone by.

In the US, the DJI index was down by 0.6% as earnings season began with mixed results and a decrease in Chinese exports reignited concerns about slowing global growth.  Economic data released during the week showed continued strength in the job market and a rebound in retail sales.

Back home, the BSE-Sensex ended the week on a dull note and was down by 1.4%. Sentiments dampened mainly in reaction to the latest US Fed meeting minutes, suggesting a rate hike in December and further worsened with a decline in Asian counterparts, after China reported noticeable contraction in export figures. Industrial output remained negative for the second month in a row, contracting by 0.7% in August due to a slump in manufacturing, mining, and capital goods segments. Meanwhile, India's retail inflation eased sharply to 4.31% in September, the slowest in more than a year, from 5.05% from August, mainly because of a sharp fall in food prices.

Key World Markets During the Week

On the sectoral indices front, Oil & Gas and IT stocks led the gainers this week. On the other hand, stocks from Banking and <>Reality witnessed selling pressures.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

The corporate debt restructuring (CDR) failure rate rose to 43% at the end of the June from 36% a year ago. In terms of absolute figures, loans worth Rs 972.4 billion had failed at the end of June. This means that banks have failed to recover around 25% of the loans approved for corporate debt restructuring in the past fifteen years. The failure rate has increased mainly on account of the loans which had been given to the infrastructure companies. This just goes on to state that the banks were restructuring the loans only to avoid higher provisioning requirement so as protect their bottom-line. However, since March 2015 banks have gone slow on CDR as Reserve Bank of India (RBI) have mandated that lenders would have to provide as much for a restructured loan as they did for a bad loan. The recovery of the restructured loans will be the key things to watch out for going forward to gauge the financial health of the banks especially public sector banks.

In another news update, The National Pharmaceutical Pricing Authority (NPPA) has slashed the prices of over 30 essential medicines. In a bid to make several cancer medicines and antibiotics cheaper, the body has cut the prices by as much as 55%, the reports noted. Further, the price of anti-cancer drug Imatinib has been capped at Rs 72.03 per capsule. According to NPPA, the medicine was earlier sold for up to Rs 85.50 per capsule. Similarly, prices of essential drugs including, anti-viral drug and a few antibiotics have been revised.

According to an article in The Economic Times, automobile wholesale volumes in India in the first half of FY17 have shown strong growth on improved rural demand and new launches. The domestic auto sales surged by 16.33% during the period April-September 2016 at 11,652,160 units compared to the same period a year ago. The growth has been led by two-wheeler and passenger vehicle segment, which grew by 17.47% and 12.34% respectively in H1. India sold 1,494,039 units of passenger vehicles in the first half of FY17 compared to 1,329,874 units sold in the same period a year ago. The new launches have pushed the utility vehicle sales up in the first six months of FY17, which experienced a growth of 40.2%. While the car sales grew by 5% during the same period.

As per the reports, the passenger vehicle market is expected to witness 9-11% growth in FY17, driven by a strong festive season, coupled with new model launches, implementation of revised salary structures under the 7th Pay Commission, and improvement in the rural economy. Meanwhile, the medium and heavy commercial vehicle segment, which largely depends on the core industries such as mining and road & infrastructure, has reported a decline of 1.19% in the first half of the current financial year at 137,664 units sold, compared to 139,325 units sold in the same period a year ago.

In another news update, the government is seeking a parliamentary approval to spend about US$ 7.5 billion more on roads, railways and other public programmes. The decision comes at a time when private investments have continued to remain weak. This is on account of their highly leveraged balance sheets coupled with excess capacities and banks' reluctance to lend to the corporate sector on the back of the ongoing bad loan scenario. It is imperative to note that the government has already exhausted around 73.7% of the annual fiscal deficit budget targets in the first four months of this fiscal year. A point that needs to be mentioned here is that the expenditure of the government is front loaded, whereas a major chunk of its revenues start to come in only in the second half of the year. However, even with this disclaimer, the expenditure of government looks far more than its receipts in FY17.

Going by the current scenario, the government's fiscal deficit target seems to be under stress. And this begs the question: What shall the government do to keep its bargain on the fiscal deficit front? Vivek Kaul, editor of Vivek Kaul's Diary, has answered this question in one of his recent articles. He has also just launched the Vivek Kaul Letter which outlines the Indian economy and its many challenges.

Movers and Shakers During the Week

Company	7-Oct-16	14-Oct-16	Change	52-wk High/Low
Top Gainers During the Week (BSE Group A)
Petronet LNG	373.2	400.7	7.4%	404/180
The Ramco Cements	617.7	659.3	6.7%	685/334
Tata Comm.	611.3	652.25	6.7%	665/326
NALCO	49.05	51.45	4.9%	53/30
GAIL	414.2	430.35	3.9%	433/276
Top Losers During the Week (BSE Group A)
J&K Bank	87.1	68	-21.9%	93/56
Zee Entertainment	570.95	528.15	-7.5%	589/350
Idea Cellular	79.95	74.75	-6.5%	154/74
Jaiprakash Power	4.66	4.37	-6.2%	8/4
HDFC	1,405.60	1,319.20	-6.1%	1,463/1,012

Source: Equitymaster

And here are some of the key corporate developments in the week gone by.

Tata Consultancy Services (TCS) reported a muted topline growth for the quarter ended September 2016. TCS reported a consolidated profit of Rs 65.86 billion, a rise of 4.3% QoQ. Moreover, the firm reported an increase in operating margins at 26%, up 95 basis points sequentially. Gross margins also rose 80 basis points QoQ. CEO & MD of TCS, said that Q2FY17 was an 'unusual' quarter for the firm as growing uncertainties in the environment were creating caution among customers, which resulted in holdbacks in discretionary spending. The company reportedly added one new client in US$50 million-plus category and six others in US$20 million-plus category. TCS also reported some softness in verticals such as retail, but other verticals such as utilities, life sciences and telecom did well. The company reported a negative surprise in India with orders worth Rs 1.8 billion being delayed to Q3FY17. While the North America market grew 1.8% sequentially, UK revenues were flat in constant currency terms.

IndusInd Bank reported its results for the quarter ended September 2016. Net profits of the company grew by 26% YoY to Rs 7 billion during the quarter on the back of higher interest income and stable asset quality. Net interest income considered to be the core income of the bank grew by 33% YoY during the quarter to Rs 14.6 billion. Net interest margins (NIMs) too expanded to 4% in the September quarter. Further, total advances grew at a robust pace of 26% led by strong growth in retail and corporate loans. Asset quality too remained stable as Gross Non-Performing Asset (GNPA) as a percentage to total loans stood at 0.9% during the September quarter. As the company has been growing its balance sheet at a fast pace, a check on the asset quality will be the key things to watch out for going ahead.

Maruti Suzuki India (MSI) is all set to launch the premium hatchback Baleno in new markets like Caribbean Islands and South Africa in the coming months. Apart from this, the car will also be shipped to countries in Latin America, Middle East, and South East Asia. The development is a part of company's plans to export the new car model to over 100 nations. At present, MSI exports the car to France, Denmark, Germany, Greece, Hungary, Iceland, Italy, Japan, Netherlands, Poland, Spain, Sweden, Switzerland, Chile, Israel, England, Nepal, Bhutan, Austria and Australia. Around 38,000 units of the new car model have been dispatched to the above destinations till date. As far asdomestic car sales are concerned, the car has already crossed the milestone of 1,00,000 sales. Maruti had launched Baleno in India on 26 October last year. The company and its supplier partners have invested around Rs 10 billion in the development of Baleno, which is being manufactured at the company's Manesar plant.

Tata Steel is moving closer to striking a new deal over the 15-billion-pound pension pot that stands in the way of an agreement over of its UK steelworks. As per the news, the company is understood to have opened talks with the UK's Pension Protection Fund (PPF) and the Pensions Regulator over an unorthodox restructuring deal. The deal, if finalised, would see a merger of its European arm with Germany's ThyssenKrupp.An agreement on this matter could secure the immediate future of the Port Talbot plant in South Wales and its 4,000 staff members. Further, it can also aid other plants of the company across the country which were put up for sale in March this year. The British Steel Pension Scheme is seen as the biggest obstacle to the merger of the Tata operation with ThyssenKrupp. The arguments are centered on using a regulated apportionment agreement. This framework allows companies to pump cash into a pension scheme in return for being allowed to continue trading without those liabilities.

Oil and Natural Gas Corporation (ONGC) has inked a preliminary agreement to take an operating stake in Gujarat government firm Gujarat State Petroleum Corp (GSPC)'s KG basin gas block. The Memorandum of Understanding (MoU) signed last week has a dispute resolution mechanism set out wherein any differences over issues like valuation or natural gas reserves would be referred to a three-member committee of outside experts. As per the reports, this is perhaps for the first time that a MoU sets out a dispute resolution committee and it perhaps is indication of the pitfalls that ONGC anticipates in buying a stake in the block. It has already differed with GSPC on the gas reserves the block holds and has appointed US-based consultant Ryder Scott to do an independent assessment.

ITC entered into an agreement with the US-based buyer, Premier Manufacturing, to divest 100% of its equity stake in King Maker Marketing (KMM). KMM is primarily engaged in distribution of cigarettes in USA. The expected date of completion of sale of the subsidiary is November 30, 2016. Main business of King Maker Marketing, registered in New Jersey, is to import and distribute tobacco products (Subscription Required) to licensed wholesalers and retailers throughout the USA. ITC is KMM's sole supplier of tobacco products.

As per an article in Livemint, Oil India plans to undertake 20 development drilling wells in Jaisalmer district of Rajasthan at an estimated cost of Rs 2.2 billion. Reportedly, Oil India had discovered natural gas in Jaisalmer sub-basin of Tanot fields and heavy oil in the Bikaner-Nagaur sub-basin in early nineties. Now, the company has received the green nod for development drilling of 20 wells in Baghewala mining lease block in Jaisalmer district. Further, about one million metric standards cubic meter per day of gas is expected to be produced from these blocks. Later, it will be processed at the Dandewala gas processing complex. Oil India has over one lakh sq km of petroleum exploration licence or mining lease areas. These areas account for its majority of crude oil and gas production.

As per an article in a leading financial daily, Dr Reddy's Laboratories has forayed into the Colombian market to sell cancer drugs. Reportedly, company's initial focus would be to provide access to affordable cancer medicines to patients through its proven portfolio of oncology products. The company currently operates in 26 countries, being the second largest generic oncology injectable company by value in the US and a leading generic oncology company in India. Whether its entry in the Columbian market will widen its footprint in this space will be the key thing to watch out for going forward.

And here's an update from our friends at Daily Profit Hunter...

Bulls threw up a surprise punch earlier in the week by bouncing back more than 100 points on Monday. Markets were in a cheerful mood for the first two days of the week, but bears caught up soon and pulled the index back from the weekly high of 8,807. The index finally ended the week with gains of about a percent at 8,695. Markets are likely to trade in a range on a lackluster note on an immediate basis due to a short trading week. You can read the detailed market update here...

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