Dull Weak for Global Markets

Sat, 14 Nov RoundUp

   Previous Close   

Barring stock markets in Japan (up 1.7%), major global markets closed the week on quite a weak note, firmly obstructing the market rally. Stock indices in Europe witnessed maximum brunt, with stock markets in the UK (down 3.7%) and France (down 3.6%) being the top losers of the pack. Recent data indicated the eurozone’s GDP growth for the September quarter rose at a slower pace than expected. Weak exports from Germany too showed a weak trend.

The US stock markets also closed on a disappointing note. Lacklustre retail data and uninspiring results spooked the market rally. The US markets closed down by 3.4% for the week, posting the worst weekly loss since August.

The dull performance was on the back of rising worries about slowing global growth and concerns over an interest rate hike by US Fed. These factors too kept Asian indices at bay.

Back home, the Indian markets closed on quite dull note for the second week in a row. The <>BSE Sensex closed down 2.5%. Micro and macro factors, the outcome of Bihar elections , and weak global cues pushed the Indian indices lower for the week.

Barring a few, all sectors ended the week on a negative note. Stocks from the pharma and oil and gas sectors were the biggest losers for the week.

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

According to a leading financial daily, the National Democratic Alliance (NDA) government has eased foreign direct investment (FDI) norms in order to attract overseas funds. The FDI norms have been eased across fifteen sectors including defense, civil aviation and broadcasting to boost economic growth. The new reforms also allow foreign investment through the automatic route. This development is aimed towards improving India's ranking in the ease of doing business and accelerating job creation. Further, the government raised the FDI limit in news and current affairs television channels and FM radio to 49% from 26% under the government approval route. In the defense sector, the government allowed foreign investment up to 49% under the automatic route. The crux of these reforms is to further ease, rationalize and simplify the process of foreign investments in the country and to put more and more FDI proposals on automatic route instead of the government route where time and energy of the investors is wasted.

As per a leading financial daily, domestic car sales rose at the fastest pace in four-and-half years during the month of October. This has been seen as a clear signal of activity returning to the sector that has been witnessing slowdown for few years . As the data stated, manufacturers dispatched 194,158 cars to showrooms during the month. This was recorded up by 21.8% on a YoY basis. Total sales, however, were tepid compared with the record of 233,151 units achieved in March 2012. Overall passenger vehicle sales, including those of utility vehicles and vans, rose 21.5% YoY in October, the quickest since October 2013. The strong performance wasn't limited to the passenger vehicle segment. In the light commercial vehicle segment, which had reported growth only once in the past 29 months, sales grew by 6.8% during October. Scooter sales at 525,138 units in October were the highest ever, up by 37% YoY.

According to a financial daily, the government data released recently showed weak growth in the Index of Industrial Production (IIP) data. Reportedly, IIP for the month of September rose by 3.6% as compared to revised 6.2% in August. The growth was impacted by poor performance in the manufacturing and consumer non-durable sectors. Further, the Consumer Price Index (CPI) rose to 5% in October as compared to 4.4% in the previous month. The inflation grew mainly on account of rise in the prices of pulses due to domestic shortages. However, generation of electricity grew by 11.4% on a MoM basis. Further, the capital goods sector, which indicates an investment demand in the economy, grew by 10.5% on a MoM basis. Reportedly, sales of cars too grew by 21.8% in the month of October. The Nikkei Manufacturing Purchasing Managers Index (PMI) fell to 50.7 in October as compared to 51.2 in the month of September. A number below 50 indicates contraction in demand.

Now let us move on to some of the key corporate developments of the week gone by. 

As per an article in leading financial daily, Dr Reddy's Laboratories has been restrained from selling Esomeprazole tablets in the US market. The order is issued by the district court of Delaware USA, after, the filing made by the US company and the innovator of the drug- Astra Zeneca. The motion was moved by the innovator company, objecting the use of the colour purple in the generic version of the drug launched by Dr Reddy’s. Esomeprazole, also known as Nexium (brand name), has sales of around US$ 5.2 billion for the 12 months period ended July. The company had received approval couple of months back and was among the early entrants in the US market for the drug. Reportedly, the company stated that it is complying with the order of the Court and is simultaneously evaluating all possible options to resolve the matter at the earliest. Already, the company is facing regulatory issues and the recent order of restraining the sales of Esomeprazole will further impact the company's business. It is imperative to note, this could had been quite a lucrative opportunity for the company.

Wipro has reportedly entered into a partnership with Apttus, the category-defining Quote-to-Cash cloud solution provider, to deliver best-in-class Contract Lifecycle Management (CLM), Configure-Price-Quote (CPQ) & Revenue Management solutions to clients across industries.

This partnership combines Apttus's unique Quote-to-Cash functionalities with Wipro's CPQ/CLM solutions suite, strong salesforce foundation and expertise in solution implementations across industries. Reportedly, these integrated solutions enable clients to improve customer responsiveness, boost revenues while reducing operational costs and risks.

According to a leading economic daily, Eicher Motors plans to double the manufacturing capacity of its subsidiary Royal Enfield to 900,000 units per annum by 2018 as the company continues to expand its retail footprint in India. The company is already in the process of raising production capacity at its two plants in the outskirts of Chennai to 450,000 units per annum by the end of this year. The additional capacity will primarily come from the first phase of Royal Enfield's third manufacturing facility at Vallam Vadagal in Tamil Nadu. The company plans to have 500 dealerships across India in a single unified retail identity. Furthermore, the company is also looking to expand its presence in the international markets as it announced its first direct distribution subsidiary outside India, in North America in August this year. In August, Royal Enfield also announced its entry in Indonesia, the third largest motorcycle market (by volume) in the world.

Now let us move on to quarterly performance reported by companies.

Union Bank of India has reported its results for the second quarter ended September 30, 2015. The bank has reported a 77% surge in its net profit to Rs 6,581 million during the quarter on a YoY basis. However, this was largely because the bank chose to make lower provisions against bad loans even as stressed assets rose. Net interest income (NII) rose marginally by 0.8% YoY to Rs 21 billion during the period. Other income increased by 16% YoY at Rs 565 million. Gross non-performing assets (NPAs) for the quarter jumped to 6% as compared to 4.7% in the quarter ended June 30, 2015. Provisions and contingencies for the quarter fell 45% from a year ago to Rs 4,325 million. Post provisioning, net NPAs were at 3% versus 2% in the June quarter.

Tata Power reported its results for the quarter ended September 2015. The company reported a growth in consolidated revenues by 7% on a YoY basis. The revenues expanded on the back of increase in generation of electricity which grew by 6.6% YoY. The losses from the Ultra Mega Power Project (UMPP) in Mundra reduced significantly by 73% to Rs 740 m for the quarter ended September. This was largely due to fall in the prices of coal. The operating profits of the company reported a growth of 19% owing to lower fuels costs and higher output. The company reported a profit of Rs 2,473 million in this quarter as compared to a loss of Rs 777 m in the year ago period. Going forward, delay in the order for the compensatory tariff for the Mundra plant and the stake sale from the Arutmin coal mine in Indonesia will be the key things to watch out.

India's leading pharma company Sun Pharma has announced its results for the second quarter ended September 30, 2015 (2QFY15). The net sales during the quarter declined by 15% YoY to Rs 68 billion. The sales decline was due to supply constraints and higher base sales in US during 2QFY15. The company had benefited from one 180-days exclusivity launch during this period. The company has reported a 46% year on year (YoY) decline in its consolidated net profit to Rs 11 billion for the quarter. The plunge was on the back of lower sales growth, volatile currency movements and supply constraints. As per the management, the company continues to invest significantly in enhancing its specialty and complex generics pipeline. Further, the management has stated that the integration of Ranbaxy is progressing well and the benefits of certain costs incurred will be visible in the successive months. The firm is also evaluating opportunities to expand its global footprint.

The global markets are expected to remain volatile, due to macro and micro factors. On the macro side, speculations over a rate hike by the US Fed are likely to keep markets on the edge.  Back home, the economic and political outcomes will be another factor to influence the market direction.  However, investors should ignore such short term developments, and focus on long term factors.  Investors should continue to focus on a company’s fundamentals and valuations before making the decision to invest.  And look out for opportunities in such stocks when the market goes into a correction mode.