Global Markets End Mixed

Sat, 19 Nov RoundUp

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Markets worldwide continued to remain volatile, ending on a mixed note in the week gone by. Fed Chair Janet Yellen strongly hinted that improving US economy has raised chances of an interest rate hike in December. This along with encouraging domestic economic data - that include a rise in inflation and robust growth in house starts - saw the US markets gaining the most. Markets in Germany and France also ended in the positive territory.

While there is concern that higher U.S. rates could draw money out of emerging markets, the impact has been felt more in the Hong Kong stock market which is more exposed to global shifts in funds. The Chinese market, on the other hand, ended the week marginally higher. Among other Asian markets, the Japanese market climbed to an 11-month high as the yen weakened further against the surging dollar boosting prospects of good export realisations.

Back home in India, the markets continued to feel the tightness in liquidity as a result of the government's demonetisation move last week. The benchmark indices were down by 0.8% for the week. The rupee also remained volatile on rising US bond yields.

Key World Markets During the Week

Sectoral indices largely ended the week on a negative note with stocks from metal and consumer durable space witnessing maximum selling pressure. Only power stocks have managed to stay afloat.

BSE Indices During the Week

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

To ensure that the crackdown on black money is not diluted in the demonetization drive, the government has mandated inedible ink mark for exchanges above Rs 4,500. As per the news, those exchanging old notes to the tune of Rs 4,500 over the counter will now be marked with indelible ink. This will be done to ensure that the same people do not queue up repeatedly as the government aims to stop money laundering and ensure that the lines at banks get a little shorter. Apart from this, the government has also warned Jan Dhan Yojana account holders against allowing their accounts to be misused to launder scrapped Rs 500 and Rs 1,000 notes.

With major infusion of fresh liquidity arising from the demonetization measure, ICICI Bank and HDFC Bank slashed fixed deposit (FD) rates by up to 0.25%. Following the footsteps of the State Bank of India (SBI), ICICI Bank lowered interest rates on its fixed deposit between 390 days and two years by 0.15%. While HDFC Bank reduced interest rate by 0.25% across all tenures on bulk deposits.

Notably, till Nov 16, SBI collected Rs 1141.3 billion in deposits over the last seven days after the government announced to scrap Rs 500 and Rs 1000 notes. According to estimates, banks have collected cash deposit of over Rs 4 trillion following the demonetization decision announced on November 8 by Prime Minister Narendra Modi.

Reportedly, the cut in deposit rates will translate into lower lending rates when banks review Marginal Cost-based Lending Rate (MCLR) by the end of the month. Moreover, Axis Bank announced a cut in its MCLR by 0.15-0.20% on Wednesday.

Movers and Shakers During the Week

Company	11-Oct-16	18-Oct-16	Change	52-wk High/Low
Top Gainers During the Week (BSE Group A)
Corporation Bank	42	48.70	15.7%	51/31
Bank of Baroda	160.70	176.70	10.0%	182/109
Union Bank	143.95	157.25	9.2%	174/104
Power Fin Corp	118.20	125.10	5.8%	130/70
Engineer's India	268.35	283.50	5.6%	288/143
Top Losers During the Week (BSE Group A)
Jet Airways	424.95	359.25	-15.5%	796/357
Gitanjali Gems Ltd.	63.6	54.2	-14.8%	94/30
Berger Paints	216.15	188.00	-13.0%	277/153
Opto Circuits	10.73	9.36	-12.8%	17-Aug
Voltas	333.45	293.00	-12.1%	406/211

Source: Equitymaster

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

One of the sectors likely to adversely impacted by Trump's presidential victory in the US is the IT sector. Clamping down on immigration has been one of the top priorities of Mr Trump during his presidential campaign. Till now, IT companies used to send IT personnel at relatively cheaper rates to the United States of America on H-1B visas. Now, Mr Trump has proposed to put a clampdown on these H-IB visas as well as increase the prices at which these visas are issued.

Once, the rate of approval of these visas comes to a halt, IT companies would not be able to send IT personnel from India to the States. Instead, they will have to hire recruits locally i.e. from the US. Hiring people in the US would be more expensive and this in-turn could dampen the margins of the company. Infosys chairman Mr Sikka has said that the move curb H-IB visas can weigh on the margins of the company.

Even NASSCOM- the industry lobby group for India's software industry had lowered its export estimates.

Earlier in February, the lobby expected exports of Indian software services to grow at the pace of 10-12% for the year ended March 2017. However, this forecast has now been lowered to 8-10%. The estimates have been lowered mainly owing to the concerns over Brexit and the recent unexpected election of Mr. Trump as the President of United States of America.

Cadila Healthcare Ltd will transfer its India human formulations business to its wholly-owned subsidiary Zydus Healthcare Ltd on a slump sale basis for Rs 693 million. The scheme is expected to bring more focused and concentrated efforts to grow the respective operations of both the companies.

As part of the scheme, a manufacturing plant and pharmaceutical technology center in Ahmedabad will be transferred to Zydus Healthcare. However, the strategic business (Subscription Required) unit of biologics will not be transferred. Cadila Healthcare's India human formulations business has a turnover of Rs 13.7 billion in financial year 2015-16. It also accounts for 21% of the company's total turnover.

Cadila has entered into multiple alliances and joint ventures in the India (Subscription Required) and other geographies with big MNC players. Tanushree Banerjee, Co-head of Research is of the view that the subsidiaries and joint ventures are expected to pitch in to boost the topline growth of the company. She has recently shared a detailed view on the company and valuations in the recommendation report of The India Letter.

Sun Pharma's arm Taro Pharmaceuticals USA Inc is recalling 17,100 kits of Kamedis Bio-Herbal Dandruff Care System in the US. The drug has been recalled on account of being sub-potent drug, out of specification assay values on stability for the active ingredient, zinc pyrithione.

According to US FDA (Food & Drug Administration), the voluntary nationwide ongoing recall is a class III recall. A class III recall is initiated in a situation in which use of or exposure to a violative product is not likely to cause adverse health consequences.

Lupin has launched Amabelz tablets in the strengths of USP, 0.5 mg / 0.1 mg and 1 mg/ 0.5 mg American market after getting approval from the US health regulator. The tablets are used in prevention of postmenopausal osteoporosis and is a generic version of Amneal Pharmaceuticals' Activella tablets in the US.

According to IMS MAT sales data, Activella had US sales of US$91.1 million. Meanwhile, Lupin has also launched Iron Isomaltoside injectable iron formulation under two brand names Isofer and Jilazo in India. Lupin had acquired the exclusive rights to market and sell the injectable formulation from Denmark-based Pharmacosmos A/S.

Lupin had also received clearance from the USFDA on its Goa plant recently. This clearance was long awaited and would pave way for more lucrative approvals.

LafargeHolcim has raised its holding in its two flagship local companies, ACC Ltd and Ambuja Cements Ltd. LafargeHolcim bought a 4.2% additional stake in ACC for Rs 12.1 billion and around 2% in Ambuja Cements for Rs 9.4 billion. ACC and Ambuja have a combined cement capacity of more than 60 million tonnes and a distribution network that extends across the country.

These share purchases further increase the Group's interest in its two strong companies which constitute a solid platform from which to capture future growth. LafargeHolcim said India is one of its key markets with very solid long-term fundamentals and a clear potential for further improvement in business performance.

This comes four months after LafargeHolcim struck a deal to divest assets previously under Lafarge India. LafargeHolcim had agreed to sell Lafarge India Pvt Ltd to Nirma Ltd for US$ 1.4 billion (Rs 94 billion) including debt, in a deal to complete the India leg of the global merger of Lafarge and Holcim.

Bharat Heavy Electricals Limited (BHEL) has secured export orders for supply of industrial motors to the African nations of Togo and Benin. Scancem International DA, Norway (Heidelberg Cement group) has placed the order for the motors for their cement plants, Ciments Du Togo S.A. & Cimbenin S.A, Benin. Further, the motors will be manufactured and supplied by BHEL Bhopal unit.

Recently, the company has built 500 MW Kosti Thermal Power Plant and is the largest thermal power plant of Sudan. The project came close on the heels of the successful commissioning of BHEL's 28 MW Nyaborango Hydro project in Rwanda, 2x20 MW Steam Turbine and Generators for cogeneration application at Tendaho Sugar Factory in Ethiopia. Moreover, BHEL now has presence in 80 countries across all the six inhabited continents.

Power Grid Corporation of India is planning to build energy highways across the country in order to meet a projected growth in demand and ease the load on the national grid. The highways will include 11 high-capacity corridors, each with a capacity of about 4,000 Mw and three high-capacity HVDC (high-voltage, direct current) systems (6,000 Mw each). The central transmission utility will also develop eight inter-state transmission systems (ISTS) or green energy corridors to help the renewable energy sector.

In this regard, the company has planned an investment of Rs 1.12 trillion, with the energy highways costing Rs 580 billion and the HVDC systems Rs 120 billion each. The cost of the ongoing green corridors is Rs 180 billion. The ISTS for solar parks is about Rs 90 billion each. The costs are for the lifetime of the projects and would be invested according to commissioning time lines.

The domestic markets are expected to remain on the edge tracking global cues from the uncertainty pertaining to the Fed rate hike in December. Even short term liquidity concerns arising from the withdrawal of high denomination currency notes is likely to depress demand in the near term and impact consumer stocks. But instead of getting swayed by these short term fluctuations, investors should look out for opportunities to cherry-pick stocks with strong fundamentals and durable moats.

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

It was quite an action packed week with the Nifty dropping almost 100 points on Monday only to recover all of it on Tuesday. Nifty opened with a gap on Tuesday and ended the session with gains of 150 points. Finally, it ended the week with gains of more than a percent at 8691. It seems like the levels of 8,700 to 8,750 could act as resistance in the immediate term. You can read the detailed market update here...

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