Global markets remain upbeat

Sat, 30 Nov RoundUp

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The US Iran peace deal had a positive rub-off with stock markets across the globe remaining buoyant. Iran and six world powers reached an agreement in Geneva, Switzerland after a long deadlock of more than three decades over the former's nuclear program. In exchange for the controlled nuclear enrichment, the grip of international sanctions against Iran would be loosened under the deal. India, being a large importer of crude from Iran after Saudi Arabia, would be the biggest beneficiary from the agreement. This coupled with an improved GDP growth for the September quarter saw the Indian stock markets clocking the biggest jump of 2.8% during the week. Majority of the Asian markets reported strong gains with the Japanese and Chinese indices clocking gains of 1.8% and 1.1%, respectively.

Even European markets posted strong gains on positive eurozone economic data. The eurozone unemployment rate dropped from 12.2% in September to 12.1% in October. Even inflation increased, quelling concerns of deflation in the eurozone. Stock indices in Germany and France gave handsome returns of 2% and 0.4%, respectively for the week. Even the US markets were marginally up by 0.1% on favourable eurozone data.

Source: Yahoo Finance

Rally in the Indian markets, on expectations of benign crude price and recovery in economic growth, was marked by a strong rebound across the board. All the sectoral indices ended the week in the green with stocks in interest-sensitive sectors mainly Capital Goods (up 8.3%), Banking (up 4.3%) and Auto (up 4.1%) witnessing maximum gains.

Source: BSE

Now let us discuss some of the economic developments of the week gone by.

For the quarter ended September 2013, the economy registered a GDP growth of 4.8% slightly better than the 4.4% growth recorded in the preceding quarter. The recovery was aided by significant growth in agriculture, select infrastructure, construction, financing and insurance sectors during the quarter. The GDP growth for 1HFY14 stood at 4.6% which is still lower than the Finance Ministry's projection of 5-5.5% for the full fiscal year FY14.

The Government of India could expedite imports from Iran next month and start transferring billions of dollars outstanding for oil, following a deal between Tehran and six world powers to curb Iran's nuclear programme. As per government and refining sources, India is Iran's second-largest buyer and owes Tehran about US $5.3 bn for oil shipments. The payments by Indian refiners to Iran could resume through Turkey's state-run Halkbank, a route used until February. The deal also suspends sanctions provisions on insurance, which had left refiners that processed Iranian oil without cover and resulted in India's imports falling to below even the level permitted by sanctions.

The Ministry of Heavy Industries has deferred the roll-out of incentives for electric vehicles citing economic slowdown. The Ministry has said that it is targeting to introduce subsidies for electric vehicles, under the National Electric Mobility Mission Plan, by April 2014. Under the plan, the government would provide incentives to the tune of Rs 120 bn over the next seven years till 2020 with an average subsidy of Rs 20 bn each year. The subsidies are aimed at building a thriving electric vehicle market in India. The government expects a penetration of 1.5 m four wheelers and 4.5 m two wheelers based on electricity by 2020 with a share of 17% of the total sales. As per the Ministry of Heavy Industries, success of the electric vehicles will result in fuel savings of Rs 400 bn. The government is contemplating to offer incentives to the vehicle owner on the cost differential with respect to the electric vehicle.

In another move, the Cabinet has postponed the proposal to ban complete takeovers by foreign companies of critical lifesaving drugs production facilities. The Department of Industrial Policy and Promotion (DIPP) had proposed to reduce the limit for Foreign Direct Investment (FDI) from 100 % to 49 %, subject to approval of the Foreign Investment Promotion Board (FIPB). As per DIPP, a high number of foreign acquirers of cancer oncology injectables and APIs manufacturing facilities post-takeover have shut down the manufacturing units and R&D centre of the acquired companies over the last two years. This in turn has made the country vulnerable in the critical healthcare. But the Cabinet has decided to postpone the decision following strong opposition from key stakeholder ministries including the finance ministry and the Planning Commission.

Movers and shakers during the week

Company	22-Nov-13	29-Nov-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Torrent Power	101	125	23.1%	198/67
Voltas	90	111	22.6%	117/63
Jaiprakash Associates	46	54	15.9%	107/28
Crompton Greaves	108	125	15.5%	127/72
BHEL	137	156	13.9%	248/100
Top losers during the week (BSE-A Group)
Pipvav Defence	50	46	-7.3%	98/41
Nestle	5,468	5,137	-6.0%	5865/4410
GMR Infra	22	20	-6.0%	25/11
Apollo Hospitals	876	836	-4.6%	1096/767
Piramal Enterprises	544	520	-4.6%	648/476

Source: Equitymaster
Now let us move on to some more news from the corporate world.

Infosys has begun complete overhaul of its famed Global Delivery Model (GDM) to make it more cost effective. Infosys had pioneered the GDM around 20 years ago is looking to prune costs and thereby improve efficiency. The company hopes to become more competitive in the process. The completion of the process will significantly reduce the number of onsite employees, especially senior staff, and in turn minimize dependence on such expensive efforts. Infosys will also increase the frequency of night shifts of its employees in India to step up its offshore effort. Apart from improving competitiveness, this strategy would also help Infosys mitigate the negative effects of the US immigration bill which is due to be passed into law in 2014.

Among other growth initiatives by software companies, Tata Consultancy Services (TCS) and Tech Mahindra want to expand operations in the Asia-Pacific region. Both firms are in a race to buy a large stake in the IT services arm of the South Korean telecom firm, KT Corporation. The company, which will be listing its IT services arm after the stake sale, is looking for a strategic partnership before taking the company public. KT Corp will be putting up 45% of its IT services arm on the block and both TCS and Tech Mahindra will submit their bids for the same within a few days. Neither TCS nor Tech Mahindra has a strong presence in the South-East Asian region. In 2QFY14, both firms derived less than 10% of their revenues from the Asia-Pacific region.

In a positive development on the economic front, nine firms are bidding for the Rs 250 bn ultra mega power project (UMPP) at Bedhabahal in Odisha. The bids have been submitted despite the tough macroeconomic environment and initial reservations of private companies with respect to the new bidding norms. The issues of contention for private power generation companies were the non-ownership of land and coal mines as well as conditions such as mandatory domestic sourcing of equipment, cap on fuel charges and higher intrusion by independent engineers. Companies such as Tata Power, Adani Power, NTPC, Larsen & Toubro, Jindal Power, JSW Energy and Sterlite Energy have reportedly submitted technical bids for the project. Even state-run hydroelectricity company NHPC and foreign firm CLP India are in the race for the project.

Tata Motors will undertake major cost cutting exercise to tide over increasing losses in its domestic operations owing to slowdown in the economy. The company is likely to freeze large hiring for time being and reduce the number of suppliers. The company will also cut back on investment in subsidiaries and minimize travel costs. However, the cost-cutting plan may not affect the company's focus on new product developments. The company has plans to invest Rs 30 bn towards product developments in FY14. According to the Tata Motors management, it could be another 3-4 quarters before a significant recovery in the CV space and passenger vehicles front takes place.

Faced with slowdown in demand for discretionary categories, FMCG companies are refurbishing their distribution reach. ITC has mapped more than 20 lakh stores that include organized retail as well as neighborhood kirana stores across India using latest technology. With near real time information on the availability of its FMCG products in these retail outlets provided to consumers on an online platform, the company aims to increase its customer engagement and push sales of premium products. ITC's product basket consists of a large number of premium offerings such as Dark Fantasy, Choco Fills, Delishus cookies, Aashirvaad multi-grain atta and Fiama Di Wills shower gels that are available in select outlets. To provide consumers easy access to its products, ITC's store locator application has mapped stores across 150 towns and cities. The company plans to link its inventory billing at the outlets to the network to get the correct inventory position in the stores. The store locator service has been test launched in May and ITC wants to promote the service more extensively.

With commercial vehicle business remaining weak, Eicher Motors wants to capitilaize on strong growth of its Royal Enfield business that currently sells different models such as Bullet, Classic and Thunderbird. The company launched the Continental GT motorcycle in the Indian markets. The said model, earlier launched in the international markets, is a 533-cc motorcycle and would be retailed at a price of over Rs 2 lakh in Mumbai and Delhi. These motorcycles would be manufactured at the company's Oragadum manufacturing plant in Tamil Nadu. For the quarter ended September 2013, Eicher Motors' consolidated revenues were higher by 14% YoY led by the company's standalone (Royal Enfield) business, which reported a stellar volume growth of 60% YoY.

India's macroeconomic environment registered a mild recovery in the September quarter. Even the US Iran peace deal augur well for the country's fuel costs and will go a long way in helping it keep its current account deficit and inflation under check. In such a scenario, the Reserve Bank of India may consider cutting interest rates in future thereby providing the much-needed boost to capital investments in the country.