Global markets remain subdued

Sat, 7 Dec RoundUp

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The major global indices remained subdued after the worries over Fed tapering grew. TheUS job datathat stood strong during the week did not create a positive impact across global markets. That's because the strong employment data would now prompt the Fed to undertake the lowering of the tapering program anytime soon. That said, some respite came to the global markets with the anticipation of improvement in global economic growth. However, the underlying risks continue to bother the global economy.

The fears of strong US job data that might prompt Fed to lower the tapering program impacted the European Indices during the week. The US markets were marginally down by 0.4% on account of the weak sentiments during the week gone by.

Moreover, the worries on the European Central Bank (ECB) front exacerbated. The talks over the fiscal cliff have stalled sending negative sentiments across European Indices. Stock indices in Germany and France posted losses of 2.5% and 3.9%, respectively for the week. Barring the stock markets in China (up 0.7%), most of the Asian stock markets ended the week in the red.

Back home, Indian stock markets cheered the BJP lead in exit polls. Most of the sectoral indices ended the week in the green with stocks in banking (up 4.5%), capital Goods (up 3.9%), and metal (up 2.6%) space witnessing maximum gains. However, the stocks in the FMCG and auto sector faced maximum selling pressure during the week.

Key world markets during the week

Source: Yahoo Finance

Apart from exit polls, buoyancy in the Indian markets was observed on account of narrowing down of current account deficit sharply to US$ 5.2 bn or 1.2% of GDP. Also, India's Purchasing Managers' Index (PMI) manufacturing data for November 2013 turned out to be highest i.e. above 50 for the first time in last seven months.

BSE indices during the week

Source: BSE

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

Aided by pick-up in exports of textiles, leather and chemicals coupled with dip in gold imports, India's current account deficit (CAD) contracted sharply to 1.2% of the GDP for the September 2013 quarter. The CAD which is the surplus of goods, services and transfers imported over total exports fell to $5.2 bn (1.2% of GDP) in September 2013 quarter as compared to US$21 bn (5% of the GDP) in the year-ago period. On a sequential basis also, the CAD reported in the September 2013 quarter has declined from 4.9% of GDP recorded in the preceding June 2013 quarter. For 1HFY14, the average value of CAD stood slightly over 3%. In the light of the latest development, both the government and Reserve Bank of India (RBI) are confident of achieving CAD of 2.5% of the GDP. Improvement in key economic variables such as GDP growth as well as falling CAD in the September 2013 quarter are expected to strengthen the rupee and improve the macroeconomic environment.

Also positive news came on the manufacturing front during the week gone by. India's manufacturing PMI read above 50 for the first time, the highest since July in last seven months. The HSBC Manufacturing PMI climbed from 49.6 in October to 51.3 in November.

In the meanwhile, the Indian Ministry is reported to have said that the country's economic growth rate has more than doubled to annual average of over 7%.The Prime Minister stated that the economy is in the upward trajectory. While the 5% growth rate may prove to be dissatisfactory today, but it was the target growth for more than two decades of the earlier five year plans. The economic growth, social change and political empowerment are expected to improve and bring about positive changes going forward.

The diesel demand has dropped for the first time in the decade. This is primarily on account of monthly price increase and rise in power generation. The current year witnessed a de-growth of 0.8% to 1%. The improvement in power generation reduced the demand for generator sets which in turn resulted in lesser demand for diesel. Moreover, diesel rates have risen by a cumulative Rs 6.62 per litre since January this year. Therefore, this impacted the demand for diesel cars too. On the other hand, petrol consumption has jumped 10% to 9.1 million tonnes (MT) in the first seven months of this fiscal. With diesel losing its sheen, the companies forming part of the Energy sector such as Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) are likely to face an adverse impact

Movers and shakers during the week

Company	29-Nov-13	6-Dec-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Lanco Infratech	6	7	14.8%	15/5
Oriental Bank	185	211	14.0%	353/121
Adani Power	36	40	13.2%	70/29
Axis Bank	1,155	1,281	10.8%	1549/764
Tata Power	80	88	10.8%	113/68
Top losers during the week (BSE-A Group)
Strides Arcolab	955	862	-9.8%	1200/553
Hexaware Technologies	122	113	1.9%	523/254
Godrej Consumer	884	830	-6.1%	977/679
Unitech	17	16	-5.7%	41/15
Hind. Unilever	594	561	-5.7%	725/432

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

India's largest utility vehicle maker Mahindra and Mahindra (M&M) has recalled 900 units of Scorpio Ex variant, due to faulty pressure regulator valve. The recall is for vehicles produced between October and November 2013. This replacement would be carried out with immediate effect. Reportedly, earlier in the year the company had recalled 25,000 to 30,000 units of its premium sports utility vehicle XUV 500 to replace parts such as fluid hose, front power window units and left wiper blade. These vehicles were produced in 2011 and 2012. Owing to continuous spate of recalls in the country, the Department of Heavy Industries is in the process of making the vehicle recall mandatory in the country. Further, it reports almost 7-10% of cars produced in the country during the last 12-18 months period have been recalled to tune of 250,000 to 300,000 units. The spate of recalls in the country shot up after the industry body, Society of Indian Automobile Manufacturers Association (SIAM), came out with the Voluntary Recall Code in July 2012.

Wipro is ramping down its hardware manufacturing business. It has already cut down production at its Personal Computer (PC) manufacturing and assembly factories in Uttarakhand and Puducherry. The company has also shifted some of the employees in the manufacturing division to other roles. But this move is expected to impact several hundred employees and the ones who are on contractual basis. Way back in 1982, Wipro had entered into hardware business. But later the company expanded into IT services. Wipro's hardware division which makes laptops, desktops and servers has witnessed fall in profitability over the past several quarters. The factory production slowed down and the company was compelled to scale down this facility. Moreover, Wipro failed to gain any competitive differentiation in manufacturing their own PCs. Also importing hardware has become cheaper than manufacturing it locally. Hence, responding to the changing market scenario and customer needs, the company decided to exit its manufacturing business.

Private power major, Tata Power stated that the announcement of the much awaited order relating to the compensatory tariff by power regulator Central Electricity Regulatory Commission (CERC) is expected to be announced by the end of the month. As mentioned by the company's management, the central regulator has finished the hearings. Tata Power's stock has been under pressure ever since the Indonesian government decided to align local coal prices with that of the rates prevailing in the international markets, thereby making its bid to supply power at the bid rate unviable. In fact the project was fully commissioned this year, but has been losing money as costs are higher than the realizations it gets per unit. And since the capacity of this project is substantial to the overall size of the company, it has had an adverse impact on the company's business. The above mentioned news is a result of the company seeking relief on account of adverse impact of the unforeseen, uncontrollable and unprecedented escalation in the imported coal price.

The telecom major Idea cellular, India's third largest cellular service provider will be contesting against government's penalty notice worth Rs 6 bn. As per the notice, the penalties are charged by the government for allegedly violating rules when the company acquired a smaller rival five years ago. Idea is working upon to challenge the government order. Reportedly, in 2008 Idea had agreed to buy smaller rival spice communications in a three way deal. In 2008, Idea Cellular acquired 41.1 % stake in Spice Communications. The companies merged in 2010, which resulted in overlapping of licenses in six circles. The telecommunications ministry has said Idea violated rules as it held permits in zones where Spice had operations.

India's macroeconomic environment is seen to be registering a mild recovery in the recent periods. The narrowing down of current account deficit that fell sharply to US $ 5.2 bn or 1.2% of GDP came as a positive development. Also, India's PMI manufacturing data turned out to be highest i.e. above 50 for the first time in last seven months. However, investors cannot afford to get carried away by the temporary feel good factors as the domestic economic scenario continues to remain vulnerable to global shocks. Also India's inflation and deficit problems are far from getting resolved. Investors would therefore do well to keep their portfolio resilient to economic crisis