Asia mixed, US up but India down

Sat, 11 Dec RoundUp

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After being the top performer last week, the Indian markets performed poorly in the week gone by. Declining by 2.3%, India's benchmark index the BSE-Sensex was the top loser amongst the key global markets. The losses would have been more had it not been for the positive set of news in the form of strong IIP data that was announced towards the end of the week.

As for the performance of the key global markets, gains were seen in Europe and certain Asian markets. France and UK were the top performers, ending higher by 2.8% and 1.2% respectively. Germany and Singapore followed suit, with weekly gains of 0.8% and 0.4% respectively. The US markets ended on a slightly positive note, while China remained flat. Apart from India, Brazil performed poorly this week with its benchmark index declining by 2%. Asian markets ended on a mixed note this week. While on one side indices rose on the back of better than expected reports relating to economic growth and employment figures, on the other, investors seem to be concerned over Chinese policy makers raising interest rates to contain inflation.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India - Barring stocks from the energy and IT sectors, all the sectoral indices ended the week on a poor note. Banking stocks led the pack of losers with the BSE-Bankex down by 7.6%. Stocks from the realty and consumer durables spaces were also amongst the top losers with the BSE-Realty and BSE-Consumer Durables indices ending lower by about 7% each.

Smallcap stocks were not in favour this week on the back of SEBI's clampdown on a handful of companies. It seemed as if investors took most smallcap index stocks to the cleaners as the BSE-Smallcap Index ended the week lower by 9%. Midcap stocks were not spared as well as the BSE-Midcap Index ended lower by 6%.

Source: BSE

Moving on to key corporate developments during the week - With input costs on the rise, auto manufacturers are finding it difficult to maintain profitability. And as such, they are planning to increase the prices of vehicles. A leading business daily during the week reported that India's largest car maker Maruti Suzuki is looking at raising prices of its vehicles to counter rising input costs and the impact of a stronger yen. While prices of rubber have pretty much doubled over the last year, copper and steel have gotten dearer by about 12 to 15%. The Japanese Yen has also been appreciating against the dollar. Maruti had earlier managed to counter the price hikes by improving internal efficiency. But, since all of these factors have been persisting for some time now, the auto major has decided that it will have to pass on these increased costs to its customers. In fact, two-wheeler major Hero Honda also announced that it would be hiking prices of its vehicles soon.

Moving on to other news from the auto space - Inspired by Tata Motor's effort to produce the cheapest car in the world, the Nano, Venu Srinivasan, the Chairman and Managing Director of TVS Motor is looking at doing something similar in the two-wheeler space. Mr. Srinivasan is hoping to manufacture cheaper bikes and believes it is possible as the Tatas were able to do so. This would also help the company to gain higher share of the two-wheeler market as it would boost volumes by catering to the small towns and rural markets of India. At present, the cheapest vehicle being offered by the company is the 100 cc TVS Star Sport, which carries a price tag of around Rs 32,000.

As per Mr. Srinivasan, the company will be developing products that are specific to rural areas and are affordable. His belief is strengthened by the significant growth shown by small towns in the last financial year. According to the company, towns having population of less than 1 m accounted for nearly three-fourth of the industry's sales. And these are believed to have grown by about 30%. This is despite the restricted availability of retail finance. Sales of TVS' mopeds grew by about 30% YoY during FY10.

The stock of cement major ACC ended higher by 9% on Friday and 7% as compared to last Friday closing this week. In fact, the stock was the top performer amongst BSE ‘A' Group stocks. Gains in ACC were on the back of Swiss cement giant Holcim or the parent company of ACC Limited increasing stake by 1.17% to 47.37% in the company. The company purchased 2.2 m shares (through Ambuja Cement India Pvt. Ltd) for a consideration of about Rs 2.4 bn (approximately Rs 1,080 per share) in a bulk deal on Friday. ACC's stocks closed at similar levels on Friday.

Banking stocks were not favoured this week as news of India's largest bank SBI hiking deposit rates were announced this week. SBI is believed to have hiked its deposit rate by 1.5% across various maturities of deposits. This move will provide better returns to depositors who have generally shirked bank deposits in favour of other better yielding assets like government bonds, gold, and stocks. While deposit rates in India are still not as competitive as these other asset classes, it is heartening to know that a small beginning towards making them attractive has been made.

The RBI governor's diktat seems to have started working on the banking industry as it recently asked banks to raise deposit rates and reduce lending rates to raise the savings and investment rate in the economy. Prompted by SBI's move, HDFC Bank, ICICI Bank and Punjab National Bank all announced a hike in deposit and lending rates by up to 75 basis points.

Movers and shakers during the week

Company	03-Dec-10	10-Dec-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
ACC	1,007	1,075	6.8%	1,133 / 700
Wipro	424	450	6.2%	500 / 328
NTPC	184	192	4.2%	242 / 179
Nestle	3,655	3,780	3.4%	4,199 / 2,471
Jindal Steel & Power	673	696	3.4%	754 / 605
Top losers during the week (BSE-A Group)
Koutons Retail	63	45	-29.7%	451 / 45
UCO Bank	145	114	-21.3%	152 / 54
Welspun Corp.	191	155	-18.7%	296 / 150
Pantaloon	424	350	-17.4%	531 / 340
Syndicate Bank	145	121	-16.6%	164 / 80

Source: Equitymaster
Moving on to the key economic development during the week - The industrial output in October rose by 10.8% YoY. The IIP data reveals that manufacturing sector during October grew by 11.3% YoY and electricity generation by 8.8% YoY. The capital goods industry, according to data, recorded a growth of 22% YoY in October. The growth rate of the mining sector, however, decelerated to 6.5% YoY during the month. During April-October, the industrial output showed an increase of 10.3%, up from 6.9% during the corresponding period last year. The government attributed the rise in IIP to improved performance of sectors such as ship building, power equipment and generators.

During the week, the Indian government stated that it expects India's GDP to grow at around 8.75% in FY11 and could even breach the 9% mark. It also stated that the headline inflation is expected to ease to 6.5% by the end of December. In the review, food inflation has been pegged at 19.9%, while fuel inflation stands at about 10.3%. The mid-term review sees budget deficit at 5.5% of GDP for the current fiscal. The RBI has been tightening its policy measures to keep inflation in check and is likely to do so till the same eases within the central bank's comfort range. The mid-term review has also talked about the pushing reforms which in turn would attract long-term investments from foreign investors.