RBI's status quo keeps mkts volatile

Sat, 22 Dec RoundUp

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Global stock markets mostly witnessed a volatile week of trade with Brazil (up by 2.4%) and Japan (up by 2.1%) being the top gainers. The US stock markets were marginally up by 0.4%. US investor sentiments were down as a result of uncertainty regarding finalization of a fiscal deal out of Washington. The investors were concerned about failure in negotiations to avoid US$ 600 bn in tax hikes and spending cuts that could result in US economy getting into recession.

BSE Sensex was down marginally by 0.4% for the week. Earlier in the week, the Reserve Bank of India (RBI) decided to keep the policy rates unchanged which met investor expectations. However, the apex body revised the GDP growth estimate downward to 5.7%-5.9% for FY 2013 than the earlier projected 7.6%.

Amongst the other markets, Brazil (up by 2.4%) led the list of gainers followed by Japan (up by 2.1%). Hong Kong (down by 0.4%) and Singapore (down by 0.2%) were on the losing side.

Source: Yahoo Finance

Sectoral indices displayed mixed performance with metals leading the gains (up by 4.4%) due to rising global metal prices on back of increased demand from China. Among the losers, capital goods (down by 1.9%) and consumer durables (down by 1.8%) were the worst of the lot.

Source: BSE

Now let us have a look at few economic/political events that unfolded during the week. The much awaited mid-quarter review of the monetary policy was announced this week in which RBI kept key rates unchanged. The repo rate and the reverse repo rate have been left the same at 8% and 7% respectively. The cash reserve ratio has been maintained at 4.25% of the demand and time deposits. The stubbornly high inflation is not letting RBI reduce rates, however the apex body has indicated that rates may get cut January onwards.

Now let us have a look at few corporate events that unfolded during the week.

FMCG major ITC is expanding its capacity in the promising packaging segment to cater to growing demand. The company wants to expand in both domestic and export markets. It has been investing in contemporary technologies in both flexible and paperboard packaging at its Haridwar and Chennai facilities. We may note here that packaging sector in India has been growing at a compounded annual growth rate of around 16%. The key demand drivers for the same are increasing need for differentiated products and rising demand from rural regions.

ITC has also ventured into the food processing industry with the setting up of a milk processing plant in Munger district of Bihar. The plant will be set up at a cost of Rs 1.5 bn and will be ready in a year's time. It will have a capacity of 0.2 m tonne litres per day that will be utilized to produce 10 tonnes of ghee, 20 tonnes of milk powder and 20 tonnes milk in pouches for domestic consumption per day.

In the pharma space, Biocon has entered into collaboration with CCM Pharmaceuticals, a subsidiary of Chemical Company of Malaysia. According to this, Biocon has granted CCM an exclusive licence and distribution rights for its insulin products in Malaysia and Brunei. We may note here that both these companies are looking at insulin market and with this deal, Biocon will have a partner to market its insulin products.

In some more news from the pharma industry, Lupin has received US Food and Drug Administration's (FDA) approval for Drospirenone and Ethinyl Estradiol tablets - an oral contraceptive drug - for the American market. The generic version of Bayer's Yasmin tablets is used for prevention of pregnancy in women. It is believed that Yasmin tablets have a sale of about US$ 275 m about (Rs 15 bn) annually. This is Lupin's seventh approval in the oral contraceptive space. The oral contraceptive market in the US is growing at 10% per annum. However, there are not many players competing in this space resulting in more profitability for existing ones.

Automobile company Mahindra & Mahindra (M&M) has bought out 49% stake from Navistar group in its joint venture Mahindra Navistar Automotives Limited (MNAL) and Mahindra Navistar Engines Private Limited (MNEPL) for Rs 1.75 bn. The deal is expected to get completed in the beginning of 2013 after getting required approvals in India. Both MNAL and MNEPL will become wholly owned subsidiaries of M&M. Navistar is a US truck maker and has been facing regulatory challenges in the recent past. It has also received acquisition threats from some private equity investors and global auto companies.

Movers and shakers during the week

Company	14-Dec-12	21-Dec-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Tata Steel	397	430	8.1%	501/332
Hindalco	120	129	7.6%	165/100
Jindal Steel	431	454	5.5%	663/321
Cipla	404	419	3.7%	430/287
Sterlite Industries	113	117	3.3%	138/88
Top losers during the week (BSE-A Group)
Larsen and Toubro	1,638	1,589	-3.0%	1720/971
HDFC	852	828	-2.8%	882/611
ITC Limited	296	288	-2.7%	307/197
Reliance Industries	839	823	-1.9%	881/671
HDFC Bank	689	676	-1.8%	705/418

Source: Equitymaster
Both houses of the parliament have approved the banking amendment bill giving way to issuing of more banking licenses and attracting more foreign investment into the sector. This implies that corporate houses waiting go get into the banking space will now have the opportunity to do so. The final guidelines are expected to be announced in a year's time. A new committee will be formed with RBI and finance ministry that will look into all aspects of this development.

With announcement of such long awaited policy measures, Indian investors are hopeful of some more reforms and a probable rate cut by the RBI. The banking regulator indicated a pick up in the Indian economy and moderating of inflation. The approaching earnings season will give a better idea about the state of affairs.