Better-than-expected macroeconomic numbers and global cues proved a good concoction for the markets this week.
Q1 GDP numbers released late Friday last week boosted benchmark stock indices to historically high levels on Monday. A European style stimulus is also on the cards, declared ECB President Mario Draghi on Thursday. The move can prove beneficial to emerging markets such as India, point out analysts.
Both Sensex and Nifty surged between 1.5 percent and 1.7percent, rising in 3 out of 5 trading sessions this week. Broader markets witnessed major action this week; BSE small-cap and mid-cap indices spiked 3.4-3.5 percent, significantly outperforming the benchmarks’ 1.5-1.7 percent bump. From the mid-cap space, Gammon India, Shalimar Paints, HFCL swelled 31-32 percent; Suven Life, MTNL , UPL and Apollo Tyres shot up between 17 percent and 27 percent.
Among blue-chips, NMDC, Bharti Airtel and Cipla were gained 8.4-9.6 percent; Hero MotoCorp , L&T, UltraTech ,Tech Mahindra, Grasim and Axis Bank surged between 4 percent and 6 percent.
According to Vibhav Kapoor, Group Chief Investment Officer, IL&FS, Nifty could touch 9000 by March. Kapoor said global equities appear comfortable and a potential hike in interest rates by US Federal Reserve would not affect liquidity flows to emerging market.
The week hummed with a ‘NaMo’ chant after Prime Minister Narendra Modi on his visit to Japan managed to secure a commitment from Japan to invest USD 35 billion in private and public investments in India over the next five years.
The week also saw the deferral of SC judgment on the fate of coal blocks allocation to September 9. Last week, SC had held the allocation of coal blocks since 1993 was illegal. The move caused jitters in the power & mining stocks.
The economy expanded at its fastest pace in two years at 5.7 percent in the April-June period, up from previous quarter’s 4.6 percent growth and 4.7 percent a year earlier.
But experts are convinced that the first quarter’s euphoria may not be repeated in later quarters.
“The jump in June growth partly reflects deferral of public expenditure to the June quarter from March to show a lower-than-targeted 4.6percent FY14 fiscal deficit. As a result, social services jumped 9.1percent in the June quarter from 3.3percent in March. Had social services grown at, say, 6percent in the two quarters, growth would have worked out to a more comparable 5.3percent for June and 4.9percent for March,” said BoFA BofA Merrill Lynch report.
Also, current account deficit (CAD) for the first quarter of FY15 contracted to 1.7 percent of GDP at $ 7.8bn down sharply from 4.8percent or $ 21.8bn in the same quarter last year.
Euro Trip: Second innings of loose liquidity?
A European style quantitative easing is also on the cards, declared ECB President Mario Draghi. ECB also its benchmark interest rates by 10bps to 0.05 percent.
The ECB announced a program to buy ‘simple and transparent asset-backed securities and covered bonds starting in October.
Speaking to CNBC-TV18, Nick Parsons, Head of Research, UK & Europe at National Australia Bank said he expects emerging markets to be the unintended beneficiaries of the ECB rate cut.
“I think its supportive for credit market, it is supportive for assets more generally and although its giving quite a big boost to the US dollar, we can see that through the performance of the dollar index spot (DXY), the EM is able to be resilient in the face of US dollar and it is helpful for risk assets more generally. How long that period of this being supportive, remains to be seen because at some point we will be looking forward to the FOMC’s next meeting on September 17, but for the moment it is supportive and would be beneficiary of it,” said Parsons.
A growth in auto sales numbers, a proxy for consumer demand, also bolstered the prospects for automobile companies ahead of the festive season.
Nine of the country’s top automobile manufacturers collectively sold 200,174 units in August as compared to 169,809 units sold in the same month last year.
Ajay shethiyas of Centrum Broking says, “Passenger vehicle industry seen positive growth after 17 mths of decline. Festive period stocking has taken place early. Dealers suggesting major pick up ahead of Shraadh period this year. Shraadh period from 9th Sep– 23rd Sep this year , thus pre- buying seen before shraadh. Dealers indicate signs of recovery visible in MHCV space. Discounts in MHCV space has stabilized. A Strong recovery expected in CV cycle in H2FY15.”
Maruti sold 1,10,776 units in the passenger vehicles segment, up 26.9 percent compared to 87,323 units in the same month last year. This was largely on account of robust sales in the domestically, which increased 29.3 percent to 98,304 units while exports were up a more modest 10.5 percent to 12,472. The stock surged 3.6percent this week.
Telecom super regulator
The buzz about TRAI getting replaced by a super regulator generated good returns for telecom stocks this week. Bharti Airtel surged 8.5 percent and fared among the top Nifty gainers this week. The proposed regulator will be called ‘Communications Commission’, and might replace Telecom Regulatory Authority of India (TRAI), sources told CNBC-TV18.
The new body will retain the functions and the powers of TRAI but will additional say in affairs of some other regulators such as the Censor Board, clearances given by Competition Commission of India (CCI), Department of Telecommunications (DoT) and the Environment Ministry.
Movers & Shakers
The week put the the erstwile king of good times -Vijay Mallaya- was back in focus. He along with three other associates of UB group were decalared ‘wilful defaulters’ by United Bank of India (UBI).
The move followed after Mallya and his associates didn’t turn up for a meeting at the grievance redressal cell of the United bank of India. Mallya’s grounded Kingfisher Airlines owes about Rs 350 crore to the bank.
The law requires that all access to further bank funding be cut to willful defaulters and also the companies where they serve as directors.
Also, USL stock (down 4.8percent) got hammered to the dumps later in the week after the company reported a net loss of Rs Rs 5380 crore for the March quarter, due to write-offs and provisions. USL holdings stock slumped 14percent this week.
Brokerages CLSA and CIMB downgraded the stock following the pogrom.
“While we believe taking all these provisions in one swoop is prudent and a right step towards cleaning up its balance sheet, we cannot completely rule out further provisions as investigations are still ongoing. We cut our FY15-FY16 EPS forecasts by 24-27 percent to reflect slower operational improvement and higher outstanding debt post W&M sale. We roll over to September 2015 target price of Rs2,230. Risk-reward is not attractive enough as current valuations already factor in a strong recovery,” said CIMB in a note