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Global markets ended the week on a mixed note on the back of an escalation in the Ukraine crisis. However, the US markets remained buoyant due to positive economic data regarding consumer sentiment and improving factory activity. Disregarding geo-political concerns, the benchmark S&P 500 index closed at a new all time high above the 2,000 mark. The Brazilian markets continued their good run from last week and was the top performer this week as well.

In Europe, inflation fell to a five year low indicating that consumer confidence remains subdued. However, market sentiment has picked up on the expectations of a further easing of monetary policy by the European Central Bank (ECB). The French CAC, the German DAX and the British FTSE ended the week with gains of 3%, 1.4% and 0.7% respectively. In Asia, most markets ended the week on a negative note but the Indian markets bucked this trend and closed the week positively.

Key world markets during the week
Source: Yahoo Finance

Sectoral indices in the Indian markets ended the week on a mixed note. Realty (down 5.2%) and Metal (down 4.6%) indices witnessed the highest selling pressure during the week. On the other hand, FMCG (up 3.2%) and Auto (up 1.5%), were the top gainers this week.

BSE indices during the week
Source: BSE

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

As per a leading financial daily, the oil ministry will seek Cabinet nod for freeing diesel prices, now that the retail rates achieve parity with global levels. Also, the ministry has proposed to cut subsidy payout by upstream firm like Oil and Natural Gas Corporation (ONGC) by half. One must note here that a phased deregulation of diesel rates was started in January last year with up to 50 paise a litre increase in rate every month. As such, the under-recovery on diesel now stands at Rs 1.78 per litre. By the end of October, the pump rates could come at par with international price. Before that, the ministry will approach Cabinet Committee on Political Affairs (CCPA) to change the under recovery burden sharing by oil firms. The ministry is proposing to split under recovery burden equally between the Government and upstream firms.

Power and mining companies received a big blow this week as the Supreme Court held that all coal blocks allocated by the government to various firms between 1993 and 2009 were done in an illegal manner. Stocks that witnessed sharp falls included Tata Steel, Hindalco Industries, Jindal Steel, JSW Energy and others. As per the Supreme Court, the final decision on the fate of the coal blocks will be taken on September 01, 2014. Market participants believe that the cancellation of 206 coal block mines is unlikely. They expect the business-friendly government at the Centre to intervene and find a solution to the issue. It is worth noting that metals and power companies depend significantly on coal to run smelters and generate electricity. These sectors have witnessed a strong rally in stock prices on expectations of reforms by the Modi government.

As per a leading business daily, deposit growth at Indian bank has picked up pace. This comes on the back of two consecutive months of subdued deposit growth. Bank deposits rose almost 14% YoY in the fortnight to 8th August. One of the reasons for this is that investments in debt mutual fund products flowed to deposits as the government changed the taxation structure on the former in the Union Budget gone by. A strong deposit growth may help banks lower their deposit rates. This may further lead to lower lending rates too. A lowering of deposit rates also lead to lower cost of funds for banks.

Movers and shakers during the week
Company22-Aug-1428-Aug-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Bharat Electronics1,7782,05915.8%2,320/895
Havells India25228412.6%300/117
Bajaj Finserv9431,05011.4%1,075/568
Pidilite Industries3754109.5%422/220
TTK Prestige4,2994,6728.7%4,830/2,700
Top losers during the week (BSE-A Group)
Bhushan Steel131101-22.5%504/101
Jindal Steel292233-20.2%350/214
Adani Power5547-14.5%69/32
Core Education1412-13.6%28/11
Jaiprakash Associates5447-13.6%90/32
Source: Equitymaster

Now let us move on to some corporate developments in India Inc.

Gas Authority of India Ltd (GAIL) is planning to establish city gas distribution line in Patna and Gaya which is the first phase of its Rs 100 bn Haldia - Jagdishpur gas pipeline project. The project will entail 2,050 KM gas pipeline which will run through the states of West Bengal, Bihar, Jharkhand and the UP and will provide clean (environment friendly) and cheap energy to these states. Besides the 1st phase, the gas pipeline between Bhagalpur and Muzaffarpur will also be given priority for construction. Apart from serving the household and transportation facilities, the CNG and PNG gas will also be supplied to fertilizer, power, steel and other industries.

In order to capture a larger share of the big-ticket loan market in large cities, three of the country's key lenders - State Bank of India (SBI), ICICI Bank and Punjab National Bank (PNB) - have cut the home loan rate. SBI has reduced the interest rate on home loans above Rs 75 lakh by 15 basis points to 10.15%. Now that the slab system has been done away with, the banks will now offer home loans at a uniform interest rate, irrespective of the loan amount. ICICI Bank has also removed the different interest rate slabs on its home loans. The bank recently started offering loans of up to Rs 50 m to salaried individuals on a flat interest rate of 10.15 %. This offer is currently for loans availed till the end of this month but is likely to be extended. PNB is also now offering home loans of up to Rs 20 m at 10.25%. For those above this, customers will be charged 10.5%. Earlier, the bank charged 10.25% interest for loans of up to Rs 7.5 m and 10.50 % for the loans above that amount.

India's second largest IT firm, Infosys has stated that it may take a while for it to regain industry leading growth figures. However, the company's COO stated in a recent meet that the company is on track to achieve a revenue growth guidance of 7-9% and profit margin guidance of 24-25% for the fiscal. It may be noted that Infosys' growth guidance is far below industry expectations. Nasscom has pegged the export revenue growth for FY15 in the region of 13-15%. And Infosys is at the mid end of this range. Over the past few years, the company has missed its guidance several times and lost market share to rivals like Tata Consultancy Services (TCS). Thus, it would be interesting to see if the company is able to regain its market leading status considering attrition is proving to be a major challenge.

India's leading two-wheeler manufacturer, Bajaj Auto has said that it will continue to remain focused on the motorcycle segment with brand strategy revolving around its two brands Discover and Pulsar. The sales of the company's Discover range of motor cycle have been hit due to higher competition from Honda Motorcycle and Scooters India and Hero Motocorp. As per Society of India Automobile Manufacturers (SIAM), Bajaj Auto's sales for the period April-July 2014 fell by 15% YoY to 6.15 lakh units and its market share has fallen from 21.7% to 16.9% in the same period. The company does not want to enter the scooter segment that has been witnessing brisk volume growth in the past few years. As per Bajaj Auto, it does not want to spread itself thin by re-entering the scooter market that is non-lucrative but instead wants to focus on expanding presence in the overseas markets.

Going forward, the markets will be driven largely by FII flows. However, investors should remain invested in fundamentally sound companies for the long term.

This article (Western markets outperform) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]>
Sat, 30 Aug 2014 RoundUp http://www.equitymaster.com/tm/tm.asp?date=8/30/2014&title=Western-markets-outperform