Markets Gain 2.5% In The Week Over The GAAR and EU Relief

The week that started with the disappointing announcement of the RBI has ended on a positive note with both the Indian benchmark indices (Sensex and Nifty) gaining by 2.5 per cent each. The uplift in the investors’ sentiment was mainly due to the positive news coming from the domestic as well as the European front.

The update on the General Anti-Avoidance Rules (GAAR), which has haunted foreign investors, has given some relief to the markets after a statement from the PMO that the final call on GAAR will only be taken after proper feedback. It is also learnt that the GAAR will be implemented from FY14 and not from this fiscal.

* Closing values of Thursday.

The tumbling rupee during the week held its bearish run and saw an appreciation of 1.84 per cent, though it is still under huge pressure. The rupee has shown resistance against all the major currencies, including that of the UK pound and Euro as well. The crude oil prices during the week saw a rise from USD 90.22 to USD 93.3 per barrel. The Nymex Crude prices also surged by 1 per cent.

The RBI, after its muted monetary policy announcement, was expected to give some push to the economy in the slated meeting on Monday. It was also the last day of Pranab Mukherjee as FM. Among the expectations were measures to boost exports and a cut in excise duty on some products to increase local consumption. The RBI, however, opted to attract greater foreign investment in government bonds. It also increased the total amount that Indian companies can borrow by way of the ECB route.

On the global front the euro is capturing the attention of the world. A two-day key summit of the European Union will end today and is aimed to find a solution to the ongoing debt crisis. The Europeans stocks were seen dropping a few points on the likely outcome of the summit. By Friday the leaders who took part in the summit had agreed upon a deal to stabilize the debt markets in the region and recapitalize their banks which would ease the funding strains on troubled countries like Spain and Italy.

The leaders also agreed that rescue funds could be used for sovereign debt purchases without forcing the countries to adopt extra austerity measures. Meanwhile Cyprus received support from the European countries to fund its banks that are holding the Greek bonds. Cyprus is the fifth country in the euro region which is seeking a bailout package.

During the week auto and auto ancillary stocks were under pressure. Tata Motors has shut the production of medium and heavy trucks at its Jamshedpur unit for three days to avoid piling up of stocks. It has also shut its truck factory in Pune for three days. The auto ancillaries’ company Bosch has also said that it will halt its production for some days due to weak demand. The unlisted subsidiary of the U.S. auto major, General Motors, has also said that it will cut production due to tepid demand. The auto index was flat during the week.

The power stocks were seen rising as the coal prices in the world markets have crashed by 20-30 per cent on a YoY basis. There was also a 26 per cent tariff hike in Delhi. The weak demand of coal has been main reason behind this. Meanwhile, the U.S. is opting for cheap natural gas while China has seen the demand of coal slackening due to a slowdown in its industrial segment. The power index saw a surge of nearly 5 per cent. The week saw NHPC commissioning its 70 MW hydropower capacity. Reliance Power also commissioned its 300 MW capacity. Tata Power said that it is now aiming for 26 GW capacity by 2020 instead of 25 GW.

The IT and teck stocks were also under pressure and both the indices remained weak compared to the broader indices. Metals were up by 4.19 per cent, showing good gains on a week-on-week basis. The capital goods’ index, after the probable 19-21 per cent duty on imported power equipments, was also up by 3 per cent. The banking stocks were also seen gaining by 2.5 per cent this week.

Meanwhile, the investment bank Morgan Stanley has upgraded the Indian equities’ outlook to ‘equal weight’. Among the other news, HSBC Holdings PLC has sold its stake in Axis Bank and Yes Bank. HSBC sold a 4.73 per cent stake in Axis Bank and a 4.76 per cent stake in Yes Bank. The pharmaceutical company Alembic today announced that it may have a shared 180-day exclusivity on one of the Pfizer drugs viz. Pristiq.

Companies like Strides Arcolab, Rolta and JSW Steel redeemed their FCCBs during the week. The RBI and the government are in discussion to create a bailout fund for the companies who will see their FCCBs maturing in this fiscal. This is good news for corporate India as the exchange rates have peaked and profitability has taken a beating.

The earning season will commence from next week. The markets will take its cues from the earnings of the corporates. Also, the government is likely to take the last opportunity to revive investor sentiment and also to do something of reformative nature. The markets may show some gains if the situation remains the same and even if there is no improvement.