Weekly Update 16-20th August 2010

Global markets fell in the week to date on renewed concern arising about the global recovery. Investors hoping for quick recovery got worried with the U.S. Federal Reserve saying that growth “is likely to be more modest” than they previously projected. It said that the pace of recovery in output and employment has slowed in recent months.

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The Fed left the overnight interbank lending rate target in a range of zero to 0.25 percent and repeated a pledge to keep rates low “for an extended period.” Stocks further came down with the data showing that more Americans filed applications for unemployment benefits raising the concerns over the consumer spending. Initial jobless rose to highest levels since mid February to 4,84,000. Industrial production in Europe unexpectedly declined in June by 0.1 percent from May on account of a drop in consumer durable goods.

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Another report showed that consumer confidence in U.K. dropped to a 15 month low in July. Bank of England said growth will be weaker and economy may need more emergency stimulus. It reduced its growth forecast to 3 percent annual pace from 3.6 percent rate forecast in May. The Bank of England held its bond-purchase plan at 200 billion pounds ($315 billion) and kept the main rate at a record low. Japanese markets too witnessed selling, with yen coming near to 15 months high to dollar, raising concerns over export earnings. China saw a smaller expansion in Industrial output in 11 months in July to 13.4 percent. Credit off take in China too expanded by least since March and export orders contracted in July on weak global demand.

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India’s Industrial production growth moderated to a 13-month low of 7.1% in June from 11.3% in May, weighed by a high base effect and sharp slowdown in the capital goods segment. Growth in capital goods segment weakened to 9.7% in June from 34.2% in May, suggesting a slowdown in investment demand. However, consumer demand remained strong with consumer durable goods growing over 20% for the 12th month in a row. With the base effect stronger from now onwards, the industrial growth rate is likely to remain below 10% for some time.

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The developed countries still resorting to provide stimulus to their respective economies in order to sustain the growth pace is likely to keep up the foreign money flowing into the emerging markets like India.

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Moreover with the good monsoon season, moderating Industrial production and edgy global recovery it looks RBI would wait for a while before further hiking its policy rates. Trend of the world stock markets on a weekly basis is still up but the sharp profit taking in many exchanges along with a sharp rise in dollar index is a sign of concern. But till the trend is up, one should be playing from the long side of the market. Nifty has support between 5350- 5300 levels and Sensex between 17800-17600 levels.

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Last week drop in commodities along with recovery in gold and dollar index after many weeks is advocating that upside in metals and energy is limited. Widening US trade balance and slow rise in Chinese factory order amid Chinese monetary tightening cooled off the prices. However, it will be too early to say that metals and energy will take a downturn. But they can see a gradual decline, especially base metals. Some important data from US and UK will further give direction to the commodities. Expect a mediocre week for agro commodities as market has discounted almost all big news. Keep an eye on monsoon and sowing update. Grains and pulses futures can trade in slim spread on mix fundamentals. Upsides in oilseeds appear limited for the time being.

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Weekly Update 19th – 23rd April 2010

After nine consecutive weeks of gains, domestic markets ended in the negative terrain in the week gone by on the concerns over interest rate tightening by the RBI in its monetary policy scheduled on 20th April coupled with weak cues from the Asian markets.

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Moreover increase in unemployment numbers in US and China’s measures to cool its real estate market raised the uncertainty over the global economic growth. Now, Investors are much wary over the signs of overheating in China as its economy grew almost 12%, the biggest expansion since 2007, Industrial production grew 18.1% in March & retail sales increased 18%. Closer home IIP numbers for the month of February grew by 15.1% as against an annual gain of 16.7% in January, and 17.6% in December. While India’s inflation, as measured by the wholesale price index (WPI), surprisingly stayed almost unchanged in March at 9.90% as compared to 9.89% in February. However, it is expected that after the strong Industrial numbers, improving trade, healthy credit off take in the last fortnight of last financial year & high Inflation, RBI may take steps to suck liquidity by increasing Cash Reserve Ratio & give signals of higher interest rates to the banking system & industry as well by increasing both policy rates. The other concern emerging for the manufacturing growth is appreciating rupee.

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As a major proportion of manufactured goods are meant for exports, the rise in domestic currency will arrest exporters’ margin & may result in lower export.

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FII’s also were a bit cautious to actively participate in the market ahead of RBI’s policy review. In the current CY, FIIs have so far pumped in more than $5.42 billion, while in the month of April; they have been net buyers at $ 1.05 billion in the Indian markets. Expectation of the good corporate results is likely to play a catalyst role for the next direction of the market. World stocks & commodity markets fell across the board after the revelation of SEC announcing civil fraud charges against Goldman Sach’s. This incident is likely to have its effect on the markets in the coming week.

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After 9 weeks of continuous rally in Indian stock markets, the rally ended last week after Nifty closed down 1.85% for the week. With world stock markets including the commodities taking a sharp correction on Friday, it seems that temporarily a top has been made in the market and one should be careful.

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Nifty has support between 5200-5100 levels and Sensex between 17400-17200 levels.

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On the commodity front, a range trading is expected in metals and energy.

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Since last few weeks, bullions and base metals have been trading in upper zone but are unable to break the resistance. Once they break their resistance then only, traders’ can see a new trading range. Back at home, sharp appreciation in rupee is also locking the movements. Data from European Union is important for the week apart from PPI and housing data of US. If improvement continues then only commodities will trade in upper trading range or vice a versa. Agro commodities could be more volatile ahead of expiry of April contract on NCDEX. In agro commodities, guar could see further rise on improved fundamentals as well as technical.

Indian Industry Expanded At A Fastest Rate in 25 Months :)

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India’s industrial output rose at a faster-than-expected 11.7 per cent in November  from a year earlier, due to stimulus-backed demand for manufactured goods, particularly consumer goods.

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Part of the industrial growth, measured by IIP is no doubt due to a low base of last year but it is mostly attributable to stimulus-driven demand.

Stimulus measures have boosted domestic demand for sure.

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However, industrial growth was just 2.5% in November 2008.

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India’s factory production in November was the fastest in 25 months, raising a debate on whether stimulus provided to spur the economy should continue.

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Meanwhile, manufactured goods, which have around 80% weight in the Index of Industrial Production, which measures industrial growth, grew by 12.7% in November 2009 compared to 2.7% in the same month a year ago.

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Within this category, consumer durable goods production expanded by 37.3% in the month against just 0.3% a year ago  while industrial output in Q1 of 2009-10 stood at 3.8% and in Q2 at 9.2%.

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Moreover, with better-than-expected performance in November,  industrial production in the first 2 months of Q3 now expanded at more than 10%, as it grew by 10.3% in October.

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As such, if the trend is maintained in December, industry would expand at faster pace in the third quarter.

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On the other hand, the continuous rise of industrial production gives enough hope that the recovery is on a firm footing.

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Though it is going to fuel the debate whether stimulus provided by the government to boost the economy should be withdrawn now or not.

🙂

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Market experts believe that with respect to stimulus, there could be some withdrawal on the indirect taxes side. This could be required to make up for the fiscal deficit.

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As part of stimulus, government had cut excise duty by six per cent and service tax by two per cent, besides stepping up Plan expenditure taking the total value of stimulus to Rs 1,86,000 crore.

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Morning News Capsules

Hello Friends, here, we bring you the latest updates from the Indian market and Industry.

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SMC Morning News Capsules

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NEWS CAPSULES

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• Backed by government stimulus measures and a low base effect,  growth in industrial output touched a two-year high in November 2009.

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The index of industrial production (IIP) grew 11.7 per cent, primarily due to growth in manufacturing (12.68 per cent in November as against 2.7 per cent last year),
fuelling a debate on withdrawal of fiscal and monetary stimulus measures.

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•  Maruti Suzuki, India’s largest manufacturer of passenger cars, launched Eeco, a multipurpose vehicle (MPV) in Ahmedabad.

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With Maruti Omni being largely used by the cargo segment, and the Versa failing to create a buzz in the market, the company needed to focus on the passenger side.

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Introduced in three variants at a price range of Rs 2.58-2.89 lakh, Eeco aims at fulfilling this gap.

Currently the company sells 550 Omni each month.

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•  Telecom major, Bharti Airtel, has announced that it has agreed to acquire 70% stake in Bangladesh-based, Warid Telecom.

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Bharti plans to make $300 million fresh investment in the company, thus taking the overall investment to $1 billion.

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The new funding will be for capacity expansion, coverage and innovative products.

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• FMCG major Dabur said it has tied up with a Belgium firm for technical collaboration to reduce carbon emissions in its plants and has invested Rs 5 crore for the purpose.

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The company said it is rolling out a host of initiatives at its various manufacturing facilities spread across India and Nepal to reduce carbon emissions and become more energy efficient.

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• Central electricity distribution firm PowerGrid would sign an agreement with Bangladesh later next month for setting up a transmission link with the neighboring country.

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• Punj Lloyd has bagged orders worth Rs 947 crore from Ind-Barath Energy.

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The company informed that it has won an order for partial balance of plant and civil work on a two 350 MW thermal power project by Ind-Barath Energy, Orissa.

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• New Delhi Television (NDTV) has informed BSE that NDTV Worldwide, a NDTV Group company has entered into an agreement with Beximco Group, Bangladesh.

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The company would be providing consultancy to set tip and assist in the business management and operations of a 24-hour news and current affairs channel proposed to be launched in Bangladesh by Beximco Group.

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• Infosys Technologies, India’s second-largest software services exporter, has reported a 3.6 per cent year-on-year (Y-o-Y) decline in net profit to Rs 1,582 crore for the third quarter ended December 31, 2009.

Total income, too, saw a decline of close to 1 per cent to Rs 5,741 crore.

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• Two – wheeler giant Bajaj Auto reported a smashing 189.24 per cent increase in its net profit at Rs 475.14 crore for the third quarter ended December 31, 2009.

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The company had a net profit of Rs 164.27 crore in the corresponding quarter a year ago.

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•  IT firm Mastek reported a 24.8 per cent decline in its net profit at Rs 23.54 crore for the quarter ended December 31, 2009.

It had a net profit of Rs 31.33 crore in the same period previous fiscal.

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🙂

Note : For More Latest Industry, Stock Market and Economy News and Updates, please Click Here

ECONOMIC INDICATORS… “Leading the World” Final Part

Hello Friends here we come up with an extension of our previous blog,

ECONOMIC INDICATORS… “Leading the World” Part 2.

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Economic Indicators - Leading the World Final Part

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In previous Blog, we had touched upon the classified categories of Economic indicators in details and about Time Era.

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Now in this final part we would know what major economic indicators are!!

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Major Economic Indicators :

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· Gross Domestic Product (GDP):

Indicates the pace at which a country’s economy is growing or shrinking.

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· Industrial Production:

Measures the change in the production of the nation’s factories, mines and utilities, industrial production also measures the country’s industrial capacity utilization.

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·Purchasing Managers Index (PMI):

This index includes data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export and import orders.

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·Producer Price Index (PPI):

Measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries.

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The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods.

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Consumer Price Index (CPI):

Measures the average price level paid by urban consumers (80% of the population in major currency countries) for a fixed basket of goods and services.

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Durable Goods:

Measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.

This figure is a useful measure of certain kinds of customer demand.

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Employment Cost Index (ECI):

ECI counts the number of paid employees working part-time or full-time in the nation’s business and government establishments.

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Retail Sales:

It is the indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.

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Housing Starts:

Measures the number of residential units on which construction is begun each month.

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🙂

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Thus to conclude,

Economic indicators is a tool for an investor..

for knowing the economic world & simultaneously smartly making money out of the sensitive movements of the financial & commodities market.

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🙂

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Note : For More Latest Industry, Stock Market and Economy News and Updates, please click here

ECONOMIC INDICATORS WITH A FOCUS ON STOCK MARKETS – Part 1

An economic indicator is simply any economic statistic which indicate how well the economy is doing and how well the economy is going to do in the future.

An economic indicator is simply any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicate how well the economy is doing and how well the economy is going to do in the future.

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Investors use all the information at their disposal to make investment decisions.

If a set of economic indicators suggest that the economy is going to do better or worse in the future than they had previously expected, they may decide to change their investing strategy.

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Economic indicators can be categorized on the basis of Timing

Economic Indicators can be leading, lagging, or coincident which indicate the timing of their changes relative to how the economy as a whole changes.

Leading:

Leading economic indicators are indicators, which change before the economy changes.

Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession.

Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future.

Coincident:

A coincident economic indicator is one that simply moves at the same time as the economy does.

The Gross Domestic Product is a coincident indicator.

Lagged:

A lagged economic indicator is one that does not change direction until a few quarters after the economy does.

The unemployment rate is a lagged economic indicator, as unemployment tends to increase for 2 or 3 quarters after the economy starts to improve.

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Relationship Between Stock Markets and other economic indicators

We have observed the relationship between stock markets and different categories of economic indicators such as :

1) GDP (It’s a measure of Total Income, Output and Spending of the economy)

2) Industrial Production and Capacity Utilization (It indicates the Production and Business Activity in the economy)

3) Stock markets

All these economic indicators are procyclic (or procyclical) economic indicators.

A procyclic indicator is one that moves in the same direction as the economy.

So, if the economy is doing well, this number is usually increasing, whereas if we’re in a recession, this indicator is decreasing.

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Stock market is also a procyclical and a leading indicator.

We have studied the correlation between the GDP growth rate and stock price movements of Japan, Germany, UK and USA and India.

All the data indicates that there is a positive correlation and real share prices changes leads the GDP growth rate.

However, there is time lag ranging from at least 6 months to 1 year.

Lower the correlation between the two, higher is the time lag.

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Real share price movements appeared to have the best predictive ability on GDP growth and lead the changes in economic activity.

Therefore, we can say that, stock markets are the reflection of the future performance of the country’s corporates.

So if the corporate performance is expected to improve, the markets account for the upside in advance.

This implies stock markets are leading indicators of the economic growth of the country.

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Next Blog we would touch upon issues like what current economic indicators reflect about the state of Indian and global economy in coming months 🙂

Moreover what are the general effects of the stock maket indices on the economic performance of the country.

Stay Tuned for more and more on this 🙂

However For More latest Industry,Stock Market and Economy News Updates, Click Here

Positive Undertones in the Economy – Part 2 :)

Extending to the yesterday’s post on the positive undertones of the economy in the markets and investors tips, here we coming up with the more factors which investors should use for picking up fundamentally good stocks.

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1. Reality companies hike rates by 15%

Reality sector is witnessing a substantial demand, especially in the mature markets, after the prices dropped a few months ago.

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With the gradual return of residential property buyers, prices in NCR and Mumbai areas have moved up 10-15%.

How long these prices will sustain is hard to determine, but this indicates the confidence of investors.

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2. India..in Better Position

India can be considered as “balanced” in terms of investment and consumption with savings rate of 35% and consumption of 65% of its GDP.

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The fastest growing China leans towards investment, whereas most of the western countries are weighted more towards consumption.

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If we compare India’s Sensitive Index with its other Asian peers, Sensex is valued at 17.6 times estimated earnings where as China’s Shanghai Composite Index trades at 22 times earnings and the MSCI Asia Pacific Index is valued at 24 times.

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So, India remains very attractive and it is an opportune time for Indian companies to grab market share.

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3. Developments in the rest of the economy 🙂

If we see the positive economic numbers across the globe, it seems that world economy is moving towards recovery.

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Australian economy surprised with a jump in growth in the second quarter.

US have witnessed a growth in the current quarter GDP, US manufacturing and housing sectors appears to be gathering pace, quarter’s results came better than expected.

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European economies like France and Germany continued their gradual emergence from the worst crisis in decades and company results showed an upturn.

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4. Concerns Over Weak Monsoon!

Everyone is expecting that poor rains would push up food prices in the short-term, due to the reduced yield of kharif crop and it would add to inflationary pressures.

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But at the same time, we should also know that Indian agriculture is not limited to agro commodities only, but it is well diversified into horticulture, livestock and fisheries and their share in total output of the agricultural sector is increasing.

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Total agricultural output accounts for only 18.5 % of the gross domestic product and the kharif crops like cereals, pulses and oilseeds account for only 20% of it.

Moreover, government spending in rural areas will mitigate the effect of diminished monsoon rains.

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So, Looking at the above factors, India growth story remains strong in the long run.

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So, one can go for the companies, which will benefit from “Economic growth” like power plants, roads, service providers like banking and engineering sector.

Thanks 🙂

Positive Undertones in the Economy – Part 1 :)

We had a positive Q1FY10 result, which boosted the sentiments of investors regarding the economic recovery.

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But are we actually out of it?

Though the earnings were encouraging but if we analyze it, the results had a “bottom-line growth”… may be because of the lower costs of raw material, huge cost cutting, profit from other sources like stake sale or stock market trading etc.

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With lower interest rates, government spending in rural areas and lower base year, I am very much optimistic for Q2FY10 that these results would be “revenue driven”.

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Top line growth is not only good for the company and stock market but also for the economy as a whole.

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Apart from the Q2FY10 numbers, there are positive undertones in the markets and investors should use these undertones for picking up fundamentally good stocks.

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Those are :

1. Measures for fiscal deficit

The GoI is taking several measures to reduce the fiscal deficit.

Disinvestment is high on the priority list.

🙂

As private spending is increasing, Govt. is reducing need for stimulus.

A large part of deficit is contributed by the oil subsidy.

For this, the ministry of petroleum is lowering the subsidy burden in Kerosene and LPG.

Recently, improved tax compliance with new tax code and enforcement through the recently initiated Unique Identification Project are other steps to control the deficit.

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2. Accelerating production

India’s industrial production posted the fastest pace in the last 16 months in June, which shows that India has endured the worst of the global recession.

The reason can be low interest rates, which has given confidence to the consumers to borrow to buy vehicles or other factory-made goods.

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3. Capital flows to India

Another positive trigger can be the capital flows to India, which is expected to increase because of better medium-term growth and faster recovery prospects.

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The Q1FY10 early indicators suggest that NRI deposits, FII portfolio inflows and inward FDI flows have generally been strong, as compared to the net capital outflows witnessed in the last two quarters of 2008-09.

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4. Exports seen at $167 bn in FY10

For Indian Export Organisations, India’s exports are expected to touch around $167 billion, almost the same level of last year in FY10.

The commerce ministry looks ambitious and optimistic and has come up with foreign trade policy for the next 5 years, whereby; it aims to have an export of $ 200 billion by FY11.

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This will ultimately improve the declining trend of exports and will give thrust to employment-oriented sector like Textiles and Gem Jewellery.

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5. The New Tax Code

The new tax code has simplified the tax laws and will result in better compliance and a broader tax base.

The resulting incremental tax revenues will first reduce the fiscal deficit. This is a net positive.

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People, there are many other factors and Positive undertones in the economy which indicates towards the betterment of the economy and stock market.

We would come up with the rest of factors in Part 2 of the topic in next blog. 🙂

Stay Tuned 😉

India’s industrial production posted the fastest pace in the last 16 months in June, which shows that India has endured the worst of

the global recession. The reason can be low interest rates, which has given confidence to the consumers to borrow to buy vehicles

or other factory-made goods.

Govt all set to introduce a new IIP in about 4 months :)

As the government is expected to introduce a new index of industrial production (IIP) in around 4 months, the benchmark for measuring industrial production in India is all set to change.

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However, the new index will use 2004-05 as the base year of calculation instead of 1993-94.

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The number of commodities will go up to around 850, from 543 whereas nearly 30% of the existing commodities will be swapped by new ones.

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It’ll certainly be a much more recent picture, no question about it.

As in recent times, the product composition has changed dramatically, so both the widening and the deepening of the economy will be reflected.

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Moreover, the weight assigned to different product groups as part of the final index will also change since they are presently incompatible with the changes in production patterns.

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Such as, mobile phones are not included in the index while LCDs are not included in television sales.

Moreover, the weightage given to autos is well below their importance in the economy.

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However, it is said that the weightages will change in order to fix these like the weight for basic goods will rise by 5% points while that for capital goods will rise by 5.7% points.

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Morever, the intermediate goods will see the biggest hit, losing 7.7% points and consumer durables will increase in weight while consumer non durables will be lighter by 5% points.

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Change in weights of different commodity groups:

Similarly, electricity will rise by close to 2% points but manufacturing will take a hit of over 7.5% points.

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The new IIP index will definitely give us a better idea of the kind of changes industrial production has undergone in the past decade.

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However, collection of the base data in time would pose as a major challenge for the government as different departments are responsible for collecting the data.

In recent times, collecting data from the manufacturing sector, is already turning out to be a problem as companies aren’t responding fast enough.

😦

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