Hexagon Wealth

April 8, 2013
Markets Last Week



Domestic markets were choppy during the week, as foreign institutional investors withdrew funds. Investors were also concerned about tensions between North and South Korea.

The Sensex crossed 19,000 on Tuesday but declined by 2% during the entire week. Most of the sector indices fell during the week, with the exception of the S&P BSE Oil & Gas and the S&P BSE Healthcare Index.

Stocks of domestic pharmaceutical companies rallied on Monday, after the Supreme Court dismissed Novartis’ appeal for patent protection for Glivec – an anti-cancer drug. The ruling will benefit patients and Indian generic drug manufacturers such as Cipla and Ranbaxy.

India’s economic turnaround suffers a check

In February, the combined output of the eight core sector industries, declined by 2.5% - the first contraction since 2005. These dismal numbers may drag down industrial production and economic growth in Q4 2012-13.

In March, the HSBC India Manufacturing PMI slipped to a 16-month low. However, despite the fall between February and March, India still has one of the highest manufacturing PMI’s, as shown below.
Given the slowdown in the manufacturing and services PMIs, most analysts expect muted top-line growth in the approaching earnings season. However, selective sectors may benefit from lower input costs – this may result in better margins.

Global Cues

India may be adversely affected by sluggish economic growth in Europe. The Eurozone’s sovereign debt crisis has pushed up the bloc’s unemployment to a staggering 12% in the first two months of 2013 - an all-time high. Several European countries are in recession, and near-term growth prospects are bleak. This is reflected in the falling PMI shown above. Negative sentiment in Europe may hurt India’s exports, as the European Union is one of India’s largest trading partners.

A recovery in the U.S. may counter the negative effects of a Eurozone recession, and support domestic growth. Indian IT companies are likely to be the key beneficiaries. Year-to-date, IT stocks have outperformed the Sensex. Over the last year, some of our recommended equity schemes have invested in IT stocks – this has helped these funds deliver high risk adjusted returns.

Japan’s aggressive monetary policy propels stocks to five-year highs

On Thursday, the Bank of Japan announced that it would double the country's money supply to spur growth and inflation. The central bank will increase its purchase of government bonds by ¥50 trillion ($520bn) annually - the equivalent of almost 10% of the country’s GDP. After the BOJ’s announcement, the yen hit a 3½ year low against the dollar and the Nikkei crossed its 2008 peak. If successful, the bank’s bold stance may eliminate deflation – which has plagued Japan for almost 15 years. However, quantitative easing on such a large scale may lead to asset bubbles. Japanese consumers may be adversely affected if prices rise faster than wages. Aggressive easing may increase Japan’s public debt, which is already more than 200% of GDP.

Global Indices: Wall Street Journal
Domestic Indices: BSE/ Accord Fintech

FII/MF data: SEBI/ Accord Fintech


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