Down in the dumps due to PIIGS
RoundUp

The past week was a negative for the world markets with only Japan closing the week with a marginal gain of 0.1%. China was the biggest loser for the week with a fall of 3.9% as investors sold stocks amidst concerns over lack of liquidity and a possible interest rise to cool property prices.

India closed the week with a loss of 1.1%. Amongst other markets, Europe was hit hard due to the continuing Greek crisis and concerns that the debt crisis will spread as S&P lowered Portugal’s debt rating to A-. Germany and UK ended the week each 1.8% lower while France ended the week 2.8% lower. In Asia, Singapore and Hong Kong ended the week lower by 1% and 2.2% respectively, while US and Brazil ended the week lower by 0.3% and 2.2% respectively.

Source: Yahoo Finance

Moving on to the sectoral indices in India - the week was a mixed one for the overall markets. Stocks from the realty and oil & gas space were the biggest losers for the week with the BSE-Realty and BSE-Oil & Gas indices closing the week with a loss of 3% and 1.7% respectively. The top performer of the week was the BSE-PSU index with a gain of 0.9%. Among the other indices, which closed the week in the green, BSE-Midcap, and BSE-Banking indices closed the week with a gain of 0.7% each while BSE-Consumer Durable and BSE-Power indices closed the week with a gain of 0.5% each. Among indices, which closed in the red, BSE-IT and BSE-Capital Goods indices closed the week with a loss of 0.4% and 0.6% respectively. BSE-Sensex also figured in the top five losers of the week with a loss of 0.8%

Source: BSE

Moving on to key corporate developments during the week - A handful of large companies announced their quarterly and full year results this week. We have highlighted some of the key ones below.

Car market leader, Maruti Suzuki released its 4QFY10 and FY10 results. The company's top line during the quarter grew by 31% YoY on the back of a 22% YoY increase in volumes. Operating profits jumped by 147% during the quarter as operating margins expanded by 6.2% on the back of lower costs as a percentage of sales. Net profit grew by 170% YoY during the quarter. The top line for the year grew by 29% YoY while the bottom line more than doubled during the year. The performance of the company was aided by several positives like low interest rate environment, low base effect, government incentives and buoyant economic environment. However, going forward the growth should be at the company’s long-term average.

Moving to telecom, Bharti announced its 4QFY10 and FY10. For the quarter net sales improved by 5% YoY while net profit dipped by 1% YoY. For the full year, the company's consolidated sales grew by 12% YoY. This growth was a result of a 38% YoY rise in sales from the passive infrastructure segment. However, sales from the company’s largest revenue contributor, mobile services segment, increased by only 7% YoY. Net profit for the year increased by 17% YoY because of interest income, partially offset by higher operating costs as a percentage of sales. The number of subscribers for the year stood at 128 m, an increase of 36% YoY

Coming to results from the FMCG space, consumer goods major Dabur announced its 4QFY10 and FY10 results. The company's consolidated net sales for 4QFY10 grew by 17% YoY on the back of strong performance by its domestic business and the amalgamation of the financials of Fem Care. The sales growth for the company was primarily volume led with key categories such as hair care, oral care, skin care, health supplements and digestives registering healthy growth. Net profit for 4QFY10 grew by a healthy 30% YoY. This growth comes on the back of higher operating income as raw material and other expenditure were lower as a percentage of sales. However, higher advertisement expenditure as a percentage of sales capped bottom line growth. Sales for the full year grew by 20% YoY while net profit improved by 29% YoY.

Moving from Ayurveda to Biopharma, pharma major Biocon also announced its FY10 results during the week. The company’s sales grew by a robust 50% YoY during the year. This performance was led by a strong performance by the biopharmaceuticals, AxiCorp and contract research businesses. Operating (EBITDA) margins for the company fell by 0.6% during the year as a result of higher raw material costs as a percentage of sales. However, the bottom line grew by 228%. This was a result of the absence of a forex loss incurred in FY09. On excluding this extraordinary item, the bottom line of Biocon grew by 22% YoY.

In other corporate news, ONGC has reported an ultimate oil and gas reserve accretion of 87 m tonnes for FY10. Ultimate reserve is a geological concept of oil and gas that signifies the quantity that theoretically is supposed to exist in a given field. It does not take into account technical, economic or time constraints. The accretion for the company is due to discoveries in Assam, Krishna Godavari onland, Kutch offshore and Mumbai offshore. While the company produced 25 m tonnes of crude oil and 23 bn cubic meters of gas in FY10, the concern is maintaining production levels from its ageing oil and gas fields in India. As a result, the key focus area for the company is acquiring oil and gas assets abroad.

As per a leading financial daily, Bangalore-based information technology (IT) services provider MindTree, has bagged the application development services (ADM) segment in the Unique Identification (UID) project, renamed as ‘Aadhaar’. The company is understood to have placed a final bid of Rs 200 m and won the bid against two other shortlisted companies, IBM and Accenture. The ADM project involves the complete application lifecycle i.e. from designing, developing, testing to maintaining and supporting the application and providing help desk service. The first set of UIDs is expected to be issued between August 2010 and February 2011. UID project is expected to be a Rs 150 to Rs 200 bn opportunity for IT companies as it sets to build an ecosystem around the project comprising biometrics, databases, smartcards, storage and system integration. While the revenue from this project is considered small for the company, MindTree will gain in terms of brand value as this project is considered prestigious.

Movers and shakers during the week
Company 23-Apr-10 30-Apr-10 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
Indiabulls Fin. Ser. 129 154 19.9% 224 / 95
United Phosphorus 145 170 17.7% 186 / 112
Indian Bank 193 225 16.9% 229 / 97
Rel Natural Resources 63 70 11.4% 112 / 55
Lanco Infratech 58 64 9.9% 65 / 22
Top losers during the week (BSE-A Group)
Ultratech Cements                1,094                    972 -11.2% 1,172 / 543
Container Corp                1,439                 1,291 -10.3% 1,500 / 755
Sun Pharma                1,685                 1,567 -7.0% 1,846 / 1,103
India Cements                    135                     126 -6.9% 180 / 100
Idea Cellular                     66                     61 -6.6% 92 / 48
Source: Equitymaster

The lukewarm response for IPOs has hit the government’s divestment plans. While the government had plans of coming out with a public issue every third week of FY11, the response so far for issues of state-run companies has made the government scale down its target to 8 companies. Due to this, the target of mopping Rs 400 bn from divestment seems unlikely to be met. The government has not fared well in its divestment plans till date. Even in FY10, while the government targeted to raise Rs 250 bn through stake sale, it was only able to manage Rs 236 bn. The heavy weights in which the government plans to offload its stake includes Coal India Ltd., Steel Authority of India Ltd, BSNL and MMTC. However, given the circumstances, this is another target the government looks like it is going to miss.

Coming to international economic news, annual inflation rose to 1.5% percent in April across the 16 countries that share the euro currency. This is when unemployment rate remains at a record high of 10% in March. Unemployment rates are in fact expected to climb further in the coming months albeit at a slower pace. This is expected to add downward pressure on wage growth limited inflation growth. However, the March unemployment rate suggests that the eurozone labour market has not turned the corner and the rebound is still some way away.

Conclusion: The S&P downgrade of Portugal’s debt has lowered investor confidence affecting the world markets. One should be cautious in the coming weeks as this crisis threatens to spread to other EU countries

Auto stocks lead the rally
Closing

Led by sustained buying activity across index heavyweights, Indian indices closed well above the dotted line although trading was rangebound for the larger part of the day. While the BSE Sensex closed higher by around 55 points (up 0.3%), the NSE Nifty gained around 24 points (up 0.5%). The BSE Midcap and the BSE Smallcap indices also notched gains of 1% and 0.4% respectively. Barring metals, most stocks across sectors closed firm today.

As regards global markets, most Asian indices closed in the green today, while the European indices have opened on a mixed note. The rupee was trading at Rs 44.42 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Cipla, Dr.Reddy's and Cadila Healthcare found favour, Sun Pharma and Piramal Healthcare closed in the red. Cadila Healthcare announced its FY10 results yesterday. The topline grew by a healthy 26% YoY during the year led by 45% YoY growth in formulation exports, 28% YoY growth in API exports and 37% YoY growth in the consumer business. The growth in the formulations export business was attributed to the 69% YoY growth in sales from the US market and 31% YoY growth in the EU market. Operating margins improved by 1.2% to 21.9% in FY10 largely due to a considerable fall in purchase of traded goods (as a percentage of sales). Bottomline (excluding the extraordinary items) grew at a healthy rate of 63% YoY and was on account of strong growth in operating profits, reduction in interest costs and lower forex losses.

Siemens has announced its 2QFY10 results (September ending fiscal). Sales fell by 7% YoY in 2QFY10 as the power transmission business saw a 40% YoY fall in sales and contributed 24% to the overall topline. Operating margins contracted to 12.3% on account of significantly higher cost of traded goods, employee costs and other expenditure (as percentage of sales). Net profits fell 20% YoY during the quarter owning to margin contraction. Profits fell 25% YoY during the half year period, largely due to much higher other income in the comparable period last year. The stock closed 1% higher today.

India's state and central fiscal deficit stood at a combined 9.7% of GDP in FY10. And Takahira Ogawa, S&P's director for sovereign and international public finance ratings, is of the view that it will take several years for India to get its combined fiscal deficits to desirable levels. Ogawa believes that soaring prices are a worry for India. He also opines that the RBI's inflation projection of 5.5% for FY11 would be difficult to achieve. Infact, inflation and a higher deficit are major concerns for India. They could thwart India's growth which has been pegged at 8.5% this fiscal. What is more, India's fortunes will also depend on how monsoons this year pan out. Indeed, it will be a challenging task for the Indian government to keep both inflation and the deficit in check in the coming years.

Ashok Leyland up on strong results
01:30 pm

The Indian markets continued to trade above the dotted line in a rangebound manner during the previous two hours of trade. The overall market breadth seems to be positive as there are 1.8 for every loser on the overall BSE. Stocks from across sectors are trading firm led by the consumer durables, auto and realty spaces. Those forming part of the metal and FMCG sectors are amongst the lowest gainers at present.

The BSE-Sensex and the NSE-Nifty are trading firm, higher by about around 80 points and 20 points respectively. While the stocks from BSE-Midcap and the BSE-Smallcap indices are trading firm as well, with the indices higher by 1% and 0.8% respectively. The rupee is trading at 44.39 to the dollar.

Auto stocks are currently trading firm led by Ashok Leyland, Tata Motors, Hero Honda and TVS Motor. The stock of Ashok Leyland is leading the pack of gainers on the back of the company announcing strong 4QFY10 results. The company reported a whopping 141% YoY increase in sales during the quarter. As expenses grew at a slower pace of 132% YoY, the company’s operating profit margins expanded by 3.4% YoY leading to a operating profit growth of 227% YoY. This margin expansion was on the back of a slash in certain costs. At the bottomline level, the company reported a 318% YoY gain. Lower interest costs and a less increase in depreciation aided matters as the profit before tax grew by a strong 735% YoY. However, higher tax outgo brought down the profit growth. As for the full year FY10, revenues and profits increased by 21% YoY and 126% YoY respectively. While this has been a tremendous year for the company, its management does not expect the scenario to remain as rosy going forward. This is on the back of supply constraints and margin pressure (on higher raw material costs), which remain a concern for the auto industry as a whole.

Banking stocks are currently trading firm led by ING Vysya Bank, Kotak Bank and ICICI Bank. A leading business daily has reported that Yes Bank is looking at aggressively expanding its branch network over the next few years. At present, the bank has about 150 branches. It plans to increase this to about 750 in a period of five years. In addition, the bank’s management also is planning to go strong on the recruitment side. Currently the bank employs around 3,030 people. By the end of FY11, it plans to take this up to 4,500. Over the next five years, the target is to take up its employee base to about 12,000, nearly four times the current level. All these strategies are in line with the bank’s plan of growing fast by tapping the retail banking segment. This would indirectly help it increase the proportion of low cost deposits (CASA) over time. The bank has set a target of achieving 25% CASA by FY12 and 40% by FY15. The same may however be impacted by competition from the PSU and private sector players.

Production crunch hits Maruti
11:30 am

In the last 2 hours of trade the markets were seen holding on to their opening gains and trading range bound. Stocks in the realty, auto and banking space are seeing the maximum buying interest while stocks in the metals and FMCG space are trading close to their yesterday's closing.

BSE-Sensex is trading higher by 73 points while NSE-Nifty is trading 21 points above the dotted line. BSE-Midcap Index and BSE-Smallcap index are both up by 1%. The rupee is trading at 44.45 to the US dollar.

As per a leading financial daily, Maruti Suzuki is facing a production crunch. With demand climbing and new capacities still some time away, the company has had to rethink its export strategy. The company which is already operating at full capacity is now capping its exports units and diverting production to the local markets. While Maruti has plans to increase its volumes at its Gurgaon plant by 70,000 to 80,000 units due to demand, the crunch is expected to continue until 2012. This is when the company's capacity addition at Manesar plant is expected to become operational, adding 250,000 units to the company's capacity. In the mean time Maruti will be facing tough times catering to demand which is expected to grow by 10-12% annually.

Power Finance Corporation (PFC) announced its 4QFY10 results yesterday. The company's consolidated income from operations increased by 15% YoY while the net profits fell by 41% YoY. The topline of the company grew on the back of an increase in advances as lending to transmission projects picked up. Since PFC is the nodal agency designated by the government for financing power projects in India, the company managed to grow faster than infrastructure finance companies as new power projects were sanctioned during the second half of the year. However, the bottom line was affected as a result of write back of deferred tax liabilities in 4QFY09. Given the huge investment in power we believe that the head room for growth for PFC is immense.

Markets begin on a strong note
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened above the breakeven mark and soon moved further into the positive. These have managed to hold on to their gains since then. Other key Asian markets are trading strong with Japan (up 1.4%) leading the pack of gainers. The US markets closed higher by 1.1% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with construction majors finding investors' favour. The BSE-Sensex is trading higher by around 85 points, while the NSE-Nifty is up by about 20 points. Buying interest is also being witnessed among mid and small cap stocks, as the BSE-Midcap and BSE-Smallcap indices are trading higher by 1.2% and 1.1% respectively. The rupee is trading at 44.45 to the US dollar.

Upstream energy stocks have opened the day on a negative note. Losers here include Reliance Industries and ONGC. As per a leading business daily, Reliance Industries plans to leverage its new partnership with Atlas Energy to enter the retail gas segment in the US. It plans to cater to consumers in New York and Virginia on the back of Atlas' existing pipeline network. It may be noted that the retail market for gas in the US is among the most competitive in the world. It is dominated by global giants like Exxon-Mobil and BP who have a strong brand name and in-place infrastructure. Currently, Reliance Industries' refined petroleum products cater to the US market. But that is in the bulk segment and not the retail space. If the Indian energy giant can establish a retail presence in the US, it will provide an outlet for its stake in Atlas' Marcellus shale gas fields. Moreover, it will provide a new dimension to Reliance Industries' increasingly global footprint.

Ultratech announced its FY10 results yesterday. The company reported a topline growth of 10% YoY during the year driven by strong demand for cement. Costs grew at a slower pace in comparison to revenues. This led to a 1.3% rise in operating margins. Net profits grew by 12% YoY, on the back of 16% YoY growth in operating profits. The company will acquire ETA Star Cement Company LLC, Dubai together with its cement operations in United Arab Emirates, Bahrain and Bangladesh. The enterprise value of these assets is Rs 17 bn. Ultratech also plans to merge Samruddhi Cement with itself.

India to have more MNCs than China
Pre-Open

Rapid economic development brings with it a lot of benefits. One amongst them is the mushrooming of companies, which make their presence felt far and wide. Better known as MNCs, these companies have not just the local market but practically the entire world as their oyster. Take the case of US and Japan. When these economies were growing rapidly, they also churned out MNCs with constant regularity. The fact that globalization was taking place at a rapid pace and there was a revolution of sorts in information and communication technologies also helped matters.

And while these countries would continue to do the good work of the past, a leading business daily reports that they may not be able to match the firepower of India and China. Yes, that's right. It is India and China that are likely to produce the highest number of MNCs over the next decade and a half. Infact, India is even expected to overtake China in this matter by the year 2018 as according to the daily, more than 2,000 Indian companies would look to set up their operations abroad and thus, become Indian MNCs. Investment intensity and openness were the factors that are likely to work in India's favour. Indeed, with the speed with which Indian companies are taking to foreign shores these days, the target set by the report does not look like too much of a stretch.

UK is similar to Greece

The Greece episode has firmly put the spotlight on countries that have a similar problem. The others of the so called PIGS group of nations have cornered most of the criticism so far. However, if the world's leading bond fund PIMCO, is to be believed there is more to Government debt problems than just PIGS. PIMCO argues that UK, which is in the middle of its own debt problems, has a lot of similarities to Greece.

While the initial level of Government debt may be better in the UK than Greece, it should be noted that the annual borrowing level is pretty similar for both the countries. The British deficit is forecast to reach 12.6 per cent of GDP in the next year, almost matching the 12.7 percent that Greece had last year.

However, there is one crucial difference. While the Greece is tied to the Euro and hence, cannot print its currency, the UK has its own currency and hence, can pretty much print the same at will. Thus, UK can deal with the crisis by expanding its monetary base and devaluing its currency. In other words, while investors in Greek debt are likely to suffer from a huge one time loss, creditors to the UK might face a slow death as the value of their debt investments erodes gradually over the next few years.