World markets up on strong US earnings

Fri, 20 Jan RoundUp

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The world stock markets witnessed gains for yet another week on hopes of revival in the US economy and hopes of China easing its lending regulations. The earnings reported by the US companies, banks in particular were above analyst expectations. A strong demand for European government bonds reduced fears of funding problems in Europe. Amidst all this, the US markets advanced by almost 1.5% during the week.

The Indian stock markets were up by 3.6% during the week. This was largely due to strong inflow of money led by optimism in a number of areas globally as well as in India. Gradual easing of problems in the Eurozone and announcement of key US data showing signs of revival in the economy along with appreciating rupee led to these gains. Also, the third quarter corporate earnings declared so far helped the markets register excellent performance for third consecutive week.

Amongst the other world markets, all were in an upbeat mode. Hong Kong (up by 4.7%) and Germany (up by 4.4%) were the maximum gainers.

Source: Yahoo Finance Closing prices of US and European stock markets have been considered as on Thursday, January 19 2012 instead of Friday, January 20 2012.

The week saw a good performance across sectors. Realty (up by 8%) and Oil & Gas (up by 6.4%) led the gains. However, FMCG (down by 0.9%) was the only sector on the losing front.

Source: BSE

Let us now take a look at key economic developments during the week. The sugar sector was witness to a key development. The Supreme Court upheld the decision taken by the UP state government to pay State Advised Price (SAP) to the sugarcane farmers in the state. This adds to the woes of the sugar sector companies already reeling under pressure of limited export quota and surplus stocks. The companies that were selling sugar at depressed prices will now have to bear higher costs of producing it. However, a few companies may be spared. These are the ones that have diversified into electricity co generation from bagasse or ethanol production from molasses. It may be noted that Bajaj Hindusthan and Balrampur Chini earn at least 20% of their revenues from power, ethanol and other sugar by-products.

Now let us take a look at the key corporate developments during the week. The result season continued with IT companies HCL Technologies, TCS declaring their numbers for quarter ended December 2011. Country's largest private sector bank HDFC Bank too reported its quarterly earnings.

HDFC Bank announced results for the third quarter and nine month ended December 2011. It reported a 16% YoY growth in net interest income and a 32% YoY growth in net profits for the 9 month period. The bank's gross non-performing assets (NPAs) were at 1% and net NPAs were 0.2% of advances. The fees income base has risen by 20% YoY for the 9 months ended December 2011. Net interest margins were 4.1% affected by higher costs of deposits. The CASA stood at 48% of deposits as a result of elevated rates for term deposits being more attractive to customers.

IT company Tata Consultancy Services declared results for the third quarter of FY2011-2012. The sales grew by 13.5% QoQ and the net profit by 18.4% QoQ. The growth in sales was driven by steep rupee depreciation. Operating margins expanded by 2.1% QoQ to 29.2% as against 27.1% in the previous quarter (ended September 2011). This was because of lower cost of sales (as a percentage of sales). The IT company added 11,981 employees during the quarter and the attrition rate was 12.8%. The list of clientele increased with an addition of 40 new clients. An interim dividend of Rs 3 per share (yield of 0.3%) has been proposed thereby totaling to Rs 9 dividend (yield of 0.8%) per share for the 9 month period.

Moving away from the third quarter results, now let us discuss other important events that took place in the corporate world. PSU bank State Bank of India (SBI) has slashed its home loan processing fees. As per the new fees structure, for loans above Rs 75 lakhs, the bank will charge just Rs 10,000 as against Rs 20,000 charged earlier. For loans between Rs 30 lakh to 75 lakh, the charges will be Rs 6,500 down from Rs 10,000. Fees will remain same for loans below Rs 30 lakh. The new structure is expected to be operational from January 11, 2012. With this the public sector bank aims to increase its share in the home loan segment.

Movers and shakers during the week

Company	13-Jan-12	20-Jan-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Adani Enterprises	312	405	29.9%	760/266
GTL Infra	10	13	28.1%	42/7
NCC Ltd	40	49	21.2%	118/32
Suzlon Energy	20	25	20.3%	58/18
Reliance Infra	401	480	19.7%	740/340
Top losers during the week (BSE-A Group)
Koutons Retail	20	17	-16.4%	42/15
Essar Oil	60	52	-13.4%	142/46
MMTC Ltd	955	847	-11.4%	1069/448
Jubilant Lifesciences	200	178	-11.0%	255/149
REI Agro Ltd	16	14	-9.1%	30/14

Source: Equitymaster
In news from the oil & gas space, Oil and Natural Gas Corporation (ONGC) is in talks with US energy firm ConocoPhillips to explore the possibilities of tying up for the exploration of oil and gas in Indian deep sea and shale gas in North America. ConocoPhillips is the world's fifth largest refiner. ONGC is looking at procuring technology and expertise of a foreign partner to develop deep water finds in the Krishna Godavari (KG) basin. This is the energy company's fourth attempt to rope in a foreign partner after the failure of associations with Petrobras of Brazil, Statoil of Norway and BG Group of UK. In the event of the talks working out between the two companies, ONGC is expected to bring to production many of its finds in the KG basin and the Mahanadi basin.

The banking sector was represented by SBI Chairman Mr Pratip Chaudhuri for pre-budget consultations with the Finance minister. One of the things on the budget wish list of bankers is the removal of tax deducted at source (TDS) levied on interest accrued from fixed deposits. They are demanding that bank deposits beyond three years should be treated as capital. The bankers feel that this will promote savings in the country. TDS is charged if earnings from interest are Rs 10,000 or more. The bank credit to GDP ratio, which is currently at 45%, needs to improve thereby resulting in higher output, employment and taxes. Also, the banks feel that this will encourage level playing field with debt mutual funds. Money invested in debt mutual funds is treated as capital after one year of depositing.

The corporate results declared so far have added to the confidence of the investors. However, the result season is far from over. Majority of companies are expected to announce their third quarter results over the next two weeks. The way these earnings pan out will largely decide the road ahead for Indian stock markets.