Basket selling mars global indices

Sat, 9 Feb RoundUp

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It was a dull week for the world stock markets. Except for China, all the markets ended the week on a negative note. The Dow was down 0.1% during the week. Nonetheless, it was a milestone event for the other US indices as the NASDAQ index closed at a 12 year high while S&P 500 index closed at a 5 year high. S&P 500 index also posted its sixth consecutive weekly gain. The fact that the US trade deficit narrowed in December suggested that the economy is on a recovery path. This instilled a ray of optimism in the markets. Also, fourth quarter earnings have come in stronger than expected. Further, optimism in housing markets and improvement in jobs market also buoyed the sentiments. It may be noted that S&P 500 and NASDAQ closed the week with gains of 0.3% and 0.5%, respectively.

The Indian stock markets were down 1.5% during the week. This was a seventh consecutive session where the markets registered a fall. Disappointing GDP forecast (growth expectation of just 5% for FY13) renewed growth concerns and pulled down the markets. With pressure to contain inflation and fiscal deficit still persisting, breaking the 20,000 barrier and sustaining it could be a challenging task in the future.

Amongst the other markets, France was down 3.3% while Brazil was down 3.1% for the week. Germany and Hong Kong were also down 2.3% and 2.1% respectively, during the week.

Source: Yahoo Finance

Amongst sectoral indices, IT stocks were the only ones to end the week in the green. The IT pack was up as Cognizant's results were modest. This suggested that the said IT giant is still not a major threat to the Indian counterparts leading to a rally in IT stocks. Amongst, the other indices consumer durables were down 5.2% while PSU stocks were down 4.7% during the week.

Source: BSE

Now let us discuss some of the corporate developments of the week gone by. National Thermal Power Corporation Limited.(NTPC) was the fifth disinvestment candidate in the current fiscal during which the government has raised nearly Rs 218.3 bn by selling shares of state-owned undertakings as against its target of Rs 300 bn. The previous offerings were from NMDC, Hindustan Copper, National Buildings Construction and Oil India. Investors such as state-owned insurer Life Insurance Corporation, local mutual funds and foreign institutional investors put in Rs 114.3 bn on offer to buy shares of India's largest power producer, NTPC. The offer for sale by the government was subscribed 1.7 times as investors bid for 1.3 bn shares as against the 783 m on offer. This was the third-biggest equity offering after Coal India and Reliance Power. This issuance will somewhat help plug India's widening fiscal deficit.

Now, let us have a look at a couple of results that were announced during the week. Leading financier in the infrastructure space Infrastructure Development Finance Company (IDFC) announced its results for the 9 month period ended December 2012. Its consolidated income from operations grew 31% YoY in 3QFY13 and by 28% YoY in 9mFY13, on the back of 22% YoY growth in advances. Disbursements increased by 4.5% YoY, but sanctions fell by 13% YoY in 9mFY13 on account of a slowdown in infrastructure activity. However, cumulatively sanctions were up by 12% YoY.

Overall asset management revenues were flat in 9mFY13, total asset under management (AUM) stands at Rs 298 bn at the end of December 2012. While the mutual fund contributed to some of the growth, fees from the alternatives business faltered. Net interest margins (NIM) decreased marginally to 4.2% from 4.3% earlier. Other income saw an almost 89% fall YoY in 3QFY13 and an 80% fall YoY in 9mFY13, on account of the sale of stake in IDFC Asset Management Company seen in the previous quarter last year. Bottom-line grew by 19% YoY in 3QFY13 and by 7.5% in YoY 9mFY13 on the back of higher net interest income but lower other income made profit growth seem relatively muted. The capital adequacy ratio stood at a robust 22.5% at the end of 9mFY13 (Tier-1 ratio of 20.2%).

Tech Mahindra Ltd, the country's sixth largest software exporter also announced its results for the third quarter of financial year 2013 (3QFY13) during the week. The consolidated net sales for the quarter grew by 9.8% on a quarter on quarter basis (QoQ). In terms of US dollar revenues, growth in sales was 10% QoQ. The operating profit margins for the quarter improved slightly by 0.3% QoQ to 21%. That was because of a relatively modest growth in the operating expenses. On an absolute basis, the operating profits grew by 11.4% QoQ. The net profits for the quarter declined by 6.9% QoQ. This was because of lower contribution to the share of profits from its associate Mahindra Satyam. The contribution from the latter declined by 71% QoQ. The total number of active clients increased from 126 at the end of 2QFY13 to 140 at the end of 3QFY13.

Moving on to power news, it may be noted that the distribution arm of Tata Power is seeking revision in tariffs. With the same objective in mind, it has approached the Maharashtra Electricity Regulatory Commission (MERC) to increase existing average tariff over a period of next three years. They are suggesting revision of existing tariff of Rs 5.97 per unit to Rs 6.75 per unit for 2013-14, Rs 7.39 per unit for 2014-15 and Rs 8.05 per unit for 2015-16 at a rate of 10.46% annually. We may note here that this hike has become necessary due to rise in fuel prices. Also, the power company has not affected any price hikes in last 3 years despite costs incurred towards developing Tata Power's own last mile Low Tension (LT) network in Mumbai and incurrence of wheeling charges.

Lastly, some news from the auto space, Tata Motors is developing a new premium small car to take on the successful models of competitors such as Maruti Suzuki and Ford Motors. It is said that the new car is likely to be built on the revamped Indica platform codenamed 'X0'. The final data judgments (FDJ), which means the exact product specification in terms of design, cost and time is likely to be frozen on March 31, 2013. After this is done, vendors will be asked to work on the project. Scheduled to be launched in 2015, this is expected to be one of the company's biggest launches. The company intends to deliver a modern, contemporary vehicle that appeals to the young generation.

Movers and shakers during the week

Company	1-Feb-12	8-Feb-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Power Finance Corp	207	223	7.3%	223/139
Hexaware Technologies	77	82	6.2%	138/73
Exide Industries	122	130	5.8%	163/113
TCS	1,346	1,423	5.7%	1423/1047
Container Corporation	918	963	5.0%	1066/830
Top losers during the week (BSE-A Group)
Opto Circuits	80	68	-15.2%	223/65
Indiabulls Financial Services	327	284	-13.1%	332/174
Jaiprakash Associates	83	73	-12.2%	105/58
Strides Arcolab	1,079	955	-11.5%	1195/512
Bank of Baroda	867	768	-11.4%	889/606

Source: Equitymaster
Since long, government is trying to address the twin deficit issues and execution problems that are facing the infrastructure sector. Chief economic advisor, Raghuram Rajan, recently reiterated the government's stance on them. He agreed that these issues have been plaguing growth and need to be addressed urgently. Rising fiscal deficit is curtailing borrowing while huge current account deficit is putting pressure on rupee . Unless the deficits are brought under control, India's sovereign rating could be at the risk of being downgraded. We hope that in the upcoming budget government lays down some concrete steps to address these issues.

Indian stock markets have been lingering in the range of 19,500 to 20,000 for quite some time now. With earnings season almost coming to an end, markets would be on a look out for other cues to gather momentum from here on. However, rather than trying to time the markets, we believe that one should always focus on the long term story. It has power to pay rich dividends over time.