Economy showing signs of slowdown

Sat, 11 Feb RoundUp

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The world stock markets exhibited a mixed performance during the week. While Asian stock markets including India were up, the stock markets in Europe and US were down on continuing concerns in Europe. The positive news that Greece would cut its costs and keep from defaulting on its debt also could not push the stocks up much. The earnings season in the US has been a mediocre one and there was news about S&P downgrading 34 Italian banks.

The Indian stock markets were up by 0.8% during the week. A lower than expected growth in Index of Industrial Production (IIP) at 1.8% in December along with a revised GDP outlook of 6.9% as against 8.4% in the previous year were the reasons of worry during the week. India's trade deficit too went up to uncomfortable levels of US$ 148.7 bn. during the first ten months of the current financial year.

Amongst the other world markets, China (up by 1.7%) led the gains followed closely by Singapore (up by 1.4%). However, the US and UK markets were down by 0.5% and 0.8% respectively. France was the biggest loser over the week, losing by around 3%.

Source: Yahoo Finance

All the sectoral indices registered gains during the week with pharmaceuticals (down by 1%) being the only exception. Gains were led by realty and consumer durables that were up by 5.8% each.

Source: BSE

Let us now take a look at key developments during the week. A couple of economy related important announcements were made during the week. First was the announcement regarding under revision of GDP growth outlook to 6.9% for FY 2011-12. This is the slowest growth rate in the last 3 years since the 2008-09 global financial crisis and is a cause of worry. This is mainly due to sharp slowdown in manufacturing, agricultural and mining sectors. The IIP number was also declared. It turned out to be lower than expected at 1.8% as compared to November's 5.9%.

Let us discuss the results declared during the week.

FMCG major Hindustan Unilever Limited (HUL) declared numbers for the quarter ended December 2011. The sales grew by 16.4% YoY led by growth in home and personal care business (18.2% YoY) and food business (12.7%). However, there was a fall in exports during the quarter. These were down by 13.8% YoY. The operating margins of Hindustan Unilever (HUL) expanded by 2.2% to 16.3%. Lower advertising spends and other expenditure helped towards such margin realizations. The net profit was up by 18.2% YoY and the margins increased by 30 basis points to 12.7%.

Mahindra & Mahindra Ltd. (M&M) announced results for the third quarter of financial year 2011-12. The company's sales increased by 37% YoY up from Rs 60.7 bn previously. But the profits fell by almost 10% during the quarter. The main reason for this was higher input costs and rising interest rates. The passenger utility vehicle registered a growth of 23% YoY whereas the industry grew by 18%. M&M, the market leader in the segment was able to protect its market share at 57.8%. Exports were up by 51% YoY during the quarter. The foreign markets of SAARC, South America and South Africa are seeing considerable development. As a result of slowing Indian economy, the demand for tractors was down. The sales were thus up by only 13% YoY.

Telecom operator Bharti Airtel declared results for the December quarter. The company reported revenue growth of around 17.3% YoY backed by double digit growth across segments. Telemedia was the only exception that grew by around 0.7% YoY during the quarter. The operating margins stood at 32.2% for the quarter. These were 31.7% during the same quarter last year. Bharti has been able to control its costs especially employee expenses, selling, general and administrative expenses. Despite this, the net profits were down by 22.4% YoY on account of higher interest costs and depreciation charges.

Tata Steel reported an 14% YoY growth in consolidated net sales during third quarter FY2011-12. However, the operating profits were down by 50% YoY. The operating margins plummeted to 5.2% from 11.8% recorded in same period last year. Lower operating profits led to a net loss of Rs 68.7 m during the quarter. The loss was mainly on account of the operations of Corus, its European subsidiary that witnessed slowing demand in the Euro zone.

Movers and shakers during the week

Company	3-Feb-12	10-Feb-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
IFCI	30	39	29.2%	57/20
India Infoline	55	68	23.4%	90/43
Housing Dev. Infra	81	96	19.4%	195/54
Welspun Corp	112	134	19.3%	213/66
Jet Airways	274	325	18.8%	515/172
Top losers during the week (BSE-A Group)
Bharti Airtel	393	350	-11.0%	443/314
NCC Ltd	58	53	-9.1%	117/32
Adani Enterprises	429	394	-8.2%	760/266
United Spirits	724	670	-7.5%	1192/492
Adani Ports& SEZ	152	143	-6.1%	165/118

We will now discuss the other important corporate events that took place over the week.

Piramal Healthcare has acquired additional 5.5% stake in Vodafone India increasing its overall stake to 11% now. However, the additional stake is cheaper as compared to the first stake purchase. Earlier Piramal paid US$ 640 m for 5.5% stake, but this time around, it will have to pay only US$ 609m for the same amount of stake.

Larsen & Toubro (L&T) arm L&T constructions has acquired fresh orders worth Rs 18.8 bn during the December quarter. The orders are for various business segments with Infrastructure grabbing the maximum share. The value of infrastructure orders are Rs 10.48 bn. The company has bagged these orders from the likes of Gujarat Water Infrastructure Ltd, the Power and Transmission & Distribution IC. However, grabbing orders is not the only desirable thing, more important is to timely execute these.

The week saw announcements of some key economic data that was disappointing. However, slowing industrial activity has brought in hopes of a possible rate cut in the near future. The Reserve Bank Of India (RBI) could resort to reducing interest rates thereby providing a fillip to the slowing economy. As per RBI, it would be considering rate cuts if the government shows some commitment on fiscal consolidation. Thus, we need to watch out for the upcoming Union Budget to see if the government does that and ascertain which way are the Indian stock markets headed.