Asian markets down on China rate hike

Sat, 12 Feb RoundUp

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While it was a positive week for the global markets, it was not so for the Asian markets. Hong Kong (down 4.5%) was the biggest loser of the week followed closely by Singapore (down 4.2%) as profit booking continues in the wake of the Chinese interest rate hike. India also closed the week in the red down 1.6%. China and Japan were the only Asian countries to close the week in the green, up 1% and 0.6% respectively.

The biggest gainer of the week was Germany, up 2.1%. Amongst other European markets, France and UK were up by 1.3% and 1.1% respectively. In Americas, US was up by 1.5% while Brazil closed the week up 0.7%.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India, barring BSE-Banking index (flat) all indices closed the week in the red. Stocks from the consumer durable and smallcap space were the biggest losers. BSE-Consumer Durable and BSE Small cap indices both closed the week down 6.3%. BSE-Metals index followed close behind, closing the week down 5.6%. BSE-Realty and BSE Midcap indices were also amongst the top losers closing the week down 4.5% and 3.8% respectively. BSE-FMCG and BSE-Auto indices were among the top performers of the week down marginally at 0.4% and 0.9% respectively.

Source: BSE

Moving on to key corporate developments during the week, several companies announced their results for the quarter ended December 2010. We discuss the results of some other the large cap companies here below:

BPCL announced its 3QFY11 results. The company's top line grew by 14% YoY during the quarter. This is on the back of 6.2% increase in market sales volumes. For the quarter market sales volumes increased from 7.13 MMT in 3QFY10 to 7.57 MMT this quarter. Average gross refining margins for the quarter came at US$ 4.62. The under recovery on the sales of petroleum products was partially compensated to the extent of Rs 29.8 bn (up 13% YoY) with upstream and Government sharing in the ratio of 80:20 (versus 43:57 during the same quarter last year). Operating profits increased by 16.2% YoY during the quarter while operating margins remained flat at 2%. This is because higher staff costs and other expenditure were netted off by lower raw material costs (all as a percentage of sales). Net profit for the quarter declined by 51% YoY due to fall in other income and increase in effective tax rate.

From the auto sector, Mahindra & Mahindra (M&M) declared its 3QFY11 results. The company's top line grew by an impressive 36% YoY. This is on the back of a solid performance by both the company segments i.e. automotive and farm equipment. Sales volumes in the company's 'automotive' division stood at about 56,200 vehicles while market share stood at 62%. Three-wheeler and mini four-wheeler sales grew by 52% YoY. The company exported 5,020 vehicles an increase of 1,689 vehicles from the same period last year. Sales of the company's farm equipment segment grew by 37% YoY. Growth was volumes led with 55,649 units sold compared to 41,074 units sold in the corresponding quarter last year. The operating income of M&M increased by 38% YoY. It was faster than top line growth due to lower staff costs and lower other expenditure (as a percentage of sales). Bottom line of the company also registered a sharp increased as a result of higher operating income, growth in other income, fall in effective tax rate and a onetime gain from the sale of long time investment.

Another auto major which declared its result the past week was Tata Motors. The 3QFY11 sales of the company increased by 21.6% YoY. This was on the back of a strong performance by both the domestic and the Jaguar Land Rover (JLR) businesses. While the Tata (and other brands; including spares and financing) increase by 23% YoY, JLR's revenues grew by 26% YoY. Operating profits grew by 48% YoY during the quarter on the back of fall in input costs and employee costs (as a percentage of sales). Net profit of Tata Motors rose by 273% YoY. This was led by a strong operating performance, coupled with higher other income, lower interest & depreciation costs as well as lower exceptional losses. When adjusted for exceptional losses, net profits increased by 178% YoY for the quarter.

Coming to other big corporate news of the week, Reliance Industries Limited (RIL) is all set to initiate phase two of its mega capex plan that will take earnings before interest, tax, depreciation and amortization (EBITDA) to US$ 15 bn by 2015. This means that the company would be doubling its earnings from the current levels. The company plans to invest US$ 20-25 bn over the next 5 years. Of this, it will invest US$ 10-12 bn in petrochemicals,and US$ 10-15 bn on exploration and development of oil & gas discoveries in India and US shale gas. RIL will also invest US$ 4.5-4.7 bn in telecom in addition to US$ 2.8 bn it has already invested on 4G license and spectrum. Of its US$ 15 bn earnings target, it expects US$ 5 bn to come from the refining segment. The company plans to finance this capex from internal accruals.

Movers and shakers during the week

Company	4-Feb-11	11-Feb-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
JAIN IRRIG	177	203	14.5%	264/152
WELSPUN CORP	153	173	12.8%	296/145
SINTEX IND.	150	162	7.5%	237/118
FORTIS HEALTHCARE	141	151	7.0%	188/129
CORPN. BANK	550	576	4.8%	815/416
Top losers during the week (BSE-A Group)
PUNJ LLOYD	94	71	-24.4%	190/66
BH.EARTH MOVERS	812	617	-24.0%	1,238/585
UNITECH	46	35	-23.4%	98/35
MOSER-BAER INDIA	51	40	-20.2%	84/38
JAI CORP LTD	173	140	-19.2%	309/132

Source: Equitymaster
Coming to economic news, Industrial growth slowed to 1.6% for the month of December. This is due to contraction in capital goods, consumer non-durables and manufacturing. However, core sectors posted a 6.6% growth for the month. While government and economists maintain that industry's performance is not as bad as the numbers suggest, since the high base effect came into play, they warned that the effect of high interest rates would be felt in coming months.

Within index of industrial production (IIP), manufacturing registered a negligible growth of 1%. This is compared to 2.24% in November 2010 and 19.6% in the corresponding month of 2009. The sharp decline in manufacturing is primarily due to a 13.7% fall in capital goods during the month. However, it may be noted that capital goods had grown by 42.9% in December 2009. Hence the decline in December 2010 is partially due to a high statistical base effect. Growth in mining was also disappointing as it fell from 7.43% in November 2010 and 11.1% in December 2009 to 3.8% in December 2010. However, the silver lining was growth in electricity generation which picked up, both on a sequential and annual basis, during the month to 6% vs. 5.4% in December 2009 and 4.58% in November 2010. Among the 20-item categories, four registered a contraction, with machinery falling by 12.8%, basic chemicals by 2.6%, wood & wood products by 17.3% while tobacco & beverages fell by 9%. Consumer durables, however registered double-digit growth of 18.53 % up from 4.4 % in November and 41% in December 2009. While the government believes that the IIP numbers are not to be concerned about due to a high base effect, there are certain concerns on capital goods. This is because of fall in industrial machinery output, meaning that capacity expansion is not taking place.

Food inflation eased to a 7-week low in January on the back of moderating vegetable and onion prices. However economists are of the opinion that some pressure on prices is expected to remain in the weeks ahead. Data released by the commerce and industry ministry on Thursday showed the food price index rose 13.07% in the week ending January 29, down nearly 4% from the previous week's 17.05%. Mr N R Bhanumurthy, economist at the National Institute of Public Finance and Policy, said that overall inflation as measured by the wholesale price index was expected to remain sticky and supply bottlenecks still remained while input prices had gone up. Overall inflation rose to 8.43% in December, vs. 7.48% in November. Food grain production for 2010-11 is seen at 232.07 m tonnes, against 218.2 m tonnes in the previous year. Wheat production is expected to be 81.47 m tonnes in 2010-11 while pulses and cotton production are expected to be 16.51 m tonnes and 33.9 million bales, respectively.