India underperforms against its peers

Sat, 13 Apr RoundUp

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Global markets appear to have shaken off the doubts that were in the air last week as majority of the global stock markets ended the week gone by on a high note. The major US indices recorded new highs throughout most of the week, as evidence suggested the US and other major economies were continuing to grow. Also, the first quarter earnings reporting season also got under way. Analysts are believed to have lowered earnings expectations considerably, although some hope that might leave room for more positive surprises as the season unwinds over the coming few weeks. Investors were seemingly encouraged to see a sharp drop in weekly jobless claims, which had been creeping upward over the past month. Growth signals from the world's second and third largest economies were also positive. China reported a strong rise in imports, while hopes continued to grow that economic stimulus programs in Japan would push the economy out of its doldrums.

The European stock markets too, closed the week on a positive note. In Europe, there were questions about Portugal needing another bailout and some static out of Cyprus. But on the whole, investors were not panicking about the euro zone crisis. Both France and the UK released some February production data that hinted that steep declines may be bottoming out. UK was up by 2.1% this week. Stock markets in Germany and France were up by 1.1% and 1.8% respectively.

The stock market in Japan posted a 5.1% jump over the week. The continuance of the strong bull run was after the Bank of Japan (BoJ) announced a huge monetary stimulus to infuse US$ 1.4 trillion in to the economy in less than two years. However, the other Asian markets declined.

Overseas exchange traded funds (ETFs) continued to pull out of emerging markets, including India. Foreign Institutional Investors (FIIs), which have been big buyers in the first quarter (USD $10 bn), are selling in view of possible poor earnings of Indian companies in the March quarter. The Indian stock markets ended the week in the red, down by 1.1% on earnings growth concerns. The downfall in the markets was led by heavy selling in Infosys, Muthoot Finance, MMTC Limited, Wipro Limited and Pantaloon Retail shares.

Source: Yahoo Finance

Majority of the sectoral indices ended in the red with BSE-Information Technology Index (down 10.3%) and BSE-Metal Index (down 1.2%) witnessing the maximum losses. Banking (up 2.6%) and realty (up 1.8%) indices were among the few that registered gains during the week.

Source: BSE

Now let us move to some news from the corporate world. Coal India Ltd (CIL) and National Thermal Power Corporation (NTPC) may soon end their year old fight, on pricing of the coal supplied and the quality of coal provided by Coal India to the latter's power plants. Both the companies have decided to adopt a common method of calculating price, which will depend on the amount of heat that can be generated by burning a particular quantity of coal. The third party will conduct the sampling of the fuel. Reportedly, the differences between both the companies came to an end after the chairman of CIL S Narsing Rao and Chief Managing director of NTPC, Arup Roy Choudhury, met Coal Secretary Sanjay Kumar to resolve the issues. As the differences between both the companies are sorted out, CIL will ensure supplying the required quantity of coal to NTPC, which faces fuel shortages.

Bajaj Auto has lost its position in the two wheeler industry. Its position as second largest manufacturer in the two wheeler segment has been taken over by Honda Motorcycle& Scooters India (HMSI). As per the latest sales numbers reported by SIAM, HMSI sold a total of 2,606,841 two wheelers in the financial year 2012-2013 (FY13). During the same period Bajaj Auto sold 2,463,863 units. The market leader in the segment is still Hero Motocorp with a sales figure of 5,912,538 units during the year. HMSI has undertaken an aggressive strategy to increase its market share in India. It plans to increase market share through new product launches as well as through aggressive pricing in the coming years.

Tata Steel seems to be firing on all cylinders. It has registered its best ever performance in FY13 in Hot Metal, Crude Steel, Saleable Steel production and total sales. The company's flat product sales increased by 20.2% to 4.5 m tonnes during the year as compared to 3.7 m tonnes in FY12. The company's flat products division has achieved its highest ever annual high end product sales of 190 kt to auto customers as compared to 155 kt in FY12. Further, the company's Long Products division has also achieved its highest ever sales of 3 m tonnes as compared to 2.9 m tonnes in FY12 while at the same time recording its highest ever annual retail sales of 1.2 mt as against 1.1 mt in FY12. The company's Ore Mines & Quarries (OMQ) division has also achieved its highest ever iron ore dispatch of 15.0 m tonnes as compared to 13.2 m tonnes in FY12.

Indian IT bellwether Infosys announced its fourth quarter (4QFY13) and financial year ended results for March 2013. During the quarter, the Bangalore-based IT firm reported revenues of Rs 104,540 m, marginally higher by 0.3% on a quarter-on-quarter (QoQ) basis. Operating profits dropped by 8% QoQ to Rs 24,620 m on account of higher operating expenses. However, other income rose sharply by 34% QoQ to Rs 6,740 m. The effective tax rate during the quarter was also lower by 1.8% QoQ. As such, the company reported a marginal 1.1% QoQ rise in the bottomline to Rs 23,940 m. The management of Infosys expects revenues to grow by about 6-10% during the current financial year 2013-14. The company's board of directors has declared a final dividend of Rs 27 per share for the financial year 2012-13.

Movers and shakers during the week

Company	5-Apr-13	12-Apr-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Reliance Communications	63	78	23.3%	92/47
Aurobindo Pharma	157	175	11.4%	205/101
Jaiprakash Associates	64	71	10.3%	107/58
United Spirits	1,755	1,925	9.7%	2149/547
Tata Motors	255	275	7.8%	337/213
Top losers during the week (BSE-A Group)
Infosys	2,863	2,295	-19.8%	3010/2163
Muthoot Finance	178	151	-15.4%	246/106
MMTC Limited	233	209	-10.1%	890/193
Wipro	409	383	-6.4%	418/302
Pantaloon Retail	152	143	-5.9%	276/127

Data Source: Equitymaster
Now let us discuss some of the economic developments of the week gone by. India's Index of Industrial Production (IIP) for the month of February grew at 0.6% versus a growth of 2.4% in January. Manufacturing, which constitutes about 76% of industrial production, grew 2.2% from a year earlier. In the April-February period, industrial production expanded by 0.9%. January's provisional IIP growth was left unchanged.

Retail inflation declined to 10.39% in March, snapping the five month rising trend, as prices of vegetables and protein based items eased. The Consumer Price Index (CPI) based inflation was at 10.91% in February. The inflation, however, continued to remain in the double digit terrain for the fourth consecutive month in March. Among all the constituents that make the CPI, cereals recorded the highest inflation of 17.55% in March. In urban areas, retail inflation declined to 10.38% in March from 10.84% in the previous month. The CPI for rural population fell to 10.33% during the month from 11.01% in February.

The market movement was largely driven by the start of the result season coupled with the poor IIP numbers. While the Indian stocks performed weakly, a slew of results from some large cap companies will be the influencing factor for the forthcoming week.