Global markets up after a pause

Thu, 21 Apr RoundUp

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Reversing the trend from last week, all global indices closed the week in the green, with the exception of China. The buoyancy in the world markets can be attributed to some strong earnings reports declared by companies in the latest week. China was the only loser of the week (down 0.5%) while Singapore was the biggest gainer up 1.3%. Amongst other Asian markets, the Indian stock market was up by 1.1% while Japan was up by 1%. Hong Kong closed the week up 0.5%.

In Europe, Germany was the biggest gainer (up 1%) followed closely by France (up 0.8%). UK was up by 0.4%. In the Americas US was up by 0.9% while Brazil was up by 0.6%.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India, oil & gas and auto stocks were the best performers with BSE-Oil & Gas and BSE-Auto indices closing the week up 2.8% and 2.4% respectively. Capital Goods stocks disappointed with the BSE-Capital Goods index down 2.4%. Among other top performers, BSE-Metals and BSE-Consumer Durable indices were up by 2% and 1.6% respectively. BSE-Power and BSE-Realty were other indices which closed in the red down 1.7% and 1.2% respectively. BSE-IT index also closed in the red due to the bad result of Infosys being reflected on the entire sector.

Source: BSE

Moving on to key corporate developments during the week - a handful of companies announced their results for the quarter ended March 2011. From the financial space, HDFC Bank released its FY11 result. The bank's interest income grew by an impressive 23% YoY for the year on the back of 27% YoY growth in advances. This growth was well in access of industry growth and was aided by more than 30% YoY growth in loans to retail customers and large corporate. Net interest margins (NIMs) remained flat at 4.2% due to a higher proportion of low cost deposits. For the year, CASA made up 51% of deposits. On the other hand, other income grew by 9% YoY. Net NPA to advances fell marginally to 0.2% in FY11 from 0.3% in FY10. Provision coverage ratio increased to 82.5% at the end of FY11 vs. 75% in FY10. While capital adequacy ratio (CAR) stood at 16.2%, Tier 1 CAR stood at 12.2%. During the year, HDFC increased its branch network by 261 branches and declared a dividend of Rs 16.5 per share.

Another bank which declared its results over the week was Yes Bank. The bank's net interest income grew by 58% YoY on the back of 55% growth in advance. Net interest income grows 58% YoY in FY11 on the back of 55% YoY growth in advances. The highlight of the year was that with a growth of almost 3 times the industry growth, the bank is close to the market share of some of its larger peers in SME lending. Other income grew by a mute 8% YoY as a result of lower treasury gains. However, as a result of pressure on interest costs, NIMs fell marginally to 2.9% from 3% in FY10. Net profits grew by 52% YoY during the fiscal. This was a result of write back of provisioning and higher operating leverage. CAR for the year stood at 16.5% while gross NPA stood at 0.2%. The bank declared a dividend of Rs 2.5 per share. At the end of the year the total employee strength of the bank stood at 3,900, a net increase of 900 employees over FY10.

In news from media space, Zee Entertainment declared its 4QFY11 results. The company witnessed a strong growth in the quarter driven by robust growth in the advertisement segment. Advertisement revenues increased by 36.4% YoY during the quarter. This came on the back of higher channel shares across network, a buoyant macro environment and a continued preference of advertisers towards television. Top line growth was also supported by subscription revenue which grew by an impressive 23.7% YoY. However, the other sales and services business disappointed as revenues from this segment fell by 83.6% YoY. This was due to the discontinuation of education business of ETC. Operating profit for the quarter increased by 23.5% YoY while operating profit margins remained flat at 28.4%. While programming expenses increased by 43% YoY, selling and administrative expenses declined by 15% YoY. This ensured that operating margins remained at the same level for the year. Net income increased by 43.3% YoY. This was on the back of strong operating profit growth and lower interest costs and fall in effective tax rates.

IT major TCS also declared its 4QFY11 results. The company's sales grew by 5.1% QoQ basis. This was due to 2.9% growth in volumes. Volumes were driven by robust demand across markets. These included Continental Europe and Asia-Pacific markets. Sales from Continental Europe grew by 11.9% QoQ while sales from Asia-Pacific grew by 9.7% QoQ. North America and Middle East and Africa (MEA) regions also contributed to top line with North America growing by 4.9% QoQ and MEA growing by 5.1% QoQ. Latin America also contributed to the growth of the top line with sales from this region growing by 8.5%. However, India disappointed with a sales growth of 0.5% QoQ. Operating margins grew by 0.5% to 30.5%. This was the result of lower cost of sales (as a percentage of sales). Net profit of the company grew by 10.7% QoQ during the quarter. This was due to higher operating income and lower effective tax rate. TCS added 39 new clients during the quarter taking the total number of its clients to 969. The company declared a dividend of Rs 8 per share during the quarter taking the total dividend paid during the year to Rs 14 per share.

While the biggest gainer of the week has been the BSE-Oil & Gas index, the crisis in the Middle East has added to the debt burden of oil marketing companies. This has been due to higher crude oil prices. In fact the under recovery of state owned Oil Marketing Companies (OMCs) is expected to cross Rs 2,000 bn this fiscal if crude prices remain at the current levels. Under recovery arises as OMCs have to sell diesel, kerosene and cooking gas at subsidized rates. As a result when oil prices climb up the differential between the cost and selling price increases resulting in under recoveries. It may be noted that the under-recoveries of OMC were to the tune of Rs 780 bn in 2010-11. While the matter is being taken up with the Finance Minister, it is clear that if the government does not de-regulate prices, either OMCs will continue to face higher debt burdens or the government's subsidy bill will keep ballooning.

Movers and shakers during the week

Company	13-Apr-11	21-Apr-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
JAIPRAKASH ASSO.	91	102	12.3%	163/73
SINTEX IND.	163	179	10.0%	237/134
INDIABULLS FIN. SER.	163	179	9.7%	241/130
JUBILANT LIFE SCIENCES	182	198	9.0%	413/149
ONGC	280	304	8.4%	368/252
Top losers during the week (BSE-A Group)
INFOSYS	3,224	2,901	-10.0%	3,494/2,565
POWER FIN CORP	248	229	-7.7%	383/221
UNITECH	45	41	-7.0%	98/33
GMR INFRA	42	39	-6.9%	69/31
BHEL	2,200	2,050	-6.8%	2,695/1,911

Source: Equitymaster

In other news from the Indian economy, the Planning Commission is targeting an economic growth of 9% for the 12th five year plan. This is a revision from the earlier 10% target set by the Prime Minister, Dr Manmohan Singh. The reason for this revision is the continuing global uncertainties, rising energy prices and high inflation. While other economists feel that 9% is also high it can be achieved if the government addresses the infrastructure deficit in the next 5 years. However, the 9% growth assumes the global economic conditions will stabilize.

Food inflation reversed the 3 week declining tread and shot up to 8.74% from 8.28% for the week ending April 9. As per official data, this increase was on the back of expensive fruits, protein-based items and onions. This unexpected increase has again put pressure on the government prompting Dr Manmohan Singh to call for enhanced production of a diversified basket of agriculture products. We however, maintain that food inflation is a result of infrastructure bottlenecks. During the week under review, fruits became dearer by 25.2% YoY while egg, meat and fish were up by 14.9% YoY. Non food articles were up by 27.6% YoY and fuel and power increased by 13.1% YoY.

In news from the world economy, high oil prices are hurting demand from the world's top oil consumers i.e. China and the United States. Warning bells have been sounded that a sustained price of US$ 100 or more for the rest of 2011 would result in demand destruction last seen in 2008 when oil prices had risen to their highest levels. So far we have not seen the effect of the high prices as there is a six month lag for the world economy to fully show the impact of high oil prices. While OPEC meets next in June to discuss supply policy, it has taken no coordinated action to boost supply to moderate prices.