Global markets face selling pressure

Thu, 30 Apr RoundUp

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Global markets had a difficult week in the midst of uncertainty regarding the next move by the US Fed. In its meeting the US Fed decided to keep interest rates unchanged and gave no indication about when a possible hike can be expected. The US markets were marginally down for the week at the time of writing.

European markets faced selling pressure amid fears that Greece will exit the Eurozone. The British FTSE, French CAC and the German Dax were down by 1.7%, 3.1% and 3.2% respectively.

The Chinese markets continued to run up due to the easy money policy adopted by the Chinese central bank. Back home in India, the markets were under pressure due disappointing earnings as well as uncertainty relating to taxation of FII investments.

Source: Yahoo Finance

The week gone by witnessed sharp selling activity across many indices. Stocks from FMCG and metal sectors lead losers while banking stocks were the top gainers.

Source: BSE

The Union Cabinet has given a green signal for urban renewal. The clearance has been given to develop 100 smart cities and rejuvenate 500 cities and towns with a population of one lakh and above. Out of the total of Rs 1 trillion allocated for a period of five years, Rs 480 bn are for the 100 smart cities also known as Smart Cities Mission whereas Rs 500 bn have been sanctioned for Atal Mission for Rejuvenation and Urban Transformation (Amrut) for 500 cities. As per the rejuvenation plan, each city would get Rs 1 bn from the Centre for five years while the balance will be funded by states, urban bodies and the consortium formed with corporate entities.

The government successfully auctioned 33 coal blocks in FY14 fetching Rs 2 trillion. However it seems determined to carry on the process to reduce the risk of wrong doing in mine allocation. It may be recalled that the Supreme Court had in August 2014 cancelled more than 200 illegal coal block awards made over two decades. Even after the recent round of auctions, as much as 18,000-19,000 MW of coal-based power projects still need coal. Hence the Ministry of Coal will continue to conduct coal block auctions. The move is expected to ease the coal constraint for power sector which has had many projects in the backlog for years for want of coal supplies at reasonable cost.

Auto major Maruti Suzuki is looking to invest as much as Rs 40 bn in FY16 towards new models and marketing expenses. As per the company, this amount would be utilized on enhancing marketing, infrastructure, launching new products as well as on R&D. Some of the major models lined up for launch in the current year include the crossover vehicle SX4 S Cross and premium hatchback code named YRA. The company is also looking to up its efforts to reach the smaller regions in India. Maruti is currently present in 1.25 lakh villages and is looking to expand by 25,000 villages this year. Speaking on his view on the rural demand, Chairman R.C. Bhargava stated that while demand is strong, a lot will depend on the monsoons this year.

Indian Software major Wipro has set its eyes on better margins via automation induced operating efficiency. The company expects its investments in automation, artificial intelligence (AI) and digital technology to improve efficiency. This will enable the company to bring about a reduction of 30% in its headcount in the next three years. Wipro is moving its automation focus from the service desk, to application services, which would lead to a reduction of 30% of its headcount. However, this would not mean more employees will get fired. In fact the attrition would be balanced with redeployment to new, high growth revenue streams.

As per a leading financial daily, NTPC has decided against importing coal for this quarter as supplies from Coal India are adequate to meet its requirements for the period. As per the company, it plans to reduce its imported coal requirements to zero over a five year period. If Coal India is able to meet its requirements, it will look at revising this target. NTPC's coal stock has been boosted to 9 m tonnes as of March 2015, from just 1.6 m tonnes at the end of September last year. This move will help towards reducing the power generation costs and decreasing the tariff rates overall.

Let us take a look at the quarterly results of some of the companies.

India's leading software firm Infosys has announced results for the quarter and year ended March 2015. The Company has reported a 4.7% quarter on quarter (QoQ) fall in the net profit. In rupee terms the consolidated sales decreased by 2.8% QoQ during 4QFY15. In US dollar terms the revenues were down 2.6% QoQ. The appreciation of the US Dollar against major global currencies impacted the topline. Operating profits were down by 6.5% QoQ. Thus, the operating margin which came in at 25.7% this quarter was lower than the same reported in the last quarter of 26.7%. The other income was higher by 4.9% QoQ. Despite the sequential rise in other income, the poor operating performance led to the fall in the profit before tax (PBT) by 4.4% QoQ. The company has announced a bonus issue of 1:1 and a final dividend of Rs 29.5 per share (equivalent to Rs 14.75 post the 1:1 bonus issue). Further, the company has announced two acquisitions: Kallidus Inc. (d.b.a Skava) which specializes in retail mobile commerce for a consideration of US$ 120 m and an early stage minority investment in Airviz for a consideration of US$ 2 m.

India's third largest private sector bank, Axis Bank has announced its financial results for the quarter and year ended 2014-15. During the quarter, the company's total income increased by 21.7% YoY from Rs 1,018 million to Rs 1,238 million. The operating profits witnessed a rise of 23.6%, almost in line with the topline growth. At the bottomline level, net profit increased by 18.4% YoY from Rs 184 million in 4QFY14 to Rs 218 million in 4QFY15.

Ambuja Cements has announced its financial results for the quarter ended March 2015. During the quarter, the company's standalone net sales stood at 24,246 million, down 8.1% on a year-on-year basis. The drop in the topline was driven by a 9% YoY decline in volume sales on account of muted cement demand. While there was an improvement in the net cement realisations, the cost pressures resulted in EBITDA compression of about 240 basis points from 21.8% in 1QCY14 to 19.4% in 1QCY15. At the bottomline level, net profit plunged 38.9% YoY on account of poor operating and non-operating performance.

Going forward, the markets will be driven by the ongoing earnings season as well as geo-political concerns. Also, the ongoing parliament session and reform moves by the government will also be closely tracked. However, investors will be best served if they invest only in fundamentally strong stocks for the long term and ignore short term fluctuations.