A mixed week for global stock markets

Sat, 9 May RoundUp

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It was a mixed week for global stock markets. The major Asian equity markets ended the week in the red with stock markets in China (down 5.3%) and Hong Kong (down 2.0%) leading the losses. For China, it was the biggest weekly loss in five years, mainly due to concerns over further government measures curbing speculation and the possibility that new stock listings may drain funds from existing equities. Morgan Stanley also downgraded MSCI China index to equal weight from overweight. This was the first downgrade in seven and a half years for the index. Stock markets in Hong Kong took the cues and declined by 2% over the week.

The US stock markets closed the week in the green (up 0.9%) cheering a jobs report that most believe could warrant tightening by central bank very soon. The job report for April showed a creation of 223,000 jobs and an unemployment rate of 5.4 %.

The major European stock markets witnessed gains during the week, supported by a more decisive-than expected U.K. election outcome and US jobs report. In the UK general election, the conservative Party came to power. The UK stock markets were up by around 1.4% for the week. The stock markets in Germany and France gained 2.4% and 1.0% respectively over the week.

The Indian markets witnessed sell off in the initial part of the week as foreign investors have been selling equities on concerns of tax demands on capital gains made during previous years. However, the markets rebounded sharply on Friday, with BSE-Sensex registering highest one day gain in four months. The rebound is being attributed to short covering and improvement in the sentiments due to the announcement by the Finance Minister Arun Jaitley to form a panel for resolving the Minimum Alternate Tax (MAT) dispute.

Source: Yahoo Finance

Sectorwise, FMCG and IT stocks led the gains while stocks in the banking and consumer durables sectors were the key losers. The small cap and mid cap indices lost 1.1% and 1.7% respectively for the week.

Source: BSE

The Goods and Service Tax (GST) bill, hailed as one of the biggest tax reforms has passed a key hurdle as it has been passed by the Lok Sabha. The bill aims to replace a patchwork of levies by the central and state governments with a single nationwide sales tax. It is expected to add up to 2 percentage points to the country's economy. However, the Bill is yet to clear Rajya Sabha test.

According to a leading financial daily, the government has approved the National Smart Grid Mission with an outlay of Rs 9.8 bn in the 12th Five-Year Plan. The undertaking will serve as an institutional mechanism for planning, monitoring and implementing policies and programmes related to the smart grid. The National Smart Grid Mission entails implementation of a smart electrical grid based on state-of-the art technology in the fields of automation, communication and IT systems that can monitor and control power flows from points of generation to points of consumption.

State-owned Punjab National and IDBI Bank have cut their base rates by 25 basis points to 10%. The reduction in interest rate is expected to have a positive impact on loan growth in both retail consumer segment and corporate sector lending. Reportedly, three more state-owned lenders including Bank of Baroda, State Bank of Bikaner & Jaipur and State Bank of Hyderabad reduced base rates by 15-25 basis points each. Last Saturday, Bank of India announced a reduction in its base rate to 9.95% from 10.20% earlier. The scripts of IDBI bank and PNB have opened on a flattish note.

Most of the auto companies have reported volume numbers for the month of April 2015. In the two wheeler segment, the volume numbers are mixed. For instance, Hero Motocorp reported 6.6% YoY drop in volumes during the month. This was attributed to lower rural demand, which was on account of unseasonal rains witnessed in the month of March. TVS Motors, on the other hand, reported a 14% YoY growth in volumes during the month led by healthy performance in both 2 wheelers as well as 3 wheelers. Tata Motors reported a 7% YoY growth in volumes for the same period. While passenger cars and heavy commercial vehicles (MHCVs) grew at a healthy pace, there was a decline in volumes of utility vehicles (UVs) and light commercial vehicles (LCVs). However, Maruti Suzuki reported a robust 29.6% YoY growth in volumes led by both the domestic as well as the export markets.

According to a leading financial daily, the telecom regulator TRAI has come out with regulations for Virtual Network Operators (VNOs). VNOs provide telecom services without owning any spectrum. This is a positive step as far as consumers are concerned but it could increase competition for incumbents. VNOs typically buy bulk talk time and bandwidth from telcos and sell it to consumers.

Upstream oil companies have got temporary relief on account of reports that the government has decided to scrap the subsidy sharing mechanism formula. Instead, the entire subsidy for oil marketing companies will be borne by the exchequer itself for FY16. This is definitely a positive for the bottom line of companies like ONGC and OIL that are required to bear a part of the subsidy burden of oil marketing companies.

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

Private sector lender Kotak Mahindra Bank has announced its standalone and consolidated results for the quarter ended March 2015. During the quarter, the company's consolidated total income grew by 29.1% year-on-year (YoY). The rise in the topline has been driven by 51.7% YoY jump in other income during the quarter. At the bottomline level, consolidated net profit increased by 37.6% YoY. During the quarter, the net profit margin expanded from 22.3% in 4QFY14 to 26.4% in 4QFY15. It must be noted that the bank has approved a bonus share issue in the ratio of 1:1 which is subject to shareholder approval.

Sintex Industries Ltd has declared its consolidated results for the fourth quarter ended March 2015. During the quarter, the company has reported an increase of 22.7% in its consolidated net profit. The company's consolidated net sales for the quarter under review was at 21.68 bn as compared to Rs 19.83 bn for the corresponding quarter. Also, the board of company has recommended a dividend of Rs 0.7 per share for FY15.

Mangalam Cement has announced results for the quarter and the year ended March 2015. The company has reported a decline of around 64.9% in the net profit on a year on year (YoY) basis during the quarter. The net sales for the quarter grew by 9.3% YoY. The operating profit margin at the end of the year stood at around 7%. The company has recommended a dividend of Rs 2 per share for FY15. The company's debt at the end of the year stood at Rs 3.5 bn, with debt to equity ratio at 0.7 times. For FY15, the net sales grew by around 32% YoY, while net profit was down 39% YoY.

Going forward, the markets will be driven by the ongoing earnings season and will take cues from the US jobs data. Inflation and manufacturing output data will further guide the markets. Also, the 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.