The US$1 trillion shot lifts markets

Sat, 15 May RoundUp

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The past week was a positive for the world markets as all key global indices closed in the green. After last week's bloodbath, Europe saw the highest gains this week. Germany was the biggest gainer of the week (up 6%) globally while France and the UK came close on its heels with gains of 4.9% and 2.7% respectively. The US markets too closed with gains of 2.3%.

In Asia, India closed the week with a comparatively sober gain of 1.3% while China was the lowest gainer with gains of just 0.3%. The week began with a bang for markets across the world. The reason was a huge attempt by the European policymakers to prevent the collapse of Greece and the aftershocks thereon. European policymakers unveiled a gargantuan loan package worth US$ 1 trillion. Coupled with this was a program of bond purchases to stop the sovereign debt crisis that threatened to shatter confidence in the euro. The 16 Euro nations agreed to offer as much as 750 bn euros to countries facing instability. This included International Monetary Fund backing. Moreover, the European Central Bank also stated its intention of buying government and private debt. This was enough to send world markets soaring with the BSE Sensex closing as much as 580 points higher at the start of the week on Monday.

Source: Yahoo Finance

Moving on to the sectoral indices in India, the week was positive for the overall markets. Stocks from the realty and auto sectors were the biggest gainers. The BSE-Realty and BSE-Metal indices closed the week with gains of 4.1% and 3.7% respectively. Amongst other indices, BSE-Metal and BSE-Capital Goods indices were the only ones that saw overall declines during the week. They fell by 0.4% and 0.2% respectively.

Source: BSE

Moving on to key corporate developments during the week, a handful of large companies announced their quarterly and full year results this week. We have highlighted some of the key ones below.

Union Bank of India declared its FY10 results. The bank reported a 12% YoY growth in interest income in FY10 on the back of a 23% YoY growth in advances. However, this growth has come while partially sacrificing margins and asset quality. In order to hedge the slowdown in the growth of retail and agriculture segments, the bank tapped SME clients. Net interest margin dropped from 3.2% in FY09 to 2.7% in FY10 due to pricing pressure. Other income grew by 33% YoY on the back of 47% YoY growth in fees. The bank's capital adequacy ratio stood at 12.5% as per Basel II at the end of FY10. Net NPA ratio moved higher to 0.8% in FY10 from 0.3% in FY09.

Hindalco also announced its FY10 results during the week. For 4QFY10, the company's standalone revenues grew by 43% YoY led by a better product mix and higher realisations. What also contributed to sales growth is the increased production from the brownfield expansion, which resulted in higher volumes. While the aluminium business recorded a 31% YoY growth in sales, the copper business grew by 52% YoY. The benefit of higher prices on the LME also played its part in enhancing sales. Net profits increased almost fivefold due to strong performance at the operating level, lower interest costs and depreciation charges.

The Indian telecom regulator TRAI put out some important recommendations on the sector's M&A plans during the week. The regulator recommended ending restrictions on telecoms firms selling out. This move could help consolidation in the world's fastest growing telecoms market. Currently, India restricts telecoms firms from selling majority stakes within three years of getting license. TRAI also suggested that telecom players pay a one-time fee for holding radio-spectrum beyond 6.2 mega hertz (MHz) based on 3G prices. This move may hit established operators like Bharti Airtel and Vodafone. While these recommendations are yet to be reviewed, the fact that the sector's need for consolidation is on the regulator's mind is very apparent.

Godrej Consumer Products (GCPL) entered into an agreement to purchase the 51% stake of Sara Lee in its joint venture, Godrej Sara Lee Limited (GSLL). As per this agreement, GCPL will have to pay Euro 185 m or about Rs 10.5 bn for this transaction. GSLL had Rs 9.7 bn in sales in FY10 and the net profit was Rs 1.3 bn for the same period. Hence the price translates to about 16 times earnings. With this acquisition, Godrej will own 100% state in the JV.

It may be recalled that Sara Lee is in the process of selling off its personal care business to concentrate on its foods business. However, as per the agreement, Godrej will continue to have the distribution rights for Sara Lee products till 2012. Beyond 2012, Godrej will have the option of either continuing with the distribution rights or selling them. Godrej is expected to raise money for this deal through equity dilution and private equity.

Movers and shakers during the week

Company	7-May-10	14-May-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Godrej Consumer Prod.	304	346	14.0%	359 / 140
Godrej Industries	149	165	10.8%	219 / 92
GSK Pharma	1,944	2,137	9.9%	2,149 / 1,109
Mundra Port & SEZ	652	714	9.5%	799 / 425
Torrent Power	309	335	8.6%	351 / 101
Top losers during the week (BSE-A Group)
Aban Offshore	1,010	831	-17.7%	1,680 / 461
Idea Cellular	64	57	-10.5%	92 / 48
RNRL	53	47	-10.1%	112 / 49
Cipla	342	313	-8.4%	363 / 218
Bharti Airtel	288	264	-8.1%	495 / 260

Source: Equitymaster
As for the contagion in Europe, top policymakers do not expect the Greek debt crisis to impact India much, other than that there could be hiccups in the near term due to likely capital outflows. The major concern for India continues to be inflation and this has been spreading to the non-food items too. Part of the reason for the rise in inflation has been the influx of money from foreign investors especially in equities. Indeed, as far as the Greek sovereign crisis is concerned, any near term selloff by foreign investors should be looked upon as an opportunity by long term investors in India to buy good quality stocks at attractive prices.