Euro problems continue to take toll

Mon, 17 May Closing

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While the markets came off significantly from the day's lows, they were still not able to avert a negative ending. Thus, the Sensex closed the day with a decline of around 170 points (down 1%) whereas Nifty closed lower by around 40 points (down 0.7%). BSE Mid cap and Small cap indices also fared poorly, edging lower by 0.2% and 0.7% respectively. On the Sensex, six stocks gained for every four that ended the day in the red.

While most Asian markets also closed weak today, European stocks are trading surprisingly buoyant currently. The rupee was trading at Rs 45.7 to the dollar at the time of writing.

The decline today comes on the back of a huge decline of more than 300 points witnessed on Friday and does mark a turning point of sorts from the buoyancy witnessed on account of the European stimulus package early last week. While it has been late in the coming, the reality of long term structural problems with the European nations is finally dawning upon investors and this seems to be making markets across the world jittery. And India is no exception. While some degree of correction is justified here, any overreaction and it will be a fantastic opportunity for investors to partake in the long term India growth story.

With loss in the region of 4%, DLF emerged as the biggest loser on the Sensex today. The company announced its full year and fourth quarter FY10 results late last week whereby the topline suffered a fall of 26% for the full year whereas the bottomline fell even more, recording a decline of 61% YoY. The fourth quarter performance however was enthusing. Topline registered 78% YoY growth during 4QFY10 on the back of strong sales booking and low base effect whereas growth in net profits came in even higher at 168% YoY. Important to add that the company's operating profits increased 5 fold on a YoY basis. Operating margins stood at 50% as compared to 14% in 4QFY09. Total developable area stood at 416 m sqft at the end of the quarter as compared to 430 m sqft at the end of the preceding quarter. It should be noted that the company is working consistently on reducing its debt burden by ‘unlocking' its non-core assets and has plans to divest nearly Rs 27 bn over the next 12-18 months. Cash flows arising from sale of non-core assets will be used to repay debts.

While DLF closed weaker on account of its results, engineering major L&T emerged stronger due to the same. The company announced its 4QFY10 results a while back. Its standalone net sales grew by a 28% YoY during 4QFY10. This growth was led by a 28% YoY growth in sales of the company's engineering and construction (E&C) segment. The company's EBIDTA margins expanded by 0.9% YoY during the quarter on the back of lower sub contracting charges as well as administrative expenses (as percentage of sales). Excluding extraordinary items, net profits grew by 17% YoY during 4QFY10, a slower growth when compared to the topline on account of a big spike in interest expenses as also a much higher effective tax rate. The company also had an extraordinary gain during the quarter of Rs 1,007 m which included a gain from the sale of the company's Petroleum Dispensing Pumps & Systems business. For the full year FY10, the company has reported 9% YoY growth in sales while its net profits have grown 26% year on year.