Markets stay afloat despite petrol price hike

Sat, 26 May RoundUp

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Global investors spent the week expecting the probable exit of Greece from the eurozone but still managed to end the week in the green. Barring Asian stocks, all stock markets ended on a positive note. Some statistics regarding the US economy will be released next week and investors will continue to remain concerned about Eurozone too. This is most likely to set the mood of investors over the coming weeks especially until Greece holds elections on June 17.

In India, news that made headlines throughout the week was hike in petrol prices by Rs 7.5 per litre. However, this did not hurt investor sentiments much. Also, sharp fall in the value of rupee was a concern but Indian equity markets finally managed to close the week 0.4% higher.

Amongst, the other world markets, Asian stock markets were down on the slowdown of the Chinese economy and concerns that China's biggest banks may fall short of loan targets for the first time in last 7 years. All other stock markets closed on a positive note with UK being the top gainer.

Source: Yahoo Finance

All the sectoral indices closed the week in the green except for consumer durable and FMCG stocks. Oil & Gas stocks were among top gainers on news about rise in petrol prices.

Source: BSE

Let us now take a look at key developments during the week. The most important news that was announced during the week was the hike in petroleum prices by Rs 7.5 per litre. The much awaited increase in price was finally declared a day after the budget session of the parliament ended. While increased prices of petrol would bring some relief to the state run oil companies reeling under pressure of under recoveries, it is bound to impact the budget of the common man. The petroleum minister stated that the hike was inevitable because falling rupee has resulted in higher oil import bills. The prices of kerosene, diesel and domestic LPG have not been touched so far.

Soon after the petrol prices were hiked all across India, automobile companies sprung into action. They announced discount offers ranging up to Rs 50,000 to woo their customers. Maruti Suzuki offered a discount of Rs 30,000 on its Alto while Tata Motors too was not far behind. The automaker offered discounts ranging from Rs 10,000 to Rs 50,000. Hyundai offered discounts of up to Rs 3,000 on all its petrol models. We may note here that the auto industry is facing slowdown resulting out of increased prices of fuel. This is most evident in the sales of entry level vehicles for which auto companies are now offering discounts.

Companies continued to declare their results for the quarter and full year ended March 31, 2012.

Zee Entertainment declared results for the quarter as well as the year ended FY12. The company reported 9.3% YoY growth in sales which was largely impacted by a 12% YoY slowdown in advertising revenue. Operating profits for the quarter were down by 28% YoY on account of almost 72% jump in other operating expenses. Lower depreciation and interest charges could not help much and the media company reported a fall of 18.6% YoY in net profits for the March quarter. Net profits declined by 1.4% YoY for the full year 2011-12. Zee declared a dividend of Rs 1.5 per share implying a dividend yield of 1.2% at current market price (of Rs 125).

In some other news from the corporate world, Bharti Airtel has announced its plans to acquire stake in Qualcomm Asia Pacific's Indian broadband and wireless access (BWA) entities. For this, Bharti has invested US$ 165 m to acquire 49% stake. The stake will be acquired through a mix of 30% equity offered by Global Holding Corporation Private Ltd and Tulip Telecom Limited and issuing of fresh equity shares. The partnership formed will roll out 4G services in more locations including Delhi, Mumbai, Haryana and Kerala. Qualcomm wanted an Indian player to deploy Long Term Evolution Time Division Duplex (LTE TDD) in India and it will now provide technical assistance to Bharti. Bharti on the other hand will establish itself as a nationwide broadband leader in combined 4G and 3G services space.

Movers and shakers during the week

Company	18-May-12	25-May-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Pantaloon	130	150	15.7%	347/128
Adani Enterprises	225	259	15.4%	760/225
Reliance Capital	285	320	12.2%	609/237
Yes Bank	297	331	11.3%	387/236
IDFC	113	125	11.0%	152/92
Top losers during the week (BSE-A Group)
Bharat Earth Movers	508	456	-10.2%	695/422
Moser Baer India	11	10	-9.0%	42/10
Jain Irrigation	78	72	-7.5%	182/71
Educomp Solutions	156	146	-6.5%	478/144
Sterling Biotech	8	8	-6.3%	101/8

Source: Equitymaster
Fertilizer companies plan to raise prices of DAP, NPK and potash prices by up to 30% during this kharif season. The companies' imports of nutrients for fertilizers have become expensive as a result of falling rupee. In fact, India imports a quarter of urea, 100% of potash and almost 70% of DAP. We may note here that demand for fertilizers goes up during summers because farmers heavily invest in nutrients for cash crops, such as rice, cotton and sugarcane. Higher prices of fertilizers may in turn raise the prices of foodgrains thereby fuelling food inflation.

Indian stock markets are likely to be influenced by a number of issues in the coming few weeks. Government is facing severe criticism for its bold move of raising petrol prices from both the opposition parties and the public at large. Fall of rupee has been a cause of concern for corporates especially for industries who import majority of their inputs from abroad. Any sort of appreciation of rupee towards later part of the week and fall in crude oil prices could result in improved market sentiments. However, global concerns about Eurozone and slowing Chinese economy will continue to haunt the Indian markets too for some more time to come. Thus, in such volatile times, it becomes imperative for investors to not follow the herd but instead invest in those companies having capable managements, good business models and available at attractive valuations.