Spain looms large

Sat, 29 May RoundUp

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The week ended largely positive for most of the world's indices. The US was the worst performing market of the week (down 0.6%) as news of Spanish debt downgrade came in late Friday. Other than the US, the only market to close in the red was Japan (down 0.2%). Amongst the other world markets, China (up 2.8%) was the top performer followed closely by Brazil (up 2.8%)

Up by 2.5%, India's benchmark Index BSE-Sensex was also amongst the top performers of this week on the back of increase in FII inflows. In Europe, UK (up 2.5%) was the best performer with France (up 2.5%) and Germany (up 2%) following close behind. Singapore and Hong Kong were up by 1.4% and 1.1% respectively.

Source: Yahoo Finance

Moving on to the sectoral indices in India, the week was positive for the Indian markets. Other than BSE-Consumer Durable (down 2.2%), all indices closed the week in the positive. BSE-Realty index was the top gainer for the week with an increase of 4.1% after being beaten down last week. Amongst the other top performers, BSE-Oil & Gas index and BSE-Power index gained 3.4% and 3.3% respectively. BSE-IT index gained 3.1% during the week while BSE-FMCG index was up by 3% on the back of good results by companies. Amongst the laggards of the week, BSE-Metal index was up by 1.7% while BSE-Midcap and BSE-Smallcap indices gained 1% and 0.9% this week. BSE-PSU Index was also amongst the worst performing stocks with a gain of 0.6%.

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.

FMCG major HUL declared its 4Q and FY10 results. The company's top line grew by 8% YoY for the quarter on the back of strong volume growth. Sales from home and personal care segment grew by 5% YoY while the sales of FMCG and foods segment grew by 8% YoY and 18% YoY respectively. On a segmental basis, sales of the company's soaps and detergent business fell by 2% YoY. This was due to price cuts in laundry business because of competitive pressure. Personal care portfolio grew by 19% YoY supported by growth in hair, oral and skin care segments. Beverage segment grew by 15% YoY aided by double-digit growth in tea and coffee. Food and ice cream segment also performed well growing by 23% YoY and 22% YoY respectively. Operating margin of the company fell by 0.9% to 13.6% because of higher advertisement spending on brand building. Net profit however increased by 47% on the back of one time gain from the sale of investments and properties. For the year, the top line grew by 6% YoY while the bottom line grew by 4% YoY.

Coming to autos, Tata Motors declared its FY10 results. On a consolidated basis, sales of the company grew by 31% YoY. This was supported by 19% YoY growth in volumes. The top line growth could have been higher but for a drop of 11% in the cumulative volumes of Jaguar Land Rover. Consolidated operating margins improved by 6.2% thanks to operating leverage and cost cutting measures by the company. Net profit turned positive after a loss in FY09. This was due to a jump of 339% in operating profits. The company turned in a net profit of Rs 26 bn for FY10.

Moving on to other corporate news, ONGC is in talks with multinational energy majors like BP, Exxon Mobil, BG Group, Eni and BHP Biliton for a tie-up for one of its KG basin gas blocks. This block involved deep water drilling in which ONGC is relatively inexperienced. However, the government has not shown much urgency and prudence to India's growing energy needs and high dependence on oil imports. Earlier, Norway's Statoil and Petrobras of Brazil decided to quit the block due to government delays in approving their participation. It may be noted that the KG basin block now has ten gas discoveries. ONGC plans to club these with six gas finds in a neighbouring block and plans to production in next 3 to 4 years. However, the government seems to be taking things casually as there are still several technicalities including whether a block was nominated or auctioned by the government to be sorted. We hope the government pulls up its socks soon and steam lines such issues for faster execution.

IT companies seem to have turned the corner. IT major Infosys has received permission from the Karnataka government to set up two software development centers in Bangalore. While one center will be coming up in Sarjapur on the outskirts of Bangalore, the other is expected to come up close to the Bangalore airport. The company plans to invest Rs 30 bn to set up theses center which when completed will seat 30,000 employees. Infact, the Sarjapur campus being set on 365 acres of land will be the second largest Infosys campus in terms of area. This investment points to an overall recovery of the sector and better revenue visibility.

However, the realty sector seems to be overheating. Real estate biggie DLF planning to construct super luxury housing project in Lower Parel, Mumbai. The project is expected to fetch Rs 150 bn in revenues for the company, which is twice that of its FY10 sales. Projected to be a 90-story skyscraper, when finished this project will be one of India's tallest buildings. DLF has acquired the 17-acre plot for this project in 2006 at a cost of Rs 7 bn. At 1000 apartments for which prices range between Rs 50 m to Rs 10 m this projects is expected to be a high margin project for the company. However, we are wondering where the company will get so many people in Mumbai to pay this kind of money.

Movers and shakers during the week

Company	21-May-10	28-May-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
AREVA T&D	238	287	20.6%	386/235
REL NATURAL RESOURCE	45	52	17.8%	112/44
REI AGRO LTD.	40	46	16.3%	104/39
RENUKA SUGARS	53	60	13.8%	124/53
RELIANCE POWER	139	157	12.9%	210/137
Top losers during the week (BSE-A Group)
MPHASIS LTD	637	580	-8.9%	796/315
ADANI ENTERPR.	587	539	-8.2%	608/315
MAX (I) LTD.	175	163	-7.1%	254/167
CONTAINER CORP	1,290	1,225	-5.0%	1,500/925
SINTEX IND.	284	270	-4.9%	337/186

Source: Equitymaster
Food inflation for the week ended May 15 came in at 16.23%, a drop of 0.26% from the previous week. While overall inflation stood at 9.59% for April, down by 0.31% from March. With indication of a normal monsoon, and which is expected to reach India on time, the commodities prices have started softening. However, it will take a few months before the inflation moderates as it will take 2-3 months before the monsoon scenario becomes clear. The government expects the overall inflation to moderate to 5-6% by December. However, in the short term the inflation could increase if the government decides to raise prices at its empowered group of ministers meeting early next month.

Coming to international news, rating agencies cut the rating on Spanish debt from AAA to AA+. While the debt is still investment grade, it serves to show that the global economies are not out of the woods yet. This had rattled investors in the US as the news came out late Friday. In fact, this is something to watch out for next week as the remaining world markets will react to this news on Monday.