Macro pressure haunts stock market

Sat, 2 Jun RoundUp

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The concerns regarding spread of economic crisis from Greece to bigger European economies kept Global markets under pressure. Barring China, all key stock markets ended on a negative note. We expect Eurozone concerns to continue to haunt the global markets and be the key talking point over the coming weeks. Greece elections to be held on June 17th will be awaited with bated breath.

In India, the week that just passed was marked by rupee falling to new lows and shockingly low GDP numbers for the quarter ending March. The uncertainty in the global economy, especially the debt crisis in Greece and its advance to bigger European economies made matters worse. While last week the key event was a hike in Petrol prices , the Government has said it is considering raising excise duty on diesel cars rather than increasing diesel price itself.

Amongst the other world markets, Asian stock markets were down, taking cues from global economic woes. Barring China, key Asian markets ended in red. All other stock markets were trading in the negative with Germany, France and Russia leading the losers.

Source: Yahoo Finance

Barring software and FMCG stocks, all the sectoral indices closed the week in the red. Auto stocks and capital goods stocks led the losses.

Source: BSE

Let us now take a look at key developments during the week. The country's GDP growth for the quarter ending March 31, 2012 touched a record low of 5.3% , pulling down the GDP growth in FY12 to just 6.5%. This was much lower than consensus estimates of 6.9%. With the full year numbers being reported, experts are pegging the growth figure for the full year at 6.5%, down by 0.4% from earlier estimates. As per the Central Statistics Office, the downward revision in GDP growth rate for FY12 is due to a lower performance (than anticipated) in manufacturing as well as the trade, hotels, transport and communications sectors combined.

In another key development, the National Telecom Policy-2012 has been declared and cleared by the cleared by the government. As per the new policy, free roaming throughout India and country wise Mobile number Portability (MNP) will become a reality, along with other positive changes including liberalized spectrum, pan-India operator licenses, technology-agnostic spectrum.

Movers and shakers during the week

Company	25-May-12	1-Jun-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Neyveli Lignite	71	85	19.6%	106 / 69
Adani Ports & SEZ	112	125	11.2%	165 / 110
Gujarat State Petronet	64	71	11.0%	113 / 62
Alstom T&D	155	167	7.9%	268 / 136
GMDC	163	176	7.7%	210 / 142
Top losers during the week (BSE-A Group)
Suzlon Energy	21	18	-16.4%	55 / 18
Tata Motors	265	225	-15.3%	318 / 141
KSK Energy	57	51	-11.7%	117 / 35
IVRCL	42	38	-10.1%	78 / 28
REI Agro	9	8	-9.8%	30 / 8

Source: Equitymaster
A number of companies declared their results for the quarter ended March 31, 2012.

Steel Authority of India Ltd. (SAIL) reported a 3% year on year (YoY) growth in the bottomline during the quarter while the net profits for full year were down by 28% YoY. This was mainly due to high costs of coking coal (key raw material) and unfavorable exchange rate movements (adverse impact of Rs 9 bn). The costs of coking coal were up by 35% YoY. The topline for the quarter was up by 12.2% YoY. As per the management, the current fiscal year has started on a positive note for the company and the outlook is bright. Going forward, the company will focus on finishing ongoing modernization and expansion projects to match up the projected growth in steel demand during the 12th Plan period and beyond. The company has also signed a 50:50 JV with Burn Standard Company (BSCL) to set up a wagon components manufacturing facility at the premises of BSCL in West Bengal. The JV will have a capacity to produce 10,000 bogies and 10,000 couplers per annum. The total outlay for the project is likely to be in the region of around Rs 2 bn.

Amongst the upstream oil and gas companies, Gas Authority of India Ltd. (GAIL) and Oil and Natural Gas Commission announced their results for the quarter ending March 31, 2012 (4QFY12).

GAIL reported a topline growth of 18% year or year (YoY) for the quarter. For full year (FY12), the topline was up by 24% YoY. The bottomline was down by 38% YoY due to high outflow for under recovery compensation (up 55% YoY). The under recovery compensation for FY12 was up by 51% YoY. As per the management, the company will incur capex of around Rs 75 bn in FY13 to expand gas pipeline network to 9,000 kms from 5,500 km. Of this, 60% will be raised through debt. Over next four years, GAIL plans to spend nearly US$5.5 bn on capacity expansion over the next four years.

ONGC reported a more than two fold jump in the bottomline for the quarter. The net sales for the quarter registered a growth of 20% YoY. ONGC gained from higher prices of crude rupee depreciation as it could realize more money on its production of oil. The net realizations during the quarter stood at US$ 44.32 per barrel, as compared to US$ 38.75 per barrel in 4QFY11.The discount to oil marketing companies was reported at Rs 121 bn for the quarter (up 143% YoY). The company's board has recommended a final dividend of Rs 0.75 per share. The management has outlined a capital expenditure of Rs 330.7 bn rupees in the current financial year.

In the auto sector, Mahindra and Mahindra (M&M) declared its results for the quarter ended March 2012. The company reported a topline growth of 39% YoY. The Automotive segment (70% of total sales) was up by 67% YoY. The high raw material prices shot up overall expenses by 43% YoY. The bottomline was up by 44% YoY, boosted by an exceptional gain from Automotive Distributors (MADPL) business and strong demand for its diesel-powered sports utility vehicles (SUVs)

Indian stock markets are likely to be influenced by a number of issues in the coming few weeks. The markets will be affected on account of Eurozone concerns and will wait for the outcome of Greece elections to gain some clarity. The new lows for Indian rupee is another cause of concern for corporates especially for those whose inputs are based on imports. The fear of a slowdown of Indian economy at times when global risk aversion is high is expected to keep the markets under pressure. The market sentiments may improve if crude prices ease.

In such volatile times, we suggest investors to not follow the herd but consider investing in the stocks of the companies that have capable managements, good business models and attractive valuations.