IIP data trims India's losses

Sat, 12 Jun RoundUp

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The past week was a mixed one for Asian markets, with Japan (down 2%) and Singapore (down 0.4%) ending on a weak note. This was mainly on concerns over the US job report missing the target as well concerns looming over the Euro crisis. However, Japanese stocks were the top losers despite reports showing that Japan's GDP rose at an annualised rate of 5% in the three months ended March 31. Brazil, France and US were the top performing markets this week with as they ended higher by about 3% each. China and Hong Kong managed to end the week on a positive note.

Indian markets ended the week on a slightly negative note with the BSE-Sensex ending lower by 0.3%. While the Indian markets tumbled during the first half of the week, they managed to shed their losses as buying activity intensified during the latter half. The market sentiments improved due to positive IIP numbers along with some positive developments in corporate India.

Source: Yahoo Finance

Moving on to the sectoral indices in India - Stocks from the auto space were in demand this week as the BSE-Auto Index ended higher by 1.6%. The interest in these stocks has continued from last week with auto companies reporting strong sales figures for the month of April 2010. Healthcare and engineering stocks were also in demand this week as the BSE-Healthcare and BSE-Capital Goods indices ended the week higher by 1.5% and 0.9% respectively. Amongst the top losers were stocks forming part of the BSE-Realty and BSE-IT indices, which ended lower by 4% and 2.5% respectively.

Source: BSE

Moving on to key corporate developments during the week - A good number of developments took place in the telecom sector during the week. The latest one is of the BWA auctions ending yesterday. At the end of it, the government would be raising over Rs 383 bn from these auctions. A few weeks ago, the 3G spectrum auctions were completed. The government had raised about Rs 677 bn from the same. This has taken the total inflow to the government to a whopping Rs 1 trillion! This would definitely bring a smile on the finance minister's face as it would help the nation reduce its fiscal deficit substantially. And this too especially when the government was expecting to rake in a sum of about Rs 350 bn from the whole process in the first place. Delhi and Mumbai circles were the ones in most demand in these auctions. They received the highest bids of Rs 22.7 bn and Rs 22.2 bn respectively. Circles down south received high bids as well. Tamil Nadu and Karnataka went for Rs 20.7 bn and Rs 15.4 bn respectively. Maharashtra and Gujarat received bids amount to Rs 9.2 bn and Rs 6.1 respectively.

In another development, telecom major Bharti Airtel officially became the fifth largest telecom operator in the world (by subscriber base). It completed its acquisition of Kuwait based operator Zain's African assets. Overall the deal costs US$ 10.7 bn of which US$ 9 bn is payable in cash and US$ 1.7 bn is the debt Bharti is taking over. Once this news for formally announced, Bharti's stocks did rise up. However, this news is not that was unknown. Gains in the stock were possibly on the back of the company raising debt paying a very low interest rate of 1.9% on the debt it has taken to acquire the assets in Africa.

The stock of Reliance Industries was in the news for various reasons this week. A leading business daily had reported that the company was in talks to buy a stake in shale gas assets owned by US based Pioneer Natural Resources. The Indian petrochemical giant may join Royal Dutch Shell and Exxon Mobil in buying the assets. Reliance Industries has been keen on expanding its international footprint and shale gas is a lucrative area. In other news, the company also reportedly discovered more oil at the Cambay Basin. This would be its sixth discovery in the region. The company holds 100% participatory interest in the block. In addition to this, the company also formally forayed into the telecom sector by acquiring 95% interest Infotel Broadband. Infotel is the sole winner of pan-India broadband airwaves in an auction that concluded on Friday. It is reported that the company is expected to reap profits from its telecom foray only after a decade.

Moving on from the telecom sector to the FMCG sector - Hindustan Unilever (HUL) has announced that its board has approved the share buyback, which it had announced last week. The company will be shelling out Rs 6.3 bn for buying shares at a price of Rs 280 per share. It may be noted that the company had cash of about nearly Rs 20 bn on its book as of March 2010. The stock of HUL had moved up significantly since the company announced the proposal to buy back. However, the official rate of Rs 280 was announced yesterday. As per the company, the buyback price is at a premium of 20% over the average closing price of the company's shares in the last three months. The stock ended at Rs 252 on Friday.

The stocks of Bharat Forge also saw some action this week as the auto ancillary major along with small sized IT player KPIT Cummins announcing a new breakthrough technology called 'Revolo', which is a new revolutionary battery-powered technology, which helps vehicles in improving their fuel efficiency significantly. The joint venture company formed by these two companies would be commercialising this technology within six months.

As per the companies, this technology would allow to improve efficiency by about 40% as compared to a standard fuel-consuming engine. This technology is what is used in hybrid vehicles, which even though is at a nascent stage in India, is fast picking up. For a consumer to use the same, he would be required to install a kit in his vehicle. It is believed that installing such a kit in Europe would cost about 10,000 Euros. However, these companies are likely to sell this kit at a discount of 85% to the same. The companies will be targeting the vast after sales Indian auto market at first.

During the week, a leading business daily reported that Tata Steel is expecting Asian steel demand to rise by 9% annually in the coming years. This is based on an average GDP growth of 6% in the Asian region and a steel consumption rate estimated at 1.3 times GDP growth in developing countries. Having said that, there are challenges in terms of lack of investments as well as a shortage of scrap metal used for steel production. As far as its US$ 5 bn investment in Vietnam is concerned, Tata Steel has yet to bag the investment license. Further, work on site clearance for the complex is yet to be completed. Tata Steel expects steel consumption in Vietnam, to grow 6% per year. The country has projected its economy to expand to 6.5% to 7% in 2010 from 5.3% growth recorded in 2009. This is a positive for Tata Steel as a combination of higher steel prices and lower raw material costs will enhance its performance in the long term.

Movers and shakers during the week

Company	4-Jun-10	11-Jun-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Fortis Healthcare	140	151	7.7%	188 / 79
REC	277	296	6.9%	299 / 152
IRB Infra.	260	278	6.8%	299 / 132
Asian Paints	2,143	2,288	6.8%	2,327 / 1,080
P&G Hygiene	1,849	1,963	6.2%	2,372 / 880
Top losers during the week (BSE-A Group)
REI Agro	30	27	-11.0%	65 / 26
DLF	282	262	-6.9%	491 / 259
BPCL	580	541	-6.8%	658 / 410
NMDC	274	256	-6.6%	572 / 257
Indiabulls Real estate	157	147	-6.4%	298 / 143

Source: Equitymaster
According to official data released yesterday, industrial output grew at a strong pace of 17.6% YoY during the month of April 2010. This gives the Indian economy a good start for the current fiscal. It may be noted that this is the seventh month in a stretch when the industry has reported a double-digit growth rate. However, a key reason for the same has been the low base effect. During the same month last year, the industry grew by 1.1% YoY. During the month of April 2010, growth was led by the manufacturing segment, which has majority share of 80% in the index of industrial production (IIP) numbers. Manufacturing reported an increase of 19.4% YoY in April. Last year, it grew by 0.4% YoY. Within manufacturing, the capital goods production indicated positive signs as the figure increased by about 73% YoY. Last year, it recorded a fall of about 6% YoY.

As for the mining and electricity sectors, they expanded by 11.4% and 6% respectively. During the same period last year, they recorded a growth of 3.4% and 6.7% respectively. While the IIP numbers do seem impressive, one should remember that this is mainly due to a low base effect. It is expected that from the month of June this year, the IIP numbers may normalise as the low base effect phases out.