Emerging markets underperform this week

Sat, 14 Jul RoundUp

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The Indian equity markets were amongst the top global underperformers, as the BSE-Sensex ended the week lower by 1.8%. Nevertheless, with the beginning of the result season of the quarter ended June 2012, the past week was an action packed one with a handful of blue-chip companies announcing their results.

As compared to the other major global economies, the emerging markets had a dull week with Hong Kong, Brazil and China ending the week lower by 3.6%, 1.9% and 1.7% respectively. Japan also was part of the top underperformers list with its benchmark index reporting a weekly loss of 3.3%. On the other hand, European markets had a positive week with Germany, France and UK ending higher by 2.3%, 0.6% and 0.1% respectively. The US markets ended the week on a flat note.

Source: Yahoo Finance

Within India, all the sectoral indices ended the week on a negative note. Leading the pack was the BSE-IT Index which closed lower by 5.2%. Stocks forming part of the consumer durables, metal and power indices followed with declines in the range of 2% to 3.4%. FMCG and healthcare stocks, while the top performers of the week gone by, ended the week on a flat note.

Source: BSE

Housing finance company HDFC Limited kicked off the result season for the quarter ended June 2012 this week. The company's profits grew by 19% YoY, while its retail (individual) loan book, including loans sold, grew by 29% while the non individual loan book grew by 14% YoY. The total loan book growth stood at 23%. The net interest margin (NIM) for 1QFY13 stood at 4%, compared to 4.4% at the end of FY12 and 4.2% at the end of 1QFY12. At the end of the quarter, HDFC's capital adequacy ratio stood at 14.6% of the risk weighted assets, as against the minimum requirement of 12%.

Banking major, HDFC Bank also announced its results for the quarter ended June 2012. The bank reported a 37% YoY growth in interest income and 32% YoY growth in net profits during the quarter. Net interest income grew by 22% YoY in 1QFY13 on the back of 22% YoY growth in advances. The bank's net interest margins (NIMs) came in marginally higher at 4.3% as compared to 4.2% in 1QFY12. However, HDFC Bank's cost to income ratio came in higher at 49.2% in 1QFY13 against 48.3% in 1QFY12. At the end of 1QFY13, the bank's capital adequacy ratio (CAR) stood at a comfortable at 15.5% (Tier I CAR at 10.9%).

IT majors, Infosys and TCS both announced their results towards the end of the week.

Infosys reported an 8.6% quarter on quarter (QoQ) growth in its consolidated total revenues while net profits declined by 1.2% QoQ. In dollar terms net profits declined by 10.2% QoQ. Infosys' operating margins declined to 28% as compared to 29.9% during 4QFY12 largely on account of an increase in cost of sales as well as in administrative expenses (all as a percentage of sales). The company's management hinted at a slowdown in the IT industry on account of the troubles in the Euro zone as well as the slower growth in the developed markets.

TCS, on the other hand, reported a growth in consolidated revenues to the tune of 12.1% quarter-on-quarter (QoQ) during the quarter. As per the management, the rise in revenues was driven by growth across all service lines and industry segments led by retail, telecom and banking, financial services and insurance. The company witnessed strong volumes in key markets of North America, Europe and the UK. TCS reported consolidated net profit growth of 11.9% QoQ. During the quarter, TCS added 29 new clients.

Moving on to sector related developments, as per the Society of Indian Automobile Manufacturers (SIAM), domestic car sales for the month of June increased by 8.3% on a year on year basis. Maruti Suzuki reported a growth of 23.1% YoY. It is worth mentioning here that the company had witnessed strike last year at its Manesar plant. Hyundai Motor India Ltd. reported a flattish growth while sales volumes declined for Tata Motors by 26.6% YoY. Volumewise, the car sales were lowest in June since October 2011. The key reasons for the moderation in sales growth are high petrol prices and interest rates. As for two wheeler sales, sales volumes for motorcycles were up by 6.6% YoY. Hero Motocorp Ltd and Bajaj Auto Ltd. reported a growth of 4.9% YoY and 1.3% YoY respectively. However, TVS Motor Ltd. reported a decline of 13% YoY. Total sales of vehicles across categories were up by 9.1% YoY.

Movers and shakers during the week

Company	6-Jul-12	13-Jul-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Castrol	530	555	4.7%	583 / 385
Sterling Biotech	8	9	4.4%	91 / 5
P&G Hygiene	2,246	2,326	3.6%	2,388 / 1,600
Godrej Industries	243	251	3.3%	284 / 168
Aban Offshore	415	428	3.2%	572 / 320
Top losers during the week (BSE-A Group)
Moser-Baer India	10	9	-11.4%	40 / 09
IVRCL	53	48	-10.2%	75 / 27
Infosys	2,444	2,228	-8.8%	2,990 / 2,169
Wipro	392	359	-8.4%	453 / 310
BEML	407	377	-7.3%	702 / 365

Source: Equitymaster
The Index of Industrial Production (IIP) numbers for the month of May 2012 were announced during the week. After seeing a flat growth during April 2012, IIP rose by 2.4% YoY in May 2012. However, this number is much lower as compared to last year's figure of 6.2%. While the manufacturing sector accelerated by 2.5% YoY in May from 0.1% YoY growth recorded in the previous month, output of both mining and capital goods sectors fell by 0.9% and 7.7%, respectively on a YoY basis during the month. Electricity production grew by 5.9% YoY in May 2012.

The coming week would be an interesting one on account of two broad reasons - the continuation of the result season and interest of the FIIs building up in recent times. A leading business daily has reported that as per provisional regulatory data, foreign investors have bought a net of Rs 73 bn (US$ 1.3 bn) in Indian equities in the month so far. This is after being net sellers in each of the previous three months.