India at the bottom

Sat, 31 Jul RoundUp

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The past week was good for most of the world's major indices. US rose on the back of higher than expected earnings. However concerns still remain as the economic growth was slower than expected. Asian markets were buoyant as a result of a good US and European results. However, Europe suffered as a result of profit booking. India's benchmark index, the BSE-Sensex (down 1.4%) was the biggest loser of the week while China (up 2.5%) was the biggest gainer.

Among other Asian markets, Japan and Hong Kong were up by 1.1% and 1% respectively. Singapore also ended in the green up 0.5%. Among the European markets, only France (up 1%) closed the week in the green while Germany (down 0.3% and UK (down 1%) closed the week in the red. In the Americas, Brazil was up by 1.8% while US closed the week up by 0.4%.

Source: Yahoo Finance

Moving on to the sectoral indices in India - India had a lackluster week with most of its major indices closing in the red. Capital goods stocks were the biggest losers with the BSE-Capital Goods Index down by 4.8%. BSE-Oil & Gas Index and BSE-Realty Indices came close behind falling by 3.5% and 3.2% respectively. BSE-Power also closed in the week in the red falling by 1.8% followed by BSE-Sensex down 1.4%. BSE-PSU Index was the biggest gainer for the week up 0.5%. It was followed closely by BSE-Consumer Durable Index (up 0.5%) and BSE-Banking Index (up 0.4%). Among indices which closed the week in the green were BSE-FMCG Index (up 0.4%) and BSE-Auto Index (up 0.1%).

Source: BSE

Moving on to key corporate developments during the week, a handful of large companies announced their results for the quarter ended June 2010 this week. We have highlighted some of the key ones below.

One on the biggest losers of the week was Maruti Suzuki. This is because the company declared disappointing 1QFY11 results. While the company reported a healthy increase in sales, the net profits declined for the quarter. Sales for the company grew by 27% YoY. The growth came on the back of a 25% YoY growth in volumes. Domestic sales increased by 23% YoY while exports which make up 16% of total volumes increased by a strong 38%. The company's biggest segment, A2 (Alto, Wagon-R, etc) grew by 16% YoY. On the other hand, volumes of the company's A3 (SX4, Dzire) and C (Omni, Versa) segments grew by 45% YoY and 51% YoY respectively.

The company's operating income was affected as a result of higher raw material costs and increase in royalty expense. During the quarter, the company's royalty expense increased by Rs 1.9 bn including Rs 652 m for the March 2010 quarter. This increase in costs ensured that the operating margins fell by 2.6% to stand at 9.6%. Net profits as a result of lower operating income, lower other income and higher depreciations charges fell by 20% YoY during the quarter.

FMCG major, Hindustan Unilever Limited (HUL) also declared its results this week. While sales of the company grew, the company disappointed on the bottom line. Sales for the quarter grew by 8.3% YoY on the back of a healthy 11% YoY growth in volumes. The company's FMCG business grew by 6.7% YoY while the home and personal care business and foods business grew by 5.2% YoY and 13.4% YoY respectively. Its biggest segment i.e. soaps and detergents grew by a disappointing 2.4% YoY as a result of price cuts during the quarter. However, the company's personal product business which is its second biggest segment grew by a strong 11.4% YoY. Beverages, processed foods and ice cream segments grew by 7.7% YoY, 22.1% YoY and 18.1% YoY respectively. Others segment which comprises of the company's water business grew by a healthy 42% YoY.

The company suffered during the quarter as a result of high advertisement expense. This saw the operating income fall by 5% YoY. Net profit also fell by 1.8% YoY as a result of lower operating income. The fall could have been higher but for higher other income, lower interest costs and higher extraordinary profits during the quarter.

Engineering major, L&T also released its results during the week. The top line for the company grew by 8.3% on the back of a strong growth in the company's electrical and electronics business (E&E). The E&E business grew by 29% YoY during the quarter. However, sales of the company's engineering and construction (E&C) business, sales remained almost flat as compared to the same quarter last fiscal. However, Machinery & Industrial Products (MIP) which is the company's third segment grew by 25% YoY. L&T's order book grew by 50% YoY during the quarter. As of June 2010 the order book stood at Rs 1.1 tn. The company's operating margins expanded by 1.6% YoY to stand at 12.2% for the quarter. This was on account of a decline in raw material costs and a fall in sub-contracting charges (both as a percentage of sales). Net profit grew by 15% YoY (excluding extraordinary items) during the quarter. This came on the back of growth is operating income partly offset by higher interest costs. .

Reliance Industries also declared its 1QFY11 results. The company showed a strong growth of 87% YoY during 1QFY11. This came on the back of a 107% growth in the company's refining business. On the other hand, sales from its petrochemical business grew by 19% YoY while that from its exploration business increased by 150% YoY. Operating margins declined by 4.5% YoY to 16%. This was largely on account of higher raw material costs (as a percentage of sales). The company's gross refining margins stood at US$ 7.3 per barrel during the quarter, as compared to US$ 6.8 per barrel in 1QFY10. Profits grew by 32% YoY during the quarter on the back of higher operating income. The growth could have been higher but for higher depreciation and interest cost.

Movers and shakers during the week

Company	23-Jul-10	30-Jul-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
IRB INFRA.	260	293	12.5%	300 / 175
ORIENTAL BK.	364	403	10.8%	407 / 163
JET AIRWAYS	614	679	10.5%	711 / 233
LIC HOUSING	1,035	1,136	9.8%	1,155 / 585
BAJAJ AUTO	2,469	2,688	8.9%	2,735 / 1,068
Top losers during the week (BSE-A Group)
EVEREST KANTO CYLINDER	135	117	-13.0%	222 / 111
MARUTI SUZUKI	1,358	1,198	-11.8%	1,740 / 1,186
INDIAN BANK	252	224	-10.8%	252 / 127
JAIPRAKASH ASSO.	129	118	-8.0%	180 / 112
IND. INFOLINE	99	91	-7.7%	164 / 92

Source: Equitymaster
In other news, Planning Commission has announced plans for setting up of a US$ 10bn infrastructure debt fund. This fund would be used for long term finance for infrastructure projects across the country. While this would not be sufficient to solve the financing problems, this fund would be used as a pilot fund to show that such funds can be used successfully. Depending on the success of this fund, more funds may be set up in the future for infrastructure projects. The deputy chairman of the commission Mr. Ahluwalia added that infrastructure deficit was a major constraint in achieving over nine per cent gross domestic product (GDP) growth rate annually. To achieve this private sector participation will have to increase going forward. In fact private sector would have to scale its contribution to US$ 500 bn during the 12th plan (2012-2017) for funding infrastructure projects under PPP from US$ 175 bn in the 11th plan (2007-12) to achieve the growth targets.

On inflation, the Planning Commission believes that it will come down to 6% from its current double digit levels by the year's end. This view is based to the steady progress of the monsoons and the estimate that the effect of the fuel prices will start coming down from August. The inflation has been worrying factor for the government since a year now and the government has been presenting a moving target for the last few months on when the inflation will be tamed. We hope that this time they are correct and the inflation will move down to manageable levels by the end of the year.