Sensex down 4.9% for the week

Fri, 5 Aug Closing

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As concerns over economic weakness in developed markets, particularly the US, gripped investors today, indices across the globe witnessed a sharp selloff since the start of trade. The BSE Sensex touched its lowest level since June 2010 showing no signs of revival from the weakness seen in the past 3 sessions. The indices in Indian stock market, however managed to recoup some losses by the end of the session and outperformed most major Asian markets. While the BSE-Sensex closed lower by around 387 points (down 2.1%), the NSE-Nifty closed lower by around 120 points (down 2.3%). The BSE-Midcap and BSE-Small cap were not spared either as they closed lower by 2.2% and 3.3% respectively. Stocks from commodity, IT and energy sectors led the pack of losers.

As regards global markets, Asian indices closed weak today while European indices have also opened in the red. The rupee was trading at Rs 44.76 to the dollar at the time of writing.

Crude oil prices dropped to US$ 83 a barrel today, clocking its biggest weekly drop since early May. Fears of a global economic slowdown have driven investors to book profits in commodities that erased the price gains in crude oil for 2011. Concerns that the world's largest economy, the US, is sliding back into recession has the demand for oil and other commodities at risk. Meanwhile Europe's escalating debt crisis also threatens to engulf Italy and Spain, two of the region's top economies. At the same time, regulators and policymakers in India have not minced words about the threat of lingering inflation and slowdown in growth. China too has seen pressures in growth rate with a slowdown in bank lending. In the midst of such volatile markets, investors would do well to make their portfolios crisis proof .

Kansai Nerolac announced the first quarter results of financial year 2011-2012 (1QFY12). The company has reported 24.1% YoY and 17.9% YoY growth in sales and net profits respectively. Net sales increased 24.1% YoY in 1QFY12. The company registered healthy growth due to 16% YoY increase in volumes. However, higher interest rate environment impacted the demand from auto, infrastructure and housing segment. Further, concerns over raw material price inflation and hence profitability, continued to haunt the company. Nonetheless, with the raw material prices having reached their peak, further erosion in margins in unlikely.

Kansai Nerolac's operating margin stood at 14.2% in 1QFY12, a decline of 120 bps over 1QFY11. It may be noted that prices of crude oil and related derivatives have increased considerably over the recent past, impacting the overall margin profile of the company. While passing on the price increase in the decorative segment is relatively easier, (lower bargaining power) the company has to partly absorb the increase in the industrial segment due to stiff competition and declining demand environment.