Tata Motors controls some damage

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Although the indices made an attempt to inch towards the dotted line during the closing hours of trade, all such attempts proved futile and markets had to close in the negative today. The BSE Sensex lost in the region of 70 points (down 0.4%) whereas the NSE Nifty edged lower by 25 points (down 0.5%). Mid cap and small caps also suffered on an aggregate basis with respective indices down 0.5% and 0.4% respectively. Nearly three stocks declined for every two stocks that gained on the Sensex today.

After taking into account today's decline, the Sensex has now gone up 3% since the start of the second half of the current calendar year. This is in contrast to a little more than 1% gain for the entire first half. Obviously, investors have sensed some positive developments in recent times that were not there earlier. We believe it is the rains. With monsoons covering up almost all the deficit for the month of June, it has given hope that agricultural growth will come in strong this time around, thus taking the rural demand into a higher orbit. Although this is a big positive from the GDP point of view, it could also give rise to higher inflation if the economy is not able to cater to the higher demand for goods and services on time. Perhaps even the investors seem to have this at the back of their minds. This is the reason that there is a feeling of cautious optimism right now and not that of an out-and-out frenzy. Besides, even the global markets continue to remain on tenterhooks.

Tata Motors, India's largest CV manufacturer emerged as the highest gainer on the Sensex today. The interest in the counter stemmed from the company's strong financial performance for the quarter ended June 2010. The company posted a consolidated profit to the tune of Rs 19.9 bn as against a loss of Rs 3 bn during the same quarter last year. This was the consequence of a more than 6-fold jump in its operating profits and a 64% growth in its topline. The company also did well on the standalone front as it reported a topline growth of 63% YoY. However, on account of a onetime income to the tune of Rs 3 bn, its standalone net profits fell by 23% YoY during the quarter. Excluding the same, bottomline growth came in at an impressive 68% YoY. Overall economic growth, robust IIP and availability of liquidity led to robust domestic demand during the quarter, resulting in 49% YoY volume growth comprising both new products and the existing portfolio. The Jaguar Land Rover business continued to show strong profitability, with increase in volumes coupled with significantly favourable currency movements.

Tata Motors' results were not the only good piece of news from the auto sector today. There was another one as well. As per a leading daily, industry wide auto sales for the month of July 2010 came in at an all time high of a little over 1.23 m units. It should be noted that this is only slightly higher than the previous high reached in March 2010, but is higher nevertheless. On a percentage basis, sales were higher by nearly 32% on a YoY basis. The growth could be attributed to good growth in the passenger car segment, scooters and mopeds, as new launches, availability of finances and strong rural demand continued to boost sales. Passenger car sales were higher by 40% YoY whereas two-wheeler sales witnessed a jump of 30% YoY. Even CV sales came in quite well, growing by 37% over the same period last year. It should however be noted that the growth of the magnitude witnessed in July 2010 may not be sustainable in the long run with the same more likely to be in the range of low to mid teens from a 3-5 year perspective. Furthermore, with competition intensifying, profitability of sector companies is also likely to take a hit.