Positive week for global markets

Sat, 11 Aug RoundUp

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The week gone by was a positive one for global stock markets. Asian stock markets on the whole outperformed others with Japan leading the pack of gainers. In fact, the Japanese markets witnessed their biggest weekly gains since February this year. The gains this week were largely driven by speculation about stimulus being announced by the US Fed. Also, with no major developments from the European regions, there was a lot of focus on the news relating to the slowdown in Asia, which is why markets saw pressure towards the end of the week.

Amongst the other top performers were Brazil, Hong Kong and France which ended the week higher by about 2 to 3.5%. The US and Singapore were amongst the weakest performers this week.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India - Barring stocks from the consumer durables and realty spaces, sectoral indices performed well this week with auto and Information technology stocks leading the pack of gainers.

Source: BSE

Now let us have a look at key developments during the week. A handful of big companies announced their results for the quarter ended June 2012 this week. Bharti Airtel reported profit decline for the 10th consecutive quarter as increased competition squeezed margins despite the company gaining a bigger subscriber share. The company's consolidated net profit fell 37% YoY for the quarter. Overall revenues rose by 14% YoY during the period, which was also disappointing. On an overall basis, hyper-competition and the recent regulatory & tax developments eroded profitability. Voice call prices, which are still the bread and butter of Indian carriers have however, been stable for the past few months. However, the market is yet to recover from the sharp price cuts during a price war two years ago. Bharti's stock was amongst the top top underperforming BSE 'A' group stocks this week.

Tata Power also reported its numbers during the week. The company reported a 25% year on year (YoY) growth in revenues. However, its bottomline declined by 66% YoY due to high interest costs and depreciation expenses (due to commissioning of Mundra and Maithon units) and high foreign exchange losses. As per the management, the lower realizations during the quarter were due to global economic slowdown and higher cost of production of coal. The company has plans to expand overseas as the domestic power sector is facing tough times.

Auto powerhouse Tata Motors' consolidated revenues grew by 30% YoY, while expenses increased by a marginally slower pace leading to a higher growth in operating profits. This margin expansion was largely on account of lower raw material and purchase costs (as a percentage of sales). The company's profits grew by 12% YoY. Tata Motor's sales volumes (excluding those of JLR, but including exports) decline by 3.6% as compared to the corresponding quarter last year. As for JLR's global sales, the same grew by 34.4% YoY to 83,452 units, with Jaguar contributing to about 14% of volumes and Land Rover contributing the rest.

State Bank of India (SBI) reported a 19.5% YoY growth in interest income where as it net interest income (interest income less interest costs) grew by 15% YoY during 1QFY13. This was largely on the back of a 20% YoY growth in advances. Other income however fell by 1% YoY in 1QFY13 on the back of lower fee and dividend income. NIMs (net interest margins) remained steady at 3.6% in 1QFY13. Net NPAs (Non Performing Assets) rose from 1.6% in 1QFY12 to 2.2% in 1QFY13, with the back seeing a further deterioration in asset quality. Net profit rose by 137% YoY in 1QFY12 on account of a low base effect as well as lower provisions on advances and a benign increase in other expenses. The bank's capital adequacy ratio stood at 13.2% at the end of the quarter as per Basel II post the funding it received from the government last quarter.

Moving on to other developments - After an extended tussle over fuel supply between Coal India Ltd (CIL) and power companies, the state run coal miner has finally agreed to increase the penalty in case of shortfall in delivery. While the penalty was merely 0.01%, in the current fuel supply agreements (FSAs), CIL has now agreed for a penalty in the range between 1.5% and 40%. Now, CIL would have to assure 80% of the quantity contracted. If the supply is anywhere between 80% and 65% of the annual contracted quantity, CIL would pay a penalty of 1.5% of the value of shortfall. Between 65% and 60%, the penalty would be 5% of the value of shortfall. Similarly, the penalty would be 10% for shortfall between 60% and 55%, and 20% for short supply of between 55% and 50%. If shortfall is below 50%, CIL would have to pay a hefty penalty of 40%.

Movers and shakers during the week

Company	3-Aug-12	10-Aug-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Sun TV Network	271	311	14.7%	343 / 177
Balrampur Chini	60	68	13.5%	69 / 33
MMTC	701	769	9.7%	1,009 / 439
Sterlite Industries	102	111	8.8%	142 / 86
Hindustan Copper	246	267	8.3%	320 / 146
Top losers during the week (BSE-A Group)
Bharti Airtel	296	256	-13.7%	417 / 253
BEML	319	288	-9.8%	702 / 286
Koutons Retail	9	8	-9.4%	28 / 7
Idea Cellular	81	74	-8.7%	104 / 71
Moser-Baer India	8	7	-6.5%	30 / 7

Source: Equitymaster
Index of Industrial Production (IIP) numbers for the month of June 2012 were announced during the week. The same came in at a dismal rate of 1.8% YoY. It is believed that India's industrial output fell for the third time in four months, thereby adding further pressure on the new finance minister P. Chidambaram in trying to rescue the flagging Indian economy. As per the new FM the bottlenecks should be removed to facilitate investments in critical sectors and that production would revive if there are new investments in the demand creating industries. The poor numbers were dragged down by a sharp dip in manufacturing. This was significantly lower than the 9.5% growth from a year earlier. However, IIP numbers for the month of May 2012 were revised to 2.5% as compared to 2.4% announced earlier. The government will be holding consultations with Indian companies next week to seek suggestions on possible remedial measures.

All in all, sentiments continue to be negative about the near term earning prospects of India Inc. However, that should not deter investors from looking for solid long term value buys.