European concerns weigh on markets

Fri, 1 Oct RoundUp

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Key global markets ended the week on a mixed note. China was the biggest gainer, up 2.5%, while France was the biggest loser with a loss of 1.8% on concerns after data showed the pace of growth in the eurozone's services and manufacturing sectors slowed more than expected Among the other Asian markets, India, Hong Kong and Singapore closed the week up 2%, 1.1% and 0.2% respectively. Japan was the only Asian market to end the week in the red, down 1.1%. All the European markets were in the red during the week. UK and Germany were down 0.9% and 1.1% respectively. In the Americas, Brazil was up 1.8% while US was down 0.7%. It may be noted that the close for all except India has been taken for September 30. India's closing for October 1 has been considered.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India -Metal stocks were the top gainers this week, with the BSE-Metal Index rising by 5.2%. It was followed by the BSE-Realty and BSE-Capital Goods indices, which recorded weekly gains of 4.9% and 3.7% respectively. BSE-Power Index and BSE-Auto index made up the top 5 performers of the week. Stocks from the oil & gas and FMCG space were the sole losers this week, with the BSE-Oil & Gas and BSE-FMCG indices ending the week with losses of 0.4% and 0.2% respectively. Small and midsized stocks ended with gains as the BSE-Smallcap and BSE-Midcap indices ended higher by 1.3% and 1.2% respectively. BSE-PSU was also amongst the laggards with a gain of 1.5%

Source: BSE

Moving on to key corporate developments during the week - India's auto sales surged sharply in September on account of strong domestic demand, supported by new launches. For the month, Maruti's sales stood at 108,006 units, an increase of 29.7% YoY. This is the company's highest ever monthly sales number. Domestic sales of the company increased 33% YoY to stand at 95,148 units. Hyundai Motor India, India's second largest car-maker reported sales of 31,751 units, an increase of 14.2% YoY. This is also the company's highest ever monthly sales. The company sold 27,803 units in the domestic market during the month. Tata Motor's sales grew by 23% YoY and stood at 64,668 units with its domestic sales growing by 20% YoY.

TVS Motor Company also reported its highest-ever monthly sales of 188,005 units in September, a 30.8 % increase over the same month last year. TVS Motor's two-wheeler sales increased 29.6 % during the month to 184,783 units. Hero Honda's September sales were up by 18% YoY at 472,000 units while the sales of Bajaj Auto was up by 26% YoY to 353,000.

In news from the construction space, HCC is looking for buy outs in Europe and Middle East. It may be noted that the company had acquired the controlling stake in Swiss developer Karl Steiner AG earlier this year. HCC is targeting an acquisition ticket size of atleast US$ 100 m. The company also wants to boost its presence in toll roads from its current six projects. This is when NHAI is looking to open bids for around 6,000 kms by March FY11. It is expected that HCC will bid for at least 3 to 4 national highway projects over the next six months, each worth between US$ 1.5 bn to US$ 2 bn.

However, it may be noted that HCC has one of the highest debt/equity ratios in the industry. As of FY10 this ratio stood at 1.7x. Since HCC has higher share of hydro power projects which typically have a long gestation period, the working capital requirements of the company are above industry average. It comes as no surprise that a large portion of the company's debt has been taken to fund working capital requirements.

Moving on to news from the finance sector, infrastructure lender, IDFC is looking to raise Rs 34 bn via public issue of infrastructure bonds. The bond issue proceeds would be utilised to finance the infrastructure projects in the country. Currently, IDFC allocates 40% of its corpus to the energy, 24% to telecoms, 20% for transportation and remaining for other infra sectors. It may be noted that Infrastructure Finance companies (IFCs) can now raise external commercial borrowings (ECBs) up to 50% of their networth under the automatic route. IDFC has a networth of Rs 100 bn. The company had already raised Rs 20 bn through ECB in the current fiscal and this leaves further scope to raise Rs 30 bn. The company is looking to raise this amount overseas.

In news from the banking sector, ICICI which has been a laggard in terms of growing its balance sheet over the past two fiscals, is looking at making up for the same in FY12. The bank is targeting loan growth of 12% this fiscal, it is targeting a growth of 20% to 22% in FY12. This is marginally higher than the expected sector growth. The bank which, in fact, had to cut down on its retail portfolio over the past two fiscals due to NPA risks, is seeing a strong loan growth from retail and corporate segments. ICICI Bank has also suffered from lower fee income in recent quarters and hopes to improve its other income contribution as well this year.

Coming to news from the healthcare space, Lupin Ltd's Netherlands-based wholly-owned subsidiary, Lupin Holdings BV (LHBV) has acquired an additional 7% stake in Australia's Generic Health Pty Ltd for an undisclosed amount. This brings the company's holding in Generic Health to 57%. Generic Health supplies generic medicines to pharmacists and hospitals all over Australia at a low costs. It has various partnerships with international drug manufacturers.

Australia is a strategic market for Lupin and is valued at US$ 9 bn. Out of this the share of generics is over US$ 1 bn. This provides Lupin a major opportunity. The company has built up a sizable amount of product pipeline in therapeutic areas of heart ailments, diabetes and over the counter products, specially intended for the Australian market and has filed approvals for many of these products with the Australian authorities.

Movers and shakers during the week

Company	23-Sep-10	1-Oct-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Unitech	85	94	11.7%	109 / 67
Cadila Healthcare	626	697	11.4%	681 / 320
GSK Pharma	2,021	2,249	11.3%	2,285 / 1,455
LIC Housing	1,310	1,450	10.7%	1,497 / 705
Glenmark Pharma	284	312	9.8%	307 / 219
Top losers during the week (BSE-A Group)
Financial Tech.	1,398	1,184	-15.3%	1,722 / 1,100
IRB Infra.	290	266	-8.2%	313 / 207
Jain Irrigation	1,260	1,170	-7.1%	1,320 / 733
Tata Comm.	327	308	-5.5%	499 / 233
HPCL	540	513	-5.0%	555 / 298

Source: Equitymaster
In international economic news European Union's statistics office Eurostat said unemployment in August in 16 countries which are part of the euro zone was 10.1%, against market expectation of 10.0%. The persistently flat unemployment rate despite strong growth in the second quarter highlights threats to the economic recovery coming from low private demand. It also masks diverging labour market trends in the euro zone with unemployment growing in Spain and Ireland and falling in Germany, Austria or the Netherlands. In the whole of the European Union of 27 member states, unemployment was 9.6 %. Eurostat said in EU, 23.1 m people were without jobs while in the euro zone 15.9 m people were without jobs. When compared with July, the number of persons unemployed decreased by 68,000 in the EU and by 20,000 in the euro area. However, compared with August 2009, unemployment rose by 894,000 people in the EU and by 569,000 people in the euro area. Economists note that unemployment in Europe is slow to react to a pick-up in economic growth, which in the second quarter was 1 % QoQ.

Food inflation rose for the fifth straight week rising by 1% YoY to 16.4% for the week ending September 18. The reason for this was the increase in cost of cereals, fruits, some vegetables and milk on account of supply disruptions and heavy rains and floods. However, the finance minister Mr Pranab Mukherjee has stated that he expects some moderation in prices now that the monsoon period is over.