Indian markets get a thumbs down

Sat, 9 Oct RoundUp

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The week gone by turned out to be particularly good for key global markets barring India. China was the biggest gainer for the second week in a row up 3.1% while India was the biggest loser down 1%. In Americas, US was up by 1.6% in spite of weak unemployment data for September. The reason for this was that the weak data was camouflaged by speculations of another round of stimulus. Brazil was up by 0.8% for the week.

Among the European markets, France was up 1.9% while Germany and UK were up by 1.3% and 1.2% respectively. Japan closed the week up 2% while Hong Kong was up 1.4% and Singapore was up 0.7%.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India - Pharma stocks were the top gainers this week, with the BSE-Healthcare Index rising by 3.1%. It was followed by the BSE-Oil & Gas and BSE-Midcap indices, which recorded weekly gains of 1.9% and 1.4% respectively. BSE-Smallcap index and BSE-Consumer Durable index made up the top 5 performers of the week. Stocks from the FMCG space continued their downward trend for the second week in a row and were the biggest losers for the week. BSE-FMCG ended the week with a loss of 3.1%. BSE-Capital Goods and Sensex were also among the top losers down 1.1% and 1.0% respectively. BSE-IT (down 0.8%) and BSE-Metal (down 0.7%) made up the remaining 5 worst performers of the week.

Source: BSE

Moving on to key corporate developments during the week - Pfizer announced its 3QCY10 result this week. The company's top line grew by 12.7% YoY during the quarter. This performance came on the back of its pharmaceuticals (up 14% YoY) business. Pfizer's pharmaceutical business grew aided by strong performance of its top ten products, which grew in double digits. The clinical business of the company also performed well growing by 118% YoY during the quarter. However, the animal health business disappointed growing by 9% YoY. The company's operating margins fell by 2.2% during the quarter. This was the result of higher staff costs and other expenditure (as a percentage of sales) during the quarter. As a result of lower operating income, the company's bottom line grew by a subdued 3.2% YoY.

Coming to the auto sector, motorcycle manufacturer, Hero Honda is worried that its current capacity of manufacturing 5.4 m units p.a will be exhausted in the current fiscal year. Hence the company is planning to set up a fourth manufacturing unit. This unit would be set up in the Baddi-Barrotiwala-Nalagarh industrial belt of Himachal Pradesh Hero Honda has sought the help of the Himachal Pradesh government's help in acquiring land for the project. This project will include a mother plant and ancillary units.

In news from the cement space, after completing its 20 m tones expansion over the last four years, Ultratech cement has embarked on its next round of expansion. The company is looking to add capacity of 9.4 m tones by 2012-13 and 25 m tones in the next five years. This would take up the cement capacity of the company to 73.8 m tones by 2016. Ultratech has earmarked an investment of Rs 50 bn for this expansion and has already placed orders for two 3.3 m tonne furnaces with KHD Humboldt Wedag of Germany for this expansion. It may be noted that currently the company has 19% market share in the world's second largest market after China.

In news from the steel sector, Tata Steel and Nippon Steel of Japan are in the process of forming a JV to set up a steel plant. The companies will invest Rs 150 bn for this plant which will have an initial capacity of 3 m tones. Tata Steel will hold 51 per cent in the JV company. The two companies are already in pact to jointly produce auto grade steel at Jamshedpur in Jharkhand, where Tata Steel runs a 6.8 m tonne steel plant. It may be noted that Nippon Steel has been looking to make inroads into the fast growing Indian steel market for some time. In fact, its Japanese peers - FE Steel, Sumitomo Metal Industries, and Kobe Steel - are already present in India through JVs with Indian steel and mining firms.

In other news from Tata Steel, the company had a strong 2QFY10. The company's sales increased by 14% YoY to 1.66 m tonnes in July-September quarter due to rise in demand for its products. During the quarter, Tata Steel saw its saleable steel production surging by 6% YoY to 1.61 m tonnes compared to 1.51 m tonnes during the same quarter last year. Crude steel output during the second quarter surged by 5% YoY to 1.72 m tonnes vs. 1.64 m tonne in 2QFY09. Furthermore hot metal production rose 6% YoY to 1.89 m tonnes during the quarter.

In the FMCG space, Procter & Gamble Hygiene and Health Care Limited (PGHH) is planning to raise the price of the premium variant of its Whisper brand portfolio of sanitary napkins by 10-15%. The increase comes on the back of a hike in excise duty on the product announced during the 2010-11 Union Budget. The company has announced that the price hike would be limited to its Whisper Ultra brand. As of now the company wants to maintain the price points of its remaining brands. The company has in fact reduced the price of its mid tier variant Whisper Choice recently to push sales. In may be noted that Whisper is the leader in sanitary napkin space with a market share of 52%. The company has further announced that it is consider a stock split to make its share price more affordable and potentially increase trading volumes.

Movers and shakers during the week

Company	1-Oct-10	8-Oct-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
INDIABULLS FIN. SER.	143	183	27.7%	195 / 95
BHUSHAN STEEL	420	499	18.8%	541 / 220
IFCI	62	73	18.6%	74 / 42
APOLLO HOSPITALS	459	531	15.7%	541 / 228
BIOCON LIMITED	363	412	13.6%	416 / 239
Top losers during the week (BSE-A Group)
KOUTONS RETAIL	155	131	-16.0%	451 / 140
RENUKA SUGARS	89	83	-6.5%	124 / 53
JAIN IRRIG	1,229	1,158	-5.7%	1,320 / 733
TATA STEEL	659	627	-4.9%	737 / 446
GTL INFRA	47	45	-4.8%	54 / 30

Source: Equitymaster
In international news, more jobs were lost than forecasted earlier during the month of September in the US. As per the Labour department, payrolls fell by 95,000 workers while companies added 64,000 jobs, lower than forecasted. The unemployment rate held steady at 9.6%. This lack of jobs is hampering consumer spending, thereby limiting growth heading into 2011. However, the Dow Jones Industrial Average closed above the key 11,000 mark on speculation that the Federal Reserve will embark on a renewed round of stimulus to spur the recovery. However, the concern here is that momentum in the private sector is very minimal. Another round of stimulus will result in more debt burden for the US government resulting in higher taxes for the citizens.

While the stock markets around the world are rallying on the pretext of more stimulus being offered in the US, investors cannot be unmindful of the fact that such temporary solutions could be hazardous to long term recovery. Meanwhile investors seem to be already cautious of the valuations in Indian markets.