No positive cues for global markets

Sat, 13 Oct RoundUp

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The week gone by was an unfavorable one for global markets given that investor sentiments turned negative over concerns relating to the global economy and its growth prospects. Stocks in Asia performed poorly with Japan slipping by 3.7% over the previous week. The key concern was the country's decline in core machinery orders during the month of August this year. As for the US, the market decline was seemingly on the back of the beginning of the earning season with certain companies lowering growth forecasts on the back of demand from Asia slowing down. European markets also ended the week on a pessimistic note.

The Indian markets ended the week lower by 1.4%. The markets performed poorly seemingly on the back of somber start to the earning season. There was also concern over the IMF lowering India's growth forecasts to 4.9% against to 6.1% predicted earlier. In fact, IMF is one in many entities which have lowered India's forecasted growth rates for the current year.

Source: Yahoo Finance * The Chinese markets were closed from 01 Oct to 07 Oct on account of autumn festival and national day

Coming to the performance of sectoral indices, stocks from the realty, oil & gas and information technology spaces lead the pack of underperformed this week with their respective indices down between 3% to 4%. FMCG and pharmaceutical stocks were the top performers this week, with the BSE-FMCG and BSE-Healthcare indices up by about 2% each.

Source: BSE

Coming to the key corporate developments during the week - IT major, Infosys flagged off the earning season for the quarter ended September 2012 this week. The company's revenues grew by 2.5% (in rupee terms) on a quarter on quarter basis i.e. in comparison to the preceding quarter 1QFY13. In dollar terms, the growth stood at a similar figure of 2.6% QoQ. Infosys' operating margins however declined by 3.6% QoQ to 26.3% on the back of higher cost in sales coupled with higher selling and marketing related expenses. Nevertheless, it managed to report an increase in profits of 3.5% QoQ, largely due to higher other income. During the quarter, Infosys added 39 new clients on a gross basis taking the total client count to 715.

Banking major HDFC Bank also reported its numbers. The bank reported a 22% YoY growth in total interest income and a 30% YoY growth in net profits for the quarter. Net interest income grew by 27% YoY in 2QFY13 on the back of 23% YoY growth in advances. The bank's NIMs came in marginally higher at 4.2% at the end of 2QFY13. Meanwhile other income grew by a muted 11% YoY, with fees and commissions growing in excess of 22% YoY. However, the cost to income ratio came in higher at 49.4% in 2QFY12 against 48.3% in 2QFY12. Net NPA to advances remained stable at 0.2% of advances in 2QFY13 while the provision coverage ratio was at 82% at the end of September 2012. The bank is adequately capitalized with capital adequacy ratio (CAR) comfortable at 17%, Tier I CAR at 10.9% at the end of 2QFY13.

Auto stocks performed poorly this week with the BSE-Auto Index ending lower by 2.1%. The broader concerns revolved around the Society of Indian Automobile Manufacturers' (SIAM) prediction that car sales volumes for FY13 would grow at a flattish rate of 1 to 3%. This figure is much lower than the earlier projected growth rate of 9% to 11%. The body has cited reasons such as the economic slowdown, high interest rates and fuel costs as reasons for the downgrade.

While growth estimates were unchanged earlier on hopes of the demand picking up this festive season, the auto body could not help but lower the figures on account of domestic car sales slumping by about 5.4% during the month of September 2012. During the month of August this year, car sales declined by 18.5%. However, the total passenger vehicles sales grew by about 5% during September 2012 on the back of strong growth in utility vehicles.

Movers and shakers during the week

Company	5-Oct-12	12-Oct-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
GTL Limited	30	33	10.2%	60 / 24
Container Corporation of India	982	1,066	8.6%	1,045 / 805
India Cements	93	101	8.4%	117 / 65
Tata Global Beverages	150	161	7.3%	160 / 80
India Infoline	66	71	6.9%	77 / 43
Top losers during the week (BSE-A Group)
Tulip Telecom	46	36	-22.3%	159 / 36
Pantaloon	215	191	-11.1%	235 / 125
DLF	242	219	-9.5%	259 / 170
Suzlon Energy	18	16	-9.4%	39 / 15
Lanco Infratech	16	15	-8.4%	25 / 9

Source: Equitymaster
Coming to the key economic developments - It is reported that India's exports declined for the fifth straight month in September, dropping 10.7% to US$ 23.7 bn as compared to last year. This has been attributed to poor demand from the deepening debt crisis in the European Union (EU) and other markets such as China and Japan. However, imports grew by 5% on account of rising oil imports. This thus led to a widening of trade deficit during the month to a high of US$ 18 bn. Oil imports during September 2012 increased 30.7% to US$ 14 bn on account of high international prices.

The IMF said this week that it expects most of the developed economies to either shrink or grow at paltry rates of 2% or less this year. It also believes that developing economies would fare better; however, their forecasts have been lowered. Amongst the large industrialized counties, Japan and the US are expected to grow by more than 2% this year. As for the emerging economies namely - Brazil, China and India, the growth rates would be lower for a while, but would not see and 'hard landing' given that policy measures are being taken in all three countries.

With the broader economy unlikely to throw up any positive surprises in the near term, the focus for the weeks to come would almost entirely be on the result season. Despite concerns over growth deficit and inflation, investors are keen to see some signs of stability in corporate performance.