India down, RoW up

Sat, 16 Oct RoundUp

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The past week was a good one for the global markets, especially China which saw its benchmark index rise by 9%. Gains were seen in markets across regions with Hong Kong, Germany, France and Singapore rising in the range of 1.5 to 3.5%. The US and UK markets rose by about 1% each. Gains in markets across the world were on the back of positive sentiments, which in turn were on account of receding worries over the global economy coupled with good corporate earnings that were announced during the week. India and Japan were the top underperformers this week, with their benchmark indices ending lower by 0.6% and 0.9% respectively.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India - Barring stocks from the metal and auto spaces, losses were seen across the sectoral indices with power and engineering stocks leading the pack. The BSE-Power and BSE-Capital Goods indices were down by 2% each this week. Stocks from the consumer durables and oil & gas spaces followed suit as the BSE-Consumer durables and BSE-Oil & Gas indices were down by 2% and 1% respectively. On the other hand, the BSE-Metal and BSE-Auto indices were up by about 0.5% each.

Smallcaps were in demand this week, as the BSE-Smallcap Index recorded a weekly gain of 1%. The BSE-Midcap Index on the other hand was lower by 0.2% this week.

Source: BSE

Moving on to key corporate developments during the week - a handful of companies announced their results for the quarter ended September 2010. IT major Infosys reported a revenue growth of 12% QoQ, which was led by all its segments. Geography wise, Europe was a key contributor with its revenues growing by a strong 20% QoQ, while revenues from North America grew at a decent pace of 10% QoQ.

At the operating level, Infosys did well as its margins expanded to 30.2% from 28.3% during the preceding quarter. Lower costs of sales as well as lower administration costs were key reasons for the same. The company's net profits for the quarter rose by 17% QoQ on the back of a strong operating performance coupled with higher other income. While the company had a good quarter in terms of financial performance, one concern for it is the high attrition rate which stood at 17.1% at the end of the quarter as compared to 15.8% at the end of the quarter ended June 2010.

Banking major Axis Bank announced its numbers during the week as well. During the quarter, the bank reported a net interest income and net profit growth of 41% YoY and 38% YoY respectively. The bank's advances increased by 36% YoY, which is much higher than the expected industry average. In addition, Axis Bank saw its net interest margin (NIM) improve as it stood at 3.7%. During the corresponding quarter last year, NIM stood at 3.5%. Although, as compared to the preceding quarter i.e. the quarter ended June 2010, NIM contracted by 0.2%.

Castrol too reported its numbers for the quarter ended September 2010. The company reported a topline and bottomline increase of 14% YoY and 22% YoY. Growth in revenues was driven by higher realisations. Notwithstanding the sharp increase in its raw materials cost driven by rising base oil and other input costs, Castrol managed to improve margins by 100 basis points to 26.4% during the quarter. This was possible through a combination of premium product mix and strategic pricing actions. Lower depreciation and tax helped the company grow its bottomline at a faster pace during the quarter. As per the company, it plans to focus on the strategic growth areas like cars, motorbikes and tractors, where it expects to grow in volume and value terms. However, it is not looking out for expansion in the distribution sector in the near term.

Moving on from results to key corporate developments during the week - a leading business daily has reported that Tata Motors has shelved plans of shutting down one of Jaguar-Land Rover's three plants in the UK. This is on the back of the company reaching an agreement with the worker's union. It has been reported that as per the deal, JLR will give a 5% pay rise to employees in November this year, with a further rise of at least 3% next November. Last September, Tata Motors had stated that it was considering shutting one of the plants and shifting the work force to the one of the other two plants in order to tide over the downturn. Although, not much of information was shared back then.

But with the car sales showing signs of improvement, the company's plans may have turned around. Last month, JLR's total sales stood at a little over 19,500 units, which is higher by 16% YoY. Also, with the company looking at investing huge sums for new product development along with higher production, thousands of jobs will be created in the region over the medium to long term.

Movers and shakers during the week

Company	8-Oct-10	15-Oct-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
RCF	87	111	26.7%	118 / 58
Chambal Fertilizers	75	93	24.8%	96 / 47
Indian Overseas Bank	146	160	9.4%	164 / 87
Indiabulls Fin. Ser.	173	184	6.5%	194 / 95
Tata Teleservices (Mah.)	23	25	6.4%	34 / 19
Top losers during the week (BSE-A Group)
Koutons Retail	146	129	-11.6%	451 / 112
Mundra Port & SEZ	183	162	-11.4%	185 / 96
Praj Industries	80	72	-9.8%	113 / 74
Pantaloon	516	470	-8.9%	531 / 293
Castrol	507	464	-8.4%	557 / 256

Source: Equitymaster
India's IIP numbers for the month of August were released this week. As per reports, industrial output grew at 5.57% during the month. This is nearly half of the growth reported in the same period a year ago and is the slowest in 15 months. The manufacturing sector accounts for four-fifth of industrial production and witnessed a slowdown owing to production cuts. Overall, growth in industrial production has been uneven especially in the last few months. For instance, in May, it grew by 11.5%, dropped to 5.8% in June but came back strongly in July at 15.2%. The RBI is not likely to ease its tightening measures though as inflation remains a bigger concern and because monthly data cannot be taken as a trend.

The overall wholesale price inflation moved up to 8.6% during the month of September as compared to 8.5% in the previous month. As per data, prices of primary articles such as food, non-food articles and minerals rose by 17.5% as compared to last year. Further, fuel and power prices increased by 11.1%, while those of manufactured goods increased by 4.6% on an annual basis. It may be noted that this is the second consecutive month when the overall inflation has been in the single digit. The figure was in double digits for a period of five months till the month of July this year.

Coming to food inflation, the same rose at a marginal pace to 16.37% from 16.24% for the week ended October 2, 2010. This increase was led by higher prices of items such as cereals, fruits, select vegetables and milk. During the preceding week, i.e. the week ended September 25, 2010, food inflation numbers had fallen.