Inflation at a ten month high of 7.8%

Sat, 20 Oct RoundUp

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World stock markets witnessed mixed performance across various stock indices. US markets (Dow Jones) in particular were down by nearly 205 points on the last trading day of the week. The weak earnings season in the US resulted in the US markets witnessing their worst low in four months. Some of the key companies that have declared results so far include companies like General Electric, Google and Mc Donald's. Although the companies have been able to meet their revenue expectations, their forward guidance is a concern with investors.

In India, stock markets witnessed a volatile week but ended on a flattish note. Declaration of a higher inflation number (7.8%) in the earlier part of the week dampened investor sentiments amidst concerns that the Reserve Bank of India (RBI) may not reduce interest rates any time soon. The results season continued with some companies reporting good numbers while others still not able to hold ground in a weakening economic scenario.

Amongst the other markets, Japan was the top gainer (up by 5.5%) followed by France (up by 3.4%). Brazil was the only index to end on a negative note (down by 0.4%).

Source: Yahoo Finance

Coming to the performance of sectoral indices, there was a mixed performance. While stocks from FMCG (up by 2.6%) and consumer durable (up by 1.9%) space were the top gainers, metals (down by 2.5%) and realty (down by 1.4%) stocks led the list of losers.

Source: BSE

Coming to the key economic developments during the week, inflation number for September stood at 7.8% which is the highest in last 10 months. This is as against 7.55% for the previous month and 10% in the same month last year. The main cause of this rise is being attributed to the recent hike in diesel prices implemented by the government. The fuel and power index weighing 14.91 percent on the inflation index rose by 4 percent while the index for manufactured food products increased by 1.2 percent. Minerals went up by 4.9 percent while Non-Food articles group declined by 2.1 percent.

Earnings season for quarter ended September 2012 continued this week with companies like Axis Bank, HCL Technologies and media companies including Zee Entertainment, DB Corp and HT Media declaring their results for the quarter ended September 30, 2012.

HCL Technologies declared numbers for the first quarter (1QFY13) and reported a 2.9% quarter-on-quarter (QoQ) growth in sales and a 3.6% QoQ increase in net profits. Operating margin expanded by 0.2% QoQ to 22.2% during the quarter as compared to 22% seen during the previous quarter. This was mainly because of the offshore shift in total revenues and increase in utilization. Net profits would have been higher if not for the higher effective tax rate which increased to 23.5% in the current quarter from 22.8% recorded in the last quarter. The company added 38 new clients during the quarter. The total number of active clients at the end of September 2012 was sequentially flat at 536.

Television media company Zee Entertainment declared results for second quarter of FY13 (2QFY13) today. The company reported a growth of 33.8% YoY in sales as compared to the same quarter last year. This was led by 33.7% YoY increase in advertising segment and 35.7% YoY increase in subscriptions. Zee was able to achieve such high growth numbers in advertising despite unfavourable economic environment for the media players. However, more investment in content resulted in higher programming and operating costs. Operating expenditure was thus up by 44% YoY and operating profits increased by 7.7% YoY. Depreciation charges went up by 22% YOY during the quarter and interest charges that are negligible jumped by 135% YoY on a smaller base of same quarter last year. Zee was able to report a net profit growth of 17.5% YoY during the quarter on back of good performance at topline level despite higher costs. However, the net profit margins shrank by 2.7% from 22.4% in same quarter last year to 19.7% at present.

In the private banking space, Axis Bank has reported results for the second quarter of fiscal year 2013 (2QFY13). The net profit of the bank has registered an increase of 22% on a year on year (YoY) basis. This is mainly on account of an increase in the retail lending and fee income. The gross nonperforming assets (NPA) and net NPA figures stood at 1.1% and 0.33% respectively at the end of the quarter. This was against gross NPA and net NPA of 1.08% and 0.34% in the corresponding period last year. The net interest income (NII) of the bank was up 16% YoY for the quarter. The bank recorded net interest margins (NIMs) of 3.46% in the quarter, as compared to 3.37% during 1QFY13. The savings deposits of the bank registered a growth of 20% YoY while its retail term deposits and retail advances grew by 39% YoY and 51% YOY during the quarter.

Movers and shakers during the week

Company	12-Oct-12	19-Oct-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Tulip Telecom	36	45	24.6%	159/34
Gujarat NRE Coke	18	20	10.5%	29/15
Godrej Industries	281	306	9.2%	301/168
Essar Oil	59	64	8.6%	87/45
Syndicate Bank	115	123	7.2%	124/67
Top losers during the week (BSE-A Group)
GVK Power & Infra	15	14	-7.0%	20/10
GMR Infra	24	23	-6.8%	34/18
NCC Limited	51	48	-6.6%	65/28
Lanco Infratech	15	14	-6.5%	25/9
Everest Kanto Cylinder	32	30	-6.2%	69/23

Source: Equitymaster
Let us now discuss some more corporate developments. Tata owned Indian Hotels Company Limited (IHCL) has launched a hostile bid for Orient Express Hotels. IHCL has made an unsolicited bid for the US luxury hotels group amounting to US$ 1.42 bn. It has entered into an agreement with Italian group Charme II Fund, under which it would invest US$ 100 m for a minority stake in the newly combined group. As per IHCL, it is offering a 40% premium over the current valuation of Orient Hotels. IHCL seems to have arranged for funding including debt for the said transaction from lenders like Bank of America, ICICI Bank and Standard Chartered Bank. We may recollect here that in 2007, IHCL had acquired a 10% stake in Orient Express for about US$ 211.3 m.

Recently, Finance Minister himself backed the idea of a moderation in interest rates to fuel the growth in the economy. We are aware that RBI has been shying away from reducing rates for quite some time now and there were expectations that it will now be able to do the needful. However, a persistently high inflation number declared for September once again dashed hopes for an interest rate cut by RBI any time in near future. The RBI's next monetary policy review is slated for October 30, 2012. Until then markets will remain in an uncertain territory.