Investors hopeful about EU summit

Sat, 22 Oct RoundUp

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It was a mixed week for the global stock markets. While the US and the UK were up by 1.4% and 0.4% each, most of the Asian and European markets closed the week in the red. The US markets in particular saw their highest levels since early August in anticipation of the upcoming European Union summit. The US markets also got a boost from strong earnings declared by blue-chip companies. As per Thomson Reuters, most of the S&P 500 companies that have declared results so far have exceeded analyst expectations.

Indian stock markets however fell by almost 1.7%. The markets were plagued with a number of fears including the worsening of European debt crisis resulting in the outflow of FII money. There were concerns about inflation remaining at intolerably high levels and the RBI hiking interest rates yet again. Amongst the other world markets, Brazil and Germany were up by 0.4% and 0.1% respectively. Asian stock markets were down led by China (down by 4.4%).

Source: Yahoo Finance

Indian stock markets witnessed mixed performance from sectors over the week. Most of the sectors closed in the negative barring Pharma (up by 0.5%), Banking (up by 0.3%) and Consumer Durables (flat).

Source: BSE

Now, let's take a look at key economic developments. There was an announcement by the National Housing Board instructing housing finance companies to have same rates of interest irrespective of when the loan was taken. This means that now, floating rates will be applicable to both old and new customers who have the same risk profiles. The NHB has altered pre payment penalty mechanism. For floating rate loans, there will not be any penalty for pre payment. However, for fixed rate, penalty will be applicable only on borrowers who repay on their own. At present, up to 4% pre payment penalty is being levied. While this spells great news for home loan borrowers, it might be of concern to the housing finance companies like Housing Development Finance Corporation HDFC, LIC Housing Finance and GIC Housing Finance.

The results season continued with companies like Tata Consultancy Services TCS, HDFC, Hindustan Zinc declaring their numbers for the quarter ended September 2011.

The IT major TCS reported net sales growth of 7.7% QoQ. This was mainly on account of higher volumes. Net profits were up by 2.5% QoQ. For half year ended September 2011, these numbers stood at 28.1% YoY and 20.8% YoY. Operating margins increased by 0.9% QoQ and declined by 1.1% YoY for the half year period. The IT company added a net of around 12,580 employees during the quarter. Attrition was reported at 13.7% as compared to 14.8% seen in the previous quarter (1QFY12). The company proposed a dividend of Rs 3 per share implying a yield of 0.3%.

India's largest private sector bank HDFC Bank reported results for the second quarter as well as the first half of financial year 2011-12. The bank reported 18% YoY growth in net interest income for the half year period. The net profits grew by 33% YoY during the same time frame. For the quarter ended September 2011, net interest income increased by 16.6% YoY. During the same period, net profits were up by 32% YoY. The bank seems to be doing well on the retail loan front as the segment grew by 34% YoY. Among the retail segment, fastest growth was observed in home loan and commercial vehicles.

Continuing with some more results, engineering company Crompton Greaves too declared its financial results for the second quarter of FY2011-12. The company reported 13% YoY rise in sales but a 45% YoY decline in net profits. Higher operating costs and finance and depreciation expenses resulted in the company's net profits falling by 45% despite 12% YoY growth in sales of power systems and 29% YoY growth in industrial systems.

Among other news, we have the Environment Protection Control Agency (EPCA) asking Indraprastha Gas Ltd. (IGL) to desist from further price hikes of compressed natural gas (CNG). IT may be noted here that this move is taken with an aim to ensure that CNG does not lose out to diesel. It has been observed that people prefer diesel over CNG citing better engine performance as one of the main differentiating factors. Diesel vehicles account for 50% of all personal car sales in the city causing huge air pollution. The prices of CNG have been hiked in the recent past due to dollar appreciation, increased power tariffs and other operational constraints.

Movers and shakers during the week

Company	14-Oct-11	21-Oct-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Moser Baer	23	28	23.6%	71/21
Balrampur Chini	46	53	16.6%	96/44
Guj. NRE Coke	22	24	7.8%	72/21
Oracle Fin. Services	2,018	2,175	7.8%	2383/1760
Guj. Mineral Dev.	163	175	7.3%	192/105
Top losers during the week (BSE-A Group)
Crompton Greaves	165	138	-16.4%	343/136
Exide Industries	136	119	-12.9%	174/121
Jain Irrigation	139	124	-11.0%	244/131
Everest Kanto	72	64	-11.0%	140/66
GTL Infra	11	10	-10.1%	47/10

Source: Equitymaster
Lastly, in the pharma space, Sun Pharma is likely to face a big problem in acquiring the remaining stake in Israeli firm Taro Pharmaceutical Industries. One of the shareholders of Taro seems to not agree with the valuation of the pharma company. The shareholder, Grand Slam Asset Management feels that Taro should be valued at US$ 48.5 per share which is substantially higher than the offer made by Sun Pharma at US$ 24.5. Sun Pharma may have to revise its offer to acquire the remaining stake.