Global markets, barring Asia, remain optimistic

Sat, 26 Oct RoundUp

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Global markets across the globe had bounced back last week after the US government ended the shutdown and increased the debt ceiling. The optimistic mood remained in some the major global markets. The US markets ended the week up 1.1%. Even stock markets in UK and Germany were up by up to 1.5% each.

But most of the Asian indices were down for the week. The Chinese markets ended lower by 2.8% on tightening liquidity concerns. The Chinese Central bank withdrew cash from the system for the third time in two weeks. This raised concerns for the repeat of the credit crunch witnessed in June this year. The Japanese market was down by a steep 3.3%. The fall was exacerbated by an earthquake of magnitude 7.3 that struck around Japan's east coast near the Fukushima nuclear site and tsunami warnings being issued for the area. Even the Hong Kong index was down 2.8%.

BSE-Sensex closed the week down 1% as cautious mood set in on expectations of an interest rate review by the central bank in the forthcoming monetary policy scheduled on 29th October, 2013.

Source: Yahoo Finance

Majority of the sectoral indices ended in the red with Realty (down 2.2%), FMCG (down 1.9%) and Pharma (down 1.8%) being the major losers. Stocks from Capital goods (up 5.4%) and Banking (up 1.6%) were the biggest gainers during the week.

Source: BSE

Now let us discuss some of the economic developments of the week gone by.

The long pending implementation of the Goods & Services Tax (GST) was postponed once again due to lack of consensus. The major bone of contention is the inclusion of petroleum products and liquor in the framework of GST regime that has been opposed by majority of states. Some states have also expressed their disapproval for the inclusion of the entry tax in the GST fold. Therefore, the Empowered Committee could not complete its discussion on the revised bill that has been deferred till the next meeting. The implementation of the new indirect tax has been delayed for quite some time now as a result of disagreements between the Centre and States over the tax structure.

With the roll-back of stimulus measures being postponed by the US, the Finance Minister has asked financial sector regulators to implement safe-guard measures to protect the country from its adverse impact. The government has finalized plans for the next round of financial sector reforms and has drafted a strategy plan in consultation with regulators to tap global debt funds for raising its foreign exchange reserves. Reportedly, the members of the Financial Stability and Development Council (FSDC) chaired by the Finance Minister have come to the agreement that the impact of tapering would not be significant.

In a bid to prevent excessive piling up of bad debt in the banking system post the 2008 Global crisis, the Finance Minister has directed public sector banks to set up a separate vertical, headed by official of General Manager Rank, for the recovery of technically written-off accounts. As of June 2013, the total technical write-offs were around Rs 830 bn. The Finance Minister has urged public sector banks to focus on recovery of bad loans as every rupee so recovered would translate in to pure profit and also asked them to ensure that write-offs are not more than their recoveries. However for the quarter ended June 2013, six banks namely Indian Overseas Bank, Indian Bank, Bank of India, Bank of Maharashtra, Union Bank of India and Syndicate Bank, saw write-offs exceeding recoveries. As per the Finance Minister, large borrowers with borrowings of over Rs 10 m account for bulk of bad loans or Non Performing Assets (NPA) of banks.

Movers and shakers during the week

Company	18-Oct-13	25-Oct-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Suzlon Energy	8	11	39.7%	27/6
Gitanjal Gems Ltd	53	63	17.7%	650/50
United Breweries	842	959	13.9%	1023/581
Federal Bank	71	80	12.5%	551/44
ABB India Ltd	555	619	11.7%	830/448
Top losers during the week (BSE-A Group)
Multi Commodity	510	460	-10.0%	1617/238
BHEL	148	137	-7.3%	248/100
Jindal Steel	256	238	-6.7%	474/182
Financial Tech	160	150	-6.3%	1224/102
Exide Industries	130	122	-5.7%	151/115

Source: Equitymaster
Now let us look at some of the quarterly earnings results that were released this week.

ICICI Bank clocked a strong earnings performance for the quarter ended September 2013. The net interest income (NII) grew by robust 20% YoY while net interest margins (NIMs) surged to 3.3%. Total advances of the bank increased by healthy 16% YoY and the CASA ratio was maintained at 43.3% during 2QFY14. The asset quality improved significantly with gross NPAs falling to 3.08% levels. Net NPAs, though went up marginally to 0.85% from 0.82% a year ago. The provision coverage ratio declined to 73% during the quarter from 75% a year ago, but it still stands strong compared to industry average. Despite the tough market conditions, ICICI bank registered a strong 20% YoY growth in profitability for the quarter.

Biotech major Biocon Ltd has announced results for the second quarter of the FY14. The company has reported a 17% YoY growth in revenues with the two main verticals of the company - biopharmaceuticals and contract research registered growth of 18% YoY and 46% YoY respectively during the quarter. The operating profits for the quarter increased by 13% YoY. The net profits for the quarter rose by 13% YoY despite an exceptional forex loss which was more than offset by strong performance in the contract research arm. During the quarter, the company has launched its second novel biologic, Alzumab, for psoriasis in India and it has already witnessed a strong acceptance in the market.

Hero MotoCorp posted healthy growth in sales and profits in the second quarter of FY14. The sales of the company grew by 10% led by volume growth of 6.3% YoY, price hikes and better product mix. The company improved its EBITDA margin by 0.6% YoY to 14.5% as a result of higher operating leverage and lower cost of raw materials as a percentage of sales. With no significant rsie in interest & depreciation charges, profit before tax grew by 25% YoY. But tax expenses increased during the quartetr due to expiry of some of the tax incentives. Thus, net profit rose by relatively slower 9.1% YoY.

Ambuja Cements announced its financial results for the third quarter of the calendar year 2013 (3QCY13). During the quarter, net sales were lower by 7.4% YoY. The operating margin eroded from 23.9% in 3QCY12 to 12.7% in 3QCY13 mainly on account of lower realizations and higher logistics expenses. While depreciation outgo decreased by 9.3% YoY, finance costs rose by 7.7% YoY. The company reported an exceptional gain of Rs 248.2 m on account of sale of residential flats. At the bottomline level, net profits fell by 45.4% YoY. Net profit margin contracted from 14% in 3QCY12 to 8.3% in 3QCY13.

Hindustan Zinc has announced its second quarter results of the financial year 2013-14. During the quarter, net sales grew by 24.2% YoY on the back of higher mined metal production. Operating profit margin improved from 51.3% in 2QFY13 to 52.9% in 2QFY14. Other income dipped by 48.8% YoY during the quarter. Depreciation and interest expenses increased by 6.8% YoY and 38% YoY, respectively. The company reported an exceptional loss of Rs 612 m on account of VRS expenses. Therefore net profits increased by a subdued 6.5% YoY. Net profit margins contracted from 53.7% in 2QFY13 to 46.1% in 2QFY14.

Now let us move on to some more news from the corporate world.

National Thermal Power Corporation (NTPC) has sent an appeal to the government for extension of gas supplies from the D6 block in the Krishna Godavari (KG) basin beyond 2014. The company has cited the gas usage in the crucial operation of its gas stations in Anta, Auraiya, Dadri and Faridabad. The company was allocated 4.5 million standard cubic meters per day (mmscmd) in 2009, out of which around 2.3 mmscmd had been contracted with Reliance Industries Ltd (RIL) - the operator of D6 gas fields. The present gas sale agreements stand to expire in March 2014.

NTPC has also raised concerns that RIL and its partners are changing the terms and conditions of the gas-sale-purchase-agreement (GSPA) in their favour. As per the new draft of GSPA; the seller will be absolved of any liability and the buyer will have no right to sue the seller in case of delay or shortfall in supply of gas. NTPC has also sought the power ministry's intervention to sort out these differences over GSPA. In the past due to absence or delay of gas supply from RIL during the winter months; NTPC had bought expensive imported LNG. On the other hand, RIL has said that due to fall in output in its KG-D6 field it will not be able to commit the required supplies to its customers including NTPC.

Britannia Industries is planning to put its bakery foods subsidiary Daily Bread on the block. This subsidiary was acquired four years back as part of a diversification plan of the company. Daily Bread has a network of 31 stores and cafes across Bangalore, Hyderabad and Goa. It is also a leading supplier to food chains like KFC, Dominos, cafe coffee day and various multiplex chains. Daily bread manufactures European styled specialty breads, cakes, pastries, muffins and salads in its three manufacturing facilities. Reportedly, the company intends to sell off the unit in order to focus on its core business.

Tata Consultancy Services (TCS) has signed a multi-million dollar deal with Bombardier Transportation to manage IT infrastructure for its newly commissioned data centers in Germany. Bombardier is a global leader in rail transportation technology. As part of the offshore deal, TCS will provide remote infrastructure management (RIM) services for the new data centers through the introduction of private cloud-based services. TCS will also provide SAP based service support to Bombardier. This is the first deal that TCS has won in the rail transportation sector. TCS will execute the contract through its offshore center in Germany. The transportation sector contributed 16.6% of revenues for TCS in 2QFY14 while revenues from Europe contributed 31.9%.

Lupin Ltd has received US regulator, USFDA's approval for its new drug application for Antara capsules in 30mg and 90mg strengths. The company would commence the marketing of this drug shortly. Lupin is already selling Antara brand of 43mg and 130mg strengths. The said drug, generically known as fenofibrate is prescribed for adjunct treatment of hypercholesterolemia (high blood cholesterol), mixed dyslipidemia and hyper-triglyceridemia (high triglycerides).

With the stimulus measures by the US extended further, the uncertainty in the global markets has eased up at least for now. However, the Indian markets will continue to witness volatility as it braces for another monetary policy review on 29Th October.