Economic policies propel global markets

Sat, 16 Nov RoundUp

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Barring UK and India, major global stock markets ended the week in the green. The US stock markets closed on a positive note. The US markets hit new highs, on back of positive comments from Federal Reserve chair nomineeJanett Yellen . Janett indicated to Federal committee that central bank's stimulus would continue as it was too early to end the same. This event had positive impact on the global markets too.

China's equity markets too closed in green on back of continued Fed support and as China's ruling party announced some changes in its economic policy. The new policy targets to encourage private participation in finance undertake market competition in various parts of the economy and promise the farmers better security.

Japanese stock markets gained most among the various global indices. The top banks in Japan witnessed better earnings and also raised their full year outlook. This was largely attributable to its " Abenomics " (economic policies advocated by Japan's prime minister Shinzo Abe) policy. The Japanese currency Yen too slipped, helping the Japanese stock markets to rise.

The Indian stock markets closed in red. After weak trading session till Wednesday, markets followed global cues which turned positive on the statement by Janet Yellen. The market sentiment also propped up as the RBI Governor gave promising speech, calming investors' nerves over rupee depreciation and pegging the Current Account Deficit (CAD) at around U$ 56 bn. However, with WPI inflation at 7% in October compared with 6.46% in September this year, expectations that interest rates might ease any time soon might have ended. The BSE Sensex closed the week with 1.3% loss.

Key world markets during the week

Source: Yahoo Finance

Most of the sectoral indices ended the week in the red with stocks in the realty (down 2.9%) and capital goods (down 2.7%) space witnessing maximum losses. Only automobile stocks closed in green (up 0.4%)

Sectoral Indices during the week

Source: BSE

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

The headline inflation number, the wholesale price index or WPI, has increased to 7% in October from 6.46% in September. However, it has come down from the October 2012 number of 7.32%. Food inflation has almost tripled since last October to over 18%. Vegetable prices played a key role. Overall, vegetable prices jumped over 78% while onion prices saw a whopping 278% increase. But it was not primarily food products which took the inflation to a higher level this month, but also the manufactured items, which occupy largest share in the inflationary basket. The prices of manufactured products rose for the first time this year and went up to 2.5% from 2.03%. Under manufacturing, food processing went up by 1.8% in October against 1.6% a month ago. Also, fuel and power prices rose 10.33% from 10.08%.

The Indian economy may have slowed down considerably at present, but Mr Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, is of the view that the economy will get back on the targeted growth trajectory of 8% after two years. For the 12th plan period (2012-17), the government had earlier set a target of 8% annual average growth rate. In the first year, growth was rather tepid at 5%, a decade-low rate. As a result, according to Ahluwalia, the average economic growth rate in the 12th Plan period will be lower than 8%. While FY14 is most likely to remain subdued, recovery is expected to take place FY15 onwards. How the growth will pan out during the 12th Plan period all depends on how the government chooses to implement reforms and the stated objectives of the Plan.

Movers and shakers during the week

Company	7-Nov-13	14-Nov-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Aurobindo Pharma	238	282	18.5%	283/127
Adani Enterprise	211	244	15.9%	297/126
Divis Laboratories	1,002	1,147	14.5%	246/74
Tata Steel	346	375	8.5%	448/195
Bata India	922	982	6.5%	1003/688
Top losers during the week (BSE-A Group)
Corporation Bank	303	265	-12.7%	495/240
Central bank	60	53	-11.3%	96/49
Muthoot Finance	121	108	-11.1%	246/79
Multi commodity	489	436	-10.8%	1616/238
Sun TV	437	392	-10.3%	494/327

Source: Equitymaster
Now let us look at some of the corporate earnings which were released this week.

Tata Steel has announced its September quarter (2QFY14) results. Consolidated topline grew by 7.4% YoY on back of higher sales volume. Consolidated operating profit was up by 60.4% YoY while the operating margins increased by nearly 3.3%. On a consolidated basis, the company reported a net profit as against a net loss when compared to the same period last year. On a standalone basis, the company reported an increase of 8.4% YoY in net sales and 15.4% YoY in net profits. For the half year ended September 2013, on a consolidated basis the company reported a 2.2% YoY increase in net sales and 778.7% YoY increase in net profits

Mahindra and Mahindra (M&M) declared its 2QFY14 results. The results have beaten market expectations. The company's standalone sales decreased by 8.7% YoY to Rs 88.1 bn this quarter. There was a decline of 15.9% YoY and 3.9% YoY in volumes and realization respectively in automotive segment. Although there was about 19% YoY volume growth in tractors segment which restricted the sales decline to a certain extent. Operating profit increased by 2% YoY led by better operating performance of both automotive and tractor segment. Other income increased by 11.7% YoY and interest expense rose by 31.2% YoY. Increase in other income and decline in tax rate from 25.8% in 2QFY13 to 20.6% in 2QFY14 led to net profit growth of 9.7% YoY to Rs 9.9bn. M&M is trading up by 2.5% today

Leading Indian pharma player Sun Pharmaceuticals has announced its results for the second quarter of the financial year 2013-14 (2QFY14). During the quarter, the company's consolidated net sales grew by 57.9% on a year-on-year (YoY) basis. Overall international revenues accounted for over 75% of the company's revenues during the quarter. Operating profits grew by 56.8% YoY. Operating profit margin contracted marginally from 44.1% in 2QFY13 to 43.8% in 2QFY14. Other income decreased by 37.9% YoY while depreciation charges increased by 21.2% YoY to Rs 1,004.8 m. Interest expenses declined by 58.7% YoY. Profit after tax increased by 258% YoY to. This is also attributable to exceptional losses incurred during 2QFY13.

The FMCG major Britannia Industries has announced results for the second quarter of the financial year 2013-14 (2QFY14). The net sales during the quarter were up by 13% on a year on year (YoY) basis. The management stated that more than 50% of the growth in sales was on account of the price hikes taken earlier during the year. The rest of the growth came from increased sales of higher margin products and slight rise in volumes. The overall expenses during the quarter increased by around 8.8% YoY. An increase in the sales and improvement in the margins led to a 66% YoY jump in the net profit for the quarter. This was despite a slowdown in the demand in the last couple of months. As per the management, the growth in the net profits was the result of better cost management and revenue management. Besides, it was supported by a moderation in the increase in the commodity prices as compared to last year

MNC pharma company, GSK Pharma announced results for the third quarter ended September 2013 (December ending company). The company's net sales during the quarter declined by 7% YoY. It must be noted that most pharma companies witnessed muted sales in the domestic market during the quarter on account of trade disruptions and impact of the new pricing policy. Operating profits plunged 45% YoY as margins shrank by 12.3% to 18.2% during the quarter. The same was on account of a considerable rise in staff costs and other expenditure (as percentage of sales). As a result, net profits fell by 34% YoY. However, on excluding the extraordinary items during both the periods, the fall in net profits was steeper at 40% YoY.

Crompton Greaves Ltd has announced results for the second quarter of the financial year 2013-14 (2QFY14). The consolidated revenues for the quarter were up by 9.6% on a year on year (YoY) basis. The growth was supported by the better execution in the international business. However, the international segment that accounts for more than 40% of the sales continues to lag on profitability. During the quarter, the raw material costs as a percentage of sales declined by around 1.5 % YoY. As such, the operating profits for the quarter were up by 18% YoY. The net profits for the quarter grew by around 38.9% YoY. During the quarter, the company was affected by increase in the tax expenses.

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

India's second largest software firm Infosys has announced a joint technology marketing agreement with Arrow Electronics. Arrow Electronics provides computer components and enterprise IT services to US customers and has been a client of Infosys BPO for over 10 years. As per the agreement, Infosys and Arrow will jointly provide end-to-end IT asset management services. The services provided would enable clients to derive greater value from their IT assets, both software and hardware, at the end of their product life cycles. The industry verticals that would be serviced in this partnership would be manufacturing, high-tech, telecom, banking, retail and consumer packaged goods. Infosys is trading up 0.3% today.

As per a leading financial daily, India's leading two-wheeler maker Hero MotoCorp is gearing up to emerge as a global player. It plans to roll out its two wheelers in the United States and Canada next year. Last month the company had a soft launch of its debut products in the US at the inaugural American International Motorcycle Expo (AIMExpo) in Orlando, Florida. As per the daily, the two-wheeler maker has appointed its American technology partner Erik Buell Racing as the exclusive distributor. Over time, the company is likely to set up its own manufacturing and assembly plants in North America.

Lupin Ltd has announced that the company has launched rabeprazole 20 mg drug. The said drug is generic version of Eisai's Aciphex. The branded market size of this drug is $ 864 m and is indicated for the treatment of GERD. The company had earlier received approval for this drug from US regulator. Two other Indian companies viz Dr Reddys laboratories and Torrent pharma too have approval for this drug. Two other pharma companies viz Teva and Mylan have also received approval for this drug. The patent of this drug had recently expired on 8th Nov 2013. Thus the drug is launched post patent expiry. The generic companies which launch the drug before its competitors will be able to take better market share.

According to a leading financial daily, the society of Indian automobile manufacturers (SIAM)has reported automobile sales data. Total sales across various categories were up by 12.5% YOY for the month of October. In this, the car sales dropped by 3.9% YoY while the motorcycle sales have increased by 18.1% YoY for the said period. The truck and bus sales were down by 19.8% YoY during the month. Reportedly, the industry body SIAM now expects that the current financial year will witness negative growth in car sales, considering the declining trend so far.

The September quarter result was mixed bag for Indian companies. While India's economic indicators indicate challenges ahead for the Indian markets, the extended stimulus measures by the US have eased up the uncertainty at least for now.

Thus investors should not take their investment decisions based on specific events. Investors should note that short term developments should not form the only basis for investment decisions. Indeed, the focus should be on stocks of companies that have good fundamentals and a sound management.