Dubai's debt woes haunt global markets

Sat, 28 Nov RoundUp

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Stock markets across the world witnessed a negative trend during the second half of the week, on the back of the Dubai government requesting a delay in debt repayments. The Indian markets were not spared either. While the indices witnessed a flattish trend during the first half of the week, they lost significant ground once the above-mentioned news hit the market. India’s benchmark index, the BSE-Sensex ended the week lower by about 390 points or 2.3%.

Moving on to global markets, Asian markets were amongst the worst hit this week. The pack of losers was led by China, (down 6%), Hong Kong (down 6%) and Japan (down 4%). Amongst the key world markets, Brazil and Germany were the top gainers, recording weekly gains of about 1% and 0.4% respectively. Singapore, US, UK and France ended the week on a relatively flat note.

Source: Yahoo Finance

Coming to the performance of BSE indices, healthcare and auto stocks emerged as top gainers this week, as their respective indices were the only ones which recorded gains. The BSE-Healthcare Index ended higher by about 1%, while the BSE-Auto Index ended higher by 0.3%. Stocks from the FMCG, energy and consumer durables spaces were amongst the least hit stocks this week, with their respective indices recording losses between the ranges of 0.1% to 1.5%. Stocks from the realty, IT and banking sectors were amongst the top underperformers this week. While the BSE-Realty Index ended lower by about 6.3%, the BSE-IT Index ended the week down by about 4%. The BSE-Bankex Index ended the week lower by about 3%. Moving on to institutional activity during the week, the foreign institutional investors (FIIs) invested nearly Rs 4.8 bn (net figure) during the week. The domestic mutual funds, in contrast, seemed to go in for profit booking this week as they sold investments worth Rs 1.6 bn (net figure; barring Friday as data was not available at the time of writing).

Source: BSE

Moving on to key corporate news of the week, telecom major, Reliance Communications on Friday announced a fall in SMS charges, thereby initiating a tariff war in the SMS space. The company will not charge only 1 paise per message. It also has an alternative plan wherein it would charge Rs 1 a day and allow users to send unlimited messages. This development will further escalate price wars that are already beginning to take shape in the telecom sector. The stock closed lower by 1.2% during the week.

The stock Hindalco gained 3.6% during the week. This was on the back of news that the company planned to raise Rs 29 bn this week by selling shares to institutional investors at Rs 131 per share. The proceeds will go towards funding the company's capital expenditure plan of Rs 230 bn over the next 3 years. This involves production of alumina from the Utkal Alumina refinery from July 2011 and construction of a 1.5 m tonne per annum project at Rayagada, Orissa. Production from the Mahan Aluminium project in Madhya Pradesh is also set to start by July 2011. The company is also constructing a captive power plant of 900 MW at Bargwan, Chhattisgarh. This development is in line with the company's drive to expand its alumina capacity nearly four fold and aluminium capacity two fold. The expansion is likely to strengthen the company's position as a low cost aluminium maker with global scale.

According to a leading business daily, Infosys, India's second largest IT services exporter is planning to reduce focus on its engineering services division catering to automotive giants. The company has decided to de-risk its topline from the segment which has become highly competitive and price-sensitive. With the automotive industry, particularly that in the US, beaten out of shape by the economic slowdown, pricing has taken a hit for the premium service players like Infosys. The company now plans to shift focus towards engineering segments like aerospace which provide a lot more stability and visibility of revenues. Other segments that top the priority list in engineering services are heavy engineering, hi-tech, energy generation, medical and apparel.

It appears to be a good move by Infosys if the company can exit the unviable segments and venture into segments which have huge growth potential. It may also be noted that the automotive sector contributes only a negligible proportion of the company's engineering services revenue while aerospace contributes 40% of the same. However, this move did not seem to have enthused investors as the stock closed lower by 2.4% during the week.

Tata Steel gained 2.7% during the week despite reporting a poor set of results for the September quarter on a consolidated basis. The company reported a topline decline of 43% YoY as both volumes and realisations plummeted on the back of poor demand in the developed markets. Operating margins fell to 1.5% in 2QFY10, down from 18.6% in 2QFY09 as fixed costs did not decline in line with sales. Other income also declined by 76% YoY during the quarter. As a result, the bottomline remained negative for the second consecutive quarter. However, the company expects better performance during the second half of the year as demand improves and input costs moderate. Tata Steel plans to reduce its debt by US$ 2 bn over the next year from the current US$ 12.9 bn.

Siemens had announced its full year FY09 results (September ending quarter) during the week. The company's sales fell by just around 4% YoY during the year, led by a fall in the segments of industry automation, power transmission and healthcare. The company's operating margins expanded to 10.6% in FY09, from 8.9% in FY08. This was on account of a fall in purchase of traded goods and lower other costs (both as percentage of sales). Its net profits grew by 17.5% YoY during the quarter, helped by the expansion in operating margins, higher other income as also extraordinary income consisting of profit from the sale of investments in Siemens Information Systems Ltd. and Siemens Information Processing Services Ltd. of Rs 1.5 bn. Siemens closed lower by 6.5% during the week.

Movers and shakers during the week

Company	20-Nov-09	27-Nov-09	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
BPCL	508	582	14.6%	600 / 314
Bharat Electronics	1,574	1,770	12.5%	1,780 / 548
Max (India)	199	221	11.4%	254 / 90
Hindustan Zinc	1,002	1,115	11.3%	1,200 / 296
Madras Cements	102	113	10.1%	128 / 55
Top losers during the week (BSE-A Group)
HDIL	341	309	-9.4%	411 / 63
IRB Infrastructure	263	238	-9.3%	280 / 65
Indiabulls Fin. Ser.	138	125	-9.3%	224 / 81
P&G Hygiene	1,865	1,697	-9.0%	1,899 / 670
Jai Corp.	223	204	-8.7%	350 / 59

Source: Equitymaster
There was some relief on the exports front during the week. While India’s exports did fall by 6.6% during the month of October, the fall was nevertheless much lesser than what was recorded in May at the height of the global financial crisis (decline of 39.2%). As reported in a leading business daily, the commerce ministry now expects to see growth in exports by December but estimates that cumulative exports in FY09 will remain in the negative territory. More importantly, the consensus is that the exports scenario is likely to improve in the coming months. This will certainly be important in bolstering the pace of growth of the Indian economy going ahead.