Volatile week for global stock markets

Sat, 25 May RoundUp

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This week was a volatile one for the global stock markets. For starters, weak manufacturing data released in China did not help matters. But what spooked markets is US Fed Chairman Ben Bernanke's statement that it would be easing out its bond purchases program going forward. Given that a significant chunk of the recent rally in global stock markets has been a result of too much quantitative easing, such a statement sent shivers down the investors' spine. Japan was the worst hit as it lost 3.5% during the week.

India was the second biggest loser as the Indian stock markets ended the week in the red piling up losses of around 3%. While global cues played a significant role in adversely impacting the indices, certain negative developments with respect to corporate governance in the pharmaceutical sector also took their toll.

Source: Yahoo Finance

The sectoral indices ended the week on a negative note with IT stocks being the only exception registering marginal gains of 0.1%. Realty (down by 11.5%) and capital goods (down by 8%) stocks fell the most.

Source: BSE

Now let us discuss some of the economic developments of the week gone by. The Indian government is planning to allow global retailers such as Walmart and Tesco to set up warehouses, cold storages and source products from small and medium enterprises (SME) in states which have not permitted FDI in the multi-brand retail sector. This means that no state will stop any foreign player to procure goods or do business with SMEs.

For this, the global retailers have sought clarifications from the Department of Industrial Policy and Promotion (DIPP) on whether they could set up warehouses in states which are against the Centre's retail FDI policy. As per the government FDI policy, minimum 50% of the first tranche of the FDI would only have to be invested towards back-end infrastructure. Further a foreign retailer must source 30% of the items that it sells in India from small industries.

Now let us move to some news from the corporate world. Companies continued to declare their results for the quarter ended March 2013 .

Tata Group firm Voltas Ltd announced its financial results for the quarter and year ended March 2013 (4QFY13). The company's consolidated income from operations rose by 1.4% YoY during the quarter. Operating profits were lower by 39.2% YoY and operating profit margins declined from 8.7% in 4QFY12 to 5.2% in 4QFY13. Voltas's net profits fell by a whopping 91.4% YoY. During the financial year 2012-13 (FY13), consolidated sales increased by 6.7% YoY, while net profits surged by 28.2% YoY.

Engineering major Larsen & Toubro announced results for the fourth quarter of FY13. Standalone net sales grew by 9.9% YoY during the quarter. Revenue growth was driven by 9.5% YoY growth in the Engineering & Construction (E&C) business. The Machinery & Industrial products (M&I) division also grew at a healthy pace of 9.3% YoY. Operating profits were down by 4.3% YoY owing to increase in material costs and staff costs. Operating margins declined by 180 bps to 12.1% during the quarter. Net profits declined by 6.9% YoY because of lower growth at operating level and higher interest costs.

Coal India announced results for the quarter ended March 2013. Net sales declined by 21.1% YoY during the quarter. This was largely due to 26.7% decline in production volume and 25% decline in offtake volume. Despite fall in operating expenditure, Coal India reported an operating loss during the quarter as compared to an operating profit in the same quarter last year. However 71.2% YoY growth in other income and decreased depreciation and interest costs helped the company post 89.7% YoY growth in net profits during the quarter. The company also recommended a final dividend of Rs 4.3 per share for FY13. This is over and above the interim dividend of Rs 9.7 per share for FY13.

Movers and shakers during the week

Company	17-May-13	24-May-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Adani Power	50	57	13.2%	70/37
Oracle Financial Services	2,419	2,590	7.0%	3414/2350
United Spirits	2,411	2,570	6.6%	2586/547
Emami Limited	692	736	6.3%	764/461
Nestle	4,970	5,250	5.6%	5345/4306
Top losers during the week (BSE-A Group)
Housing Development Infra	60	49	-18.4%	124/44
Unitech	31	25	-17.5%	41/18
Jaiprakash Associates	82	68	-17.2%	107/58
Ranbaxy Labs	471	390	-17.2%	578/371
Apollo Hospitals	1,068	901	-15.6%	1096/605

Source: Equitymaster
Television media company Zee Entertainment declared results for the quarter ended March 2013 as well as for the full year too. The company reported 11% YoY growth in topline helped by 15.5% YoY growth in advertising and 13% YoY growth in subscription revenues. Growth in operating expenses was contained at just 2% resulting in operating profits increasing by 51.4% YoY during the quarter. For the full year, operating profits increased by 29% YoY. Operating profit margins improved hugely by 6.7% during the quarter and by 1.5% during the full year. Net profits were up by 12.1% YoY during the quarter and by 22.1% YoY during the full year. The company declared a dividend of Rs 2 per share (dividend yield of 0.8%).

In some other news, Wockhardt corrected by almost 7% on a single day i.e. Friday. This was because the company received an "import alert" from the USFDA for its manufacturing facility in Waluj near Aurangabad. This is expected to affect Wockhardt's revenues by US$ 100 m annually. The plant is the only injectable plant where the company holds USFDA approval. As on date, the company holds approval of approximately 30-35 injectables.

The Indian stock markets were down by nearly 3% during the week. This was due to global cues as well as concerns in the pharma sector. However, in our opinion, investors should continue investing in fundamentally sound companies whenever these are trading at reasonable valuations.