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Year's best week for US stock markets, good one for others
All the stock markets across the world witnessed a week of gains. Most of the markets closed substantially higher than last week's closing levels. US stocks markets were up amidst early reports of improved consumer sentiments from major retailers at the start of the shopping season. Also, positive economic news from Germany regarding improvement in business climate index helped the markets end the best week of this year registering gains of more than 3%.
In India, stock markets were up by almost 1%. Amongst the other markets, all displayed positive sentiments and moved considerably higher during the week. France (up by 5.6%) and Germany (up by 5.2%) were the top gainers. China although up by 0.6% was the worst performer.
Amongst sectoral indices, there was mixed performance. While FMCG (up by 2.6%) and auto (up by 1.5%) stocks ended on a positive note, PSU (down by 1.2%) and power (down by 1.2%) witnessed selling pressure.
Now let us have a look at few economic developments during the week. The Finance Minister (FM) of India has directed banks to help the builders by funding residential projects that are stuck due to shortage of funds. As per the Reserve Bank of India (RBI), the credit extended by commercial banks to the real estate sector grew by a mere 4% for the year ended September 2012. This is lower when compared to a 14% rise in the corresponding year-ago period. The FM is looking at reviving the growth in the realty sector and thus the overall economy. With the same objective in mind, earlier in August, he had asked banks to put pressure on real estate developers to lower property prices.
A major development took place in the pharma sector with the approval of the revised pricing policy. The cabinet has approved the long awaited pharma pricing policy and accepted the Group of Ministers (GoM) recommendations on the National Pharmaceutical Pricing Policy without making any changes. As per the revised policy, pries of 348 essential drugs will now be capped. The prices would be calculated by taking the arithmetic average of prices of all drugs in a particular segment with more than 1% market share. The policy also calls for periodic review of the prices. With this, 30% of pharma market would be under price control now as compared to the earlier 17%. Companies like GSK Pharma, Cipla, Ranbaxy, Cadila, Abbott and Pfizer are expected to get affected the most.
Now let us have a look at few corporate events that unfolded during the week. Earnings season continued with a few important results being declared during the week. Let us discuss these.
Tata Steel announced results for the second quarter ended September 2012. Consolidated topline grew by just 4.1% YoY on back of lower sales volume. Consolidated operating profit was down by 19.4% YoY while the operating margins reduced by nearly 1.9%. On a consolidated basis, the company reported a net loss as against a net profit when compared to the same period last year. On a standalone basis, the company reported an increase of 11.4% YoY in net sales and a decline of 9.7% YoY in net profits. For the half year ended September 2012, on a consolidated basis the company reported a 3% YoY increase in net sales and 98.1% YoY decline in net profits.
Bharat Petroleum Corporation Limited (BPCL) recently announced results for the second quarter ended September 2012. Sales were up by 34.5% YoY during the quarter and by 26% YoY during the first half of the year. The company reported operating profit this quarter as compared to loss at operating level in the same quarter last year. Operating margin stood at 9.5% for the quarter and at -2.5% for the half year on account of operating losses recorded in the year so far. The net under recoveries for 1HFY13 stood at Rs 61.3 bn, down 6.8% YoY. The performance looked even better at the bottomline level because of decline in interest expenses (down 9.1% YoY) and depreciation expenses (down 13.4% YoY) and increase in the other income (up 3.6% YoY). BPCL reported net profit in the September quarter with net profit margin of 8.8%.
Pharma companyWockhardt also announced results for the second quarter ended September 2012. Topline grew by 29% YoY during the quarter led by growth in its international business especially the US. Currently US contributes around 48% to total business against 31% and 44% in FY11 and FY12. Excluding the nutrition business (the company sold this business last fiscal), growth was at 38% YoY. India business (excluding Nutrition business) grew at a low rate of 4%. Operating margins improved dramatically by 11.6% leading to an 85% YoY growth in operating profits. This was because of one time inventory impact, and slight improvement in the other segments. Bottomline increased by 477% YoY during 2QFY13, due to exceptional gain in 2QFY13 as against an exceptional loss in 2QFY12.
In some other news from the corporate world, Indian pharma company Lupin launched the generic version of Tricor in the US markets. Tricor belongs to Abbott Laboratories and is used to lower cholesterol levels. In the US, Tricor tablets have annual sales of US$ 1.26 bn. The launch is in line with Lupin's strategy of focusing on branded generics and niche launches which have lower competition and thus lesser price erosion. Lupin is already present in the niche market of oral contraceptives (OC) and aims to strengthen its presence in the said segment. So far, it has launched 3 products in the OC segment and is looking at a couple of new launches too.
Hero MotoCorp is planning to unveil its indigenously developed motorcycle. This is the first motorbike manufactured entirely by Hero after the company had ended its long term association with Honda recently. The motorcycle is a 250cc sports bike which will be launched at Auto Expo in 2014. The motorcycle is being developed in collaboration with Hero Moto's American technology partner Erik Buell Racing (EBR). The two wheeler company is targeting both domestic and overseas customers for this new bike. The company is also working on several other models ranging from low-engine displacement to higher powered motorcycles and scooters.
Earnings season is about to come to an end soon and with this all eyes are again on the RBI which is set to announce its mid quarter monetary policy on December 18. Whether or not the central bank reduces interest rates remains to be seen. However, FM recently expressed hopes of a probable rate cut by the RBI if inflation eases out further.