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India bucks the trend

May 16, 2009

Last week, the Indian indices were amongst the lowest gainers in Asia. However, this week the indices emerged as the top gainers as their Asian counterparts ended on a weak note. According to Bloomberg, Asian stocks fell this week as investors were concerned about the economy and corporate profits taking longer than expected to recover. The BSE-Sensex recorded a weekly gain of about 2.5%, while other Asian markets such as Singapore (down 4%), Hong Kong (down 3%) and Japan (down 2%) recorded losses during the week. However, China did manage a weekly gain of 0.5%. As for other global markets, Brazil (down 5%), France, Germany, US (each down by 4%) and UK (down 3%) all ended the week on a negative note.Coming to the performance of sectoral indices in India, stocks forming part of the banking, IT and consumer durables spaces emerged as the top gainers during the week. The BSE-Bankex and BSE-IT indices recorded gains of almost 6% and 5% respectively. Similar to last week, FMCG stocks remained the top losers during the week with the BSE-FMCG index ending lower by almost 2%.

Data stating the institutional activity shows that both mutual funds and FIIs (foreign institutional investors) pumped money into the markets during the week gone by. FIIs invested nearly Rs 57 bn during the week while the domestic mutual funds invested about Rs 19 bn during the week barring Friday (data for Friday was not available at the time of writing).

Coming to the performance of India Inc., FMCG major HUL announced its March quarter results during the week. HUL recorded a topline growth of 5% YoY. Its operating margins stood at 14.8%, higher by 2% YoY. The improvement in operating margins was seen on account of lower input prices. Further, the company's net profits grew by 33% YoY (excluding the extraordinary items) during the year. However, it may be noted that the full year results are for a period of 15 months and as such, are not comparable to the previous year's (due to change in accounting year). However, on a like to like basis, HUL's net sales grew by 16% YoY, while the bottomline saw an increase of 11% YoY.

This week will be a cherished one for Indian telecom major, Bharti Airtel as its subscriber base crossed the 100 m mark. In fact with this milestone, it has now become the world's third-largest, single-country mobile operator and sixth-largest integrated telecom operator. China Mobile and China Unicom are the world's largest and second-largest in-country mobile operators with 414 m and 170 mm subscribers respectively. In terms of integrated telecom operators, China Mobile, China Unicom, China Telecom, AT&T and Verizon rank ahead of Bharti. Expecting India's teledensity to double within the next three years from the current level of 37%, Mr. Sunil Mittal, the company's chairman has given very optimistic views about the future. He believes that the company will be able to double its subscriber base within that period. Given the fact that the telecom players in India are adding mobile subscribers at a very robust pace and also that Bharti Airtel is the market leader (marketshare of about 25%), the task does not look very daunting. However, keeping in mind the intense competition within the industry and that it is bound to get more intense in the future, one cannot blindly go by the management's views.

Source: Yahoo FinanceSource: Yahoo Finance

Source: BSESource: BSE

Movers and shakers during the week
Company 8-May-09 15-May-09 Change 52-wk High/Low Change from 52-wk High
Top gainers during the week (BSE-A Group)
Aban Offshore 455 619 36.0% 4,190 / 224 -85.2%
Yes Bank 81 95 18.5% 174 / 41 -45.1%
Bajaj Auto 681 793 16.5% 945 / 295 -16.1%
Kotak Bank 436 507 16.4% 769 / 208 -34.1%
Zee Ent. 124 143 15.6% 243 / 88 -41.1%
Top losers during the week (BSE-A Group)
Bhushan Steel 683 559 -18.1% 956 / 260 -41.5%
Essar Oil 155 132 -14.9% 261 / 54 -49.6%
Hindustan Copper 197 172 -12.5% 351 / 70 -51.0%
Ispat Industries 16 14 -12.0% 36 / 9 -60.2%
Neyveli Lignite 103 92 -10.5% 152 / 45 -39.4%
Source: Equitymaster

Inflation (as measured by the WPI) has decreased to 0.48% for the week ended May 2. This is lower than the previous week figure of 0.7%. It may be noted that the decline in the inflation figure is in spite of the rise in prices of foods such as pulses, cereals and vegetables. The number for the same week last year stood at 8.7%.

In a move to attain the set target of the eleventh five-year plan, the Central Electricity Authority (CEA) has rescheduled a bulk of its targets to the last two years of the plan (FY11 and FY12). It may be noted that as per the original targets of adding nearly 16,335 MW and 6,782 MW in FY08 and FY09 respectively, India added only 9,263 MW and 3,454 MW respectively. This translates to an underperformance of 43% and 50% respectively. As per the revised targets set by the CEA, about 84% of the power generation capacity that is to be added during the 11th Plan will be commissioned during the last three years of the plan - FY10, FY11, and FY12. As per the original target, the same figure stood at 70%. In addition, the capacity addition target for the 11th plan has been revised to 80,010 MW from 78,577 MW earlier (an increase of 2%). It may be noted that in the last three five-year plans, the actual additions in the country have been only half of what was envisaged. In addition, a handful of experts, including members of the Planning Commission team have mentioned that the country will not be able to manage a capacity addition of more than 65,000 MW during the period. The reason behind this is lack of resources.

Based on the results of a survey of professional forecasters as carried by the RBI on its website, India's GDP to grow at an annual rate of 7% and 7.5% over the next five and ten years respectively. We believe these numbers are more realistic and attainable as against predictions of annual growth in excess of 10%. In addition, the forecasters have also projected inflation (based on the wholesale price index or WPI) to average around 5% and 4.5% over the next 5 and 10 years respectively (WPI inflation currently stands at 0.48%).


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