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Indian markets continue to rise - Views on News from Equitymaster
 
 
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  • May 30, 2009

    Indian markets continue to rise

    The Indian indices put up another impressive performance last week as they were amongst the top gainers in the world. The country's benchmark index, the <BSE-Sensex ended higher by 5% over the previous week. As for other Asian markets, they ended the week on a firm note as well. The pack was led by Hong Kong (up 7%), Singapore (up 4%), Japan (up 3%) and China (up 1%). As for other global markets, Brazil (up 5%), US (up 3%), France (up 2%), UK (up 1%) and Germany (up 0.4%) ended the week on a firm note.

    Coming to the performance of sectoral indices in India, stocks forming part of the realty, metals and consumer durables spaces emerged as the top gainers during the week. The BSE-Realty and BSE-Metal indices recorded robust gains of 15% and 12% respectively. However, stocks forming part of the FMCG, healthcare and auto sectors were amongst the lowest gainers during the week. The BSE-FMCG and BSE- Healthcare sectors recorded gains of only 1% and 2% respectively, while the BSE-Auto index recorded gains of 5% over the previous week. The BSE-Small cap and BSE-Midcap indices continued their positive run by recording gains of 9% and 6% respectively.

    Data stating the institutional activity shows that there was strong buying activity recorded by both FIIs (foreign institutional investors) and domestic mutual funds during the week gone by. While FIIs invested nearly Rs 48 bn during the week (Rs 60 bn in the last week and Rs 57 bn in the week before), the domestic mutual funds pumped in nearly Rs 14 bn during the week barring Friday (data for Friday was not available at the time of writing).

    Coming to the performance of India Inc., L&T, BHEL and M&M announced their results during the week. L&T's consolidated sales grew by 38% YoY during FY09 while its profits increased by 31% YoY. Profitability growth was slightly impacted by a marginal decline in operating margins and higher interest costs. On the other hand, BHEL recorded a revenue growth of 36% YoY while its net profits grew by 10% YoY. Net profit growth was largely impacted by a 2.9% YoY reduction in operating margins (on account of higher raw material prices). During 4QFY09, the company's topline and bottom line grew by 46% YoY and 21% YoY respectively. Auto major, M&M recorded a revenue growth (standalone) of 14% YoY, while its profits declined by 24% YoY. The reason behind this was the 350 basis point contraction in operating margins and higher base effect of extraordinary gains. As for consolidated numbers, the company's topline grew by 11% YoY, while its profits declined by 12% YoY.

    The stock of Ranbaxy was amongst the top gainers of the BSE A Group during the week gone by. The key reason behind the same was the major organisational change at the top level of the company. Malvinder Singh had stepped down as the CEO and MD of Ranbaxy to pave the way for Atul Sobti, who now holds that designation. Sobti was the chief operations officer prior to this development. The last couple of years have seen Ranbaxy battle with a host of problems, the chief ones among them being the issues with the US FDA and mounting forex losses. In the midst of all this, the promoters managed to rope in the Japanese company Daiichi Sankyo to whom they sold their entire stake thereby giving a raw deal to the minority shareholders of the company. While the cash came in on Ranbaxy's books, its problems refused to abate and its ever increasing losses began to take a considerable toll on Daiichi Sankyo's financials as well. No wonder then that a significant reorganising took place sooner than expected.

    The past week was a big one for telecom major, Bharti Airtel as it announced its merger plans with South African telecom major MTN. The deal involves a cash and share swap and is pegged at around US$ 23 bn. As part of the deal, Bharti will acquire a 49% economic interest in MTN, while MTN, along with its shareholders, in turn will acquire a 36% economic interest in Bharti in the form of global depository receipts (GDRs). These GDRs will be listed in the Johannesburg stock exchange. It may be noted that Bharti had held talks with MTN a year ago, which had failed. Reliance Communications had also tried. The merger will create the third larger telecom player in the world after China Mobile and Vodafone. It will cater to more than 200 m customers in 24 countries and generate revenues to the tune of US$ 20 bn. While the merged entity will seek to benefit from the economies of scale over the long term, the immediate worry for investors is the extent of dilution in shareholders' value due to changes in Bharti's capital structure.

    On May 28, the stock of Novartis ended on a strong note on the back of its parent company Novartis AG's, which holds around 51% in the company, announcement to revise its open offer price upwards. The open offer price that was earlier Rs 351 will be revised to a range of Rs 425 and Rs 450 a share. The buyback open offer to increase the parent company's holding to 90% started on 20th May and will close on the 8th of June.

    Source: Yahoo Finance Source: Yahoo Finance

    Source: BSE Source: BSE

    Movers and shakers during the week
    Company 22-May-09 29-May-09 Change 52-wk High/Low Change from 52-wk High
    Top gainers during the week (BSE-A Group)
    NMDC 300 449 49.7% 438 / 115 2.5%
    Jaiprakash Hydro 54 70 29.6% 69 / 23 1.4%
    Jai Corp 216 274 26.9% 640 / 59 -57.2%
    REI Agro 70 89 27.1% 168 / 36 -47.0%
    Ranbaxy 221 279 26.2% 613 / 133 -54.5%
    Top losers during the week (BSE-A Group)
    Tata Comm. 586 472 -19.5% 615 / 320 -23.3%
    Tulip Telecom 742 681 -8.2% 1,130 / 258 -39.7%
    HDIL 307 284 -7.5% 594 / 63 -52.2%
    Bajaj Hold. & Invst. 397 368 -7.3% 649 / 210 -43.3%
    Sun Pharma 1,290 1,210 -6.2% 1,540 / 953 -21.4%

    For the eleventh week in a row, inflation (as measured by the wholesale price index, WPI) has remained below the figure of 1%. For the week ending May 16, the figure stood at 0.61%, unchanged as compared to last week. A key reason as to why the numbers are believed to be low is the higher base effect. During the same week last year, the inflation figure was 8.66%. While there are a set of people who believe that inflation could rise steadily over the coming few months as the higher base effect will taper off, some are of the belief that the ample liquidity in the system will add to the rise. As per the Wall Street Journal, India's economy grew at 5.8% in the fourth quarter as higher government spending and buoyant services sector came into play. This takes the growth for the full year to 6.7%. Although this is way lower than the previous fiscal's growth of 9% and the government's own estimates of 7.1%, it nonetheless is a commendable achievement, especially against the backdrop of the global financial crisis where a large number of economies are struggling to even log in positive growth rates.

    The United Nations has gotten more pessimistic about the growth of the global economy In January, the UN had estimated the world economy to shrink by 0.5% during the year 2009. However, it has now revised its estimates downwards, estimating a 2.6% fall instead. A UN spokesperson stated that they are yet to see any positive signals of revival in the economy. However, the organisation has also stated that with a coordinated, development-oriented policy scenario, the world economy would recover to an annual growth of 4% to 5% in 2010 to 2015.

    Curtains could be finally drawn on troubled auto major, GM as it is expected to declare bankruptcy on Monday. However, it may be noted that the famous GM badge will not become extinct. It's just that the company will cease to exist in its current avatar. The new GM that will come out from the bankruptcy proceedings, also called as chapter 11 will be much more leaner, without any significant debt and without any loss making assets, thus putting it in a very strong position vis--vis its rivals. Post the restructuring, the US Government is expected to have a 72.5% stake in the company, most of which will be sold in the next 6 to 18 months, once the company is able to stand on its own.

     

     

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