Jul 18, 2009|
Making up for last week
After witnessing heavy selling activity post the announcement of the Union Budget, the Indian markets performed much better this week as buying activity was witnessed in stocks across sectors. While positive cues from global markets played a role in the same, a lower monsoon deficit is believed to have played a pivotal role as well. With the BSE-Sensex ending the week by over 9%, the Indian markets were also the top gainer among the key indices across the world. As for other global markets, they witnessed a good week as well, with all recording gains on a week on week basis. Leading the pack were European markets, namely Germany and France, which recorded gains of 9% and 8% respectively. Following them were US and UK, which recorded gains of about 7% and 6% respectively. Other key Asian markets such as China and Japan ended the week with gains of 2% and 1% respectively.
|Source: Yahoo Finance
Coming to the performance of sectoral indices during the week, the real estate stocks emerged as the favourites, with the BSE-Realty Index ending the week higher by a strong 18%. It may be noted that during the earlier week, the BSE-Realty Index had dropped by about 17%. Stocks from the banking and auto space were the other key gainers with the BSE-Bankex and BSE-Auto indices ending higher by 11% each. While no indices saw a negative trend on a week on week basis, stocks from the FMCG and healthcare sectors emerged amongst the lowest gainers with the BSE-FMCG and the BSE-Healthcare indices ending higher by about 5% each.
Moving on to corporate news, the last week saw the announcement of a handful of key results. Engineering major, L&T was one of them. The company reported a 7% YoY increase in revenues during the quarter, while its net profits increased by 15% YoY (on excluding the one time gain on the stake sale of UltraTech Cement). The key reason behind the growth was a strong operating performance, where in it saw a 1% expansion in margins (10.7% during 1QFY10) during the quarter. In its earnings call, the company's management did mention that it expects things to pick up in the second half of this fiscal. However, the present environment continues to remain a little grim as far as expansion capital expenditure is concerned, especially from the private sector.
IT major,TCS announced its results last evening. The company witnessed a sales growth of about 0.5% on a quarter on quarter basis. Its operating margins expanded by 1.5% QoQ, largely on the back of a jump in utilisation levels, which is believed to rise to 71.3% in 1QFY10 from 69.4% in 4QFY09. Further, the company recorded profit growth of about 15% QoQ during the quarter. This was mainly led by an expansion in operating margins and also higher other income. During the quarter, the company's employee base declined by around 2,100. This indirectly signifies the demand constraint that the IT sector has been facing for the past few quarters.
Movers and shakers during the week
Inflation (as measured by the WPI) for the week ending July 4 has increased to -1.21% from -1.55% recorded in the week before. It may be noted that at the same time last year, the figure stood at 12.2%. The key reason behind the increase in inflation is higher fuel prices. On July 1, the government increased prices of fuel. This led to a higher cost of naphtha (up 15%), furnace oil (up 11%), petrol (up 10%), amongst others.
Coming to economic news, the Centre for Monitoring Indian Economy (CMIE) recently downgraded India's growth forecast to 5.8% in the current fiscal from its earlier estimate of 6.6%. The reason behind the same is lower agricultural output, in addition to the slower industrial recovery due to the poor progress of monsoon. As per a statement made by CMIE, "The poor progress of the south-west monsoon till the first week of July 2009 is expected to adversely affect the prospects of growth in agriculture, in industry and in the gross domestic product of the country as a whole."
In addition, the agency also believes that India's industrial production will grow by just around 4.8% in the current fiscal, thus lowering its estimates for the same from the earlier forecasted figure of 5.1%. Again, the key reason behind the same is subdued expectations from the agricultural sector. However, while the agro-based industries are feared to face supply pressures, non-agro based industries like cement, metal and automobile are expected to see capacity additions which will fuel the industrial production figures.
In international news, it is believed that China recorded an impressive 7.9% growth in GDP during the second quarter. This has in turn triggered a hope that the country will grow by 8% during the full year. The key reason behind this strong growth figure is the enormous stimulus package worth 4 trillion Yuan. It not only acted as a catalyst which boosted credit markets but also led to a huge surge in share prices, making China the world's second largest stock market by value. It may be noted that China contributed to nearly one-third of the global growth (in terms of purchasing power parity) last year.
But the cloudy days are still not bygone for the export-oriented economy as external demand, corporate profits and fiscal revenues continue to fall. Understanding that the recovery is still not firm, the Chinese government stays put with conducive fiscal and monetary policies towards its goal of creating jobs and ensuring social stability.
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