Strong global cues led most of the Asian markets to end the week on a strong note. In fact, the Indian markets led the pack of gainers, with the BSE-Sensex recording a weekly gain of 4.5%. According to Bloomberg, gains in Asian stocks were seen on the back of higher than estimated profits and US economic reports, which improved confidence that the global economy is strengthening. The Singaporean and Japanese markets ended the week higher by 3.8% and 2.9% respectively. They were followed by the European markets, namely France, UK and Germany, which reported weekly gains of 2%, 1% and 0.4% respectively. China and Hong Kong, on the other hand ended the week on a negative note as their markets fell by 3.4% and 0.5% respectively. It is believed that losses in China were seen on concerns that the government's measures to curb lending and production in industries (including steel and cement) would lead to a slowdown in economic growth. Further, Brazilian markets ended the week on a flat note.
|Source: Yahoo Finance
Coming to the performance of sectoral indices in India, buying activity was witnessed in stocks across sectors as all the indices ended with positive weekly gains. The pack was however led by the realty space, as the BSE-Realty Index ended higher by about 11%. It was followed by stocks forming part of the consumer durables and IT sectors as their respective indices, the BSE-Consumer Durables Index and the BSE-IT Index, ended higher by 8% each. Gains in stocks from the IT sector were on the back of the belief that the improving economic activity in developed countries would enable these companies to perform better going forward. In addition, some of the IT heavyweights also announced some large sized deals during the week. Moving on, strong buying activity was witnessed in stocks from the smallcap space, as the BSE-Smallcap Index ended higher by about 8%. Stocks form the banking, FMCG and power sectors were amongst the lowest gainers during the week. While the BSE-Bankex ended higher by 1%, the BSE-FMCG and BSE-Power indices recorded gains of about 2% and 4% respectively.
Coming to corporate news, two companies announced their FY09 results this week. P&G Hygiene was one of them. The company reported a topline growth of 20% YoY for the year. Revenues were driven by two of the company's segments - feminine hygiene and 'Vicks'. In addition, growth was also aided by its brand building initiatives and expansion in distribution network. On the flipside, the rising cost of operations arrested the growth as operating profits grew at a slower pace of 18% YoY. P&G Hygiene however managed to record a strong growth at the bottomline level as net profits increased by 36% YoY. This growth in net profits was mainly due to a lower tax outgo and higher other income (up by 147% YoY). On excluding the other income (in both the years), net profits were higher by 22% YoY.
The other company that announced its results during the week was HCL Tech. The company reported a strong 40% YoY growth for the year led by better volumes across geographies and verticals. The company's operating margins expanded by 0.4% YoY, mainly on account of cost containment measures, particularly in core software services. However, the company's net profits for the year increased by 14% YoY only. During FY09, the company profits were impacted by forex losses, lower other income and a higher tax outgo. On excluding the adjustment for these forex losses from both the years, the net profit improved significantly by 30% YoY.
Tata Steel announced its consolidated 1QFY10 results during the week as well. True to the grim situation faced by the industry, the company reported a 47% YoY decline in sales during the quarter. In fact, it recorded losses at both the operating and net levels. At the net level, its losses stood at Rs 22 bn for the quarter as compared to a profit of Rs 39 bn in 1QFY09. This was on the back of a 20% demand slowdown from the European and US markets. However, on the bright side, demand from India and China grew by 4%. It may be noted that losses would have been higher by another Rs 27 bn had the company followed its earlier practice with respect to accounting for actuarial gains and losses and accounting for derivatives. While the stock of Tata Steel recorded a weekly loss of 1% on the day the company announced its results, it ended lower by about 5% during the week. A leading business daily reported that Mr. Ratan Tata, the chairman of Tata Steel, indicated that while the auto industry in Europe and US (a key consumer of steel) is showing some signs of a recovery, there are opposite signals emanating from iron ore prices, which continue to be soft.
A leading business daily has reported that IT major, Tata Consultancy Services (TCS) is aiming to double its revenues from the domestic markets to nearly US$ 1 bn in the next three to four years. Currently, domestic operations contribute nearly 10% to the company's total revenues. According to CEO, Mr. Ramadorai, the growth in domestic business will primarily flow in from three key segments - government, large enterprises and small-medium enterprises. Giving his view on the overall demand outlook, Mr. Ramadorai mentioned that the economy has stabilised and that demand is not likely to deteriorate from here on. It may be noted that during the week, TCS along with its peer group companies, Infosys and Wipro, together won a sizeable chunk of a US$ 1.5 bn 5-year deal from the British oil major, BP. While the independent size of the contracts of these companies is not yet available, this deal must bring some respite IT sector as a whole, which has been battered by the slowdown.
Movers and shakers during the week
Inflation (as measured by the wholesale price index) for the week ending August 15 stood at 0.95%, higher by 0.58% as compared to the previous week. A key reason for the rise in inflation was the erratic monsoons, which led to a rise in prices of food products including sugar, milk, fruits and vegetables. It may be noted that inflation has been in the negative zone for 11 weeks in a row. However, the general consensus is that this trend will not last beyond a couple of weeks as food prices are on the rise. During the week, prices of items such as milk and fruit & vegetables increased by 3% to 5%. During the corresponding week last year, inflation stood at 12.82%.
Moving on to sectoral news, the last week was an important one for the Indian telecom industry as the much delayed process of 3G or third generation spectrum allocation (which will provide telecom users access to high speed data services) took a step forward. However, the enthusiasm levels of the telecom industry remained quite varied. While some were purely content with the process moving in the right direction, others were of the belief that the price is 'too high' and that rolling out services would be unviable. This has somehow turned out to be a bummer for the industry, considering that it was looking forward to roll out 3G services since the past few years.
According to a report in a leading business daily, Mr. V Balakrishnan, the Infosys CFO gave his view on the current business environment. He pointed out that even though there were slightly better macro-economic indicators, the situation at the customer level has not changed at all when compared to the earlier quarter. Mr. Balakrishnan indicated that "The velocity of our business has come down due to the spending pressure on customers. We have to wait and see how the coming quarter will pan out. For now, there is no reason (for us) to relook at the guidance we have given". It may be noted that Infosys has given a guidance of a QoQ de-growth of 1% to 2.8% for the September 2009 quarter.
In fact, a spokesperson from Wipro too had similar things to say, and expressed his surprise at the sudden bullishness of investors with regards to IT stocks in light of the fact that nothing much has changed in the company this month (August) compared to the last (July). The business environment remains tough for the companies' customers with no increase in their subdued spending levels. According to the company, if at all robust growth were to return, it will not be before at least 1 to 1.5 years from now.
Coming to economic news, during the week, the Indian government stated that it would aid the exporters and export-oriented sectors like information technology, textiles and diamonds, which have been hit badly by slump in demand from the major markets in the US and Europe by introducing tax cuts and waive duties on imports of capital goods for technology upgrades. It may be noted that the export figures have been in a downward trend for the past ten months. Moreover, in order to boost exports to emerging markets in Latin America, Africa, Oceania and East Europe, the government aims to offset credit risk and high cost of trade associated with exporting to these regions. The Commerce ministry has cautioned that the export growth is expected to slow down to levels of 15% in FY11 as compared to levels of 25% growth that was achieved in FY09. We hope that the government is prompt in implementing its plans and they do fructify well.