Worries that rally in the global markets since March may have run little bit ahead of fundamentals led the markets to end on weak note. The Indian benchmark index - BSE-Sensex recorded loss of 1.5%, primarily on account of rising concerns over inflationary situation in the light of poor monsoons. While markets across regions were down on global economic worries, tightening Yen impacted stocks of Japanese exporters (Japanese markets ended lower by 3.3%). The gains in Hong Kong index (1.1%) came in primarily on account of China increasing limit for stock investments by foreign funds. Japan was followed by France, Germany and Brazil markets, which ended lower by 2.6%, 2.4% and 1.8% respectively. Selling pressure was also witnessed in US, UK and Singapore markets, each down nearly 1%. It is believed that markets ended on cautious note ahead of key US jobs data.
|Source: Yahoo Finance
Coming to the performance of sectoral indices in India, mixed sentiments were witnessed on the bourses during the week. While stocks from the auto, realty, FMCG and IT sectors ended with positive weekly gains, stocks from the capital goods and power sectors were the worst hit.
The pack of gainers was led by auto space, as the BSE-Auto Index ended higher by about 4.5%. It was followed by stocks forming part of the Smallcap index and stocks forming part of the realty sectors as their respective indices, the Smallcap Index ending higher by 0.4% and the BSE-Realty Index, ending higher by 0.2%. The BSE-FMCG and BSE-IT indices managed to clock gains of around 0.1% each. The stocks form these sectors were in the limelight on the back of better auto volumes numbers, sustained performance of FMCG players and belief that improving economic activity would enable these companies perform better. After the BSE- Capital Goods index (down 2.6%) and the BSE- Power Index (down 2.3%), stocks form the Pharma and Oil and gas space were the next set of losers as their respective indices, the BSE- Healthcare Index and the BSE-Oil and Gas Index ended lower by 1.8% and 1.6% respectively.
Coming to the corporate news, India's largest CV manufacturer,Tata Motors announced its 1QFY10 consolidated results during the week. It reported 13% YoY growth in topline as subsidiaries grew by 32% YoY, while standalone sales had declined by 8% YoY. At the net level it had run into losses to the tune of Rs 3.2 bn. This was due mainly to losses at JLR (Jaguar Land Rover). The UK based maker of sports and luxury cars posted a loss of £ 64 m (approx Rs 5.1 bn) for the June quarter. JLR's volumes showed an improvement over the March quarter but failed to take the company past its losses.
While near term outlook remains challenging, the management is positive on the growth front considering the several new models in the pipeline and significant cost reduction measures being undertaken. The company is not only targeting improvement in product mix by way of new launches but also by way of improvements in case of exiting platforms. The company has domestically gained market share across all commercial vehicle segments is witnessing improvement on exports front too. With that it plans to raise production of its Ace light truck model by 15% to 20% and has unveiled its new offerings from the Ace Platform - 'Tata Super Ace' and 'Tata Ace EX and new 'Tata 407 Pickup'. While these factors are likely to support growth, the huge debt on its books would continue to pressurise the company's cash flows.
NHPC, one of India's leading companies in the hydropower generation space debuted on the bourses during the week. The company has made a tepid debut on the bourses disappointing short term investor (traders). The stock of NHPC failed to gather investors' interest during the rest of the trading sessions post listing. Selling pressure was witnessed as a fallout effect of reports which stated that the company has recorded a decline in its power generation owing to erratic monsoons. The management of the company has put up a fair picture of the current situation stating that it has lost about 200 m units in the past five months and its target of producing 17,200 m units in the current fiscal may suffer a setback on account of poor monsoons. While this may have an impact on the company's medium term prospects, from a long term perspective one can bet on it given the tremendous shortfall in power that India faces and NHPC's proven executing skills. It currently has 13 power projects with an installed capacity of 5,175 MW. To augment its capacity and start new hydropower projects, the company has outlined Rs 46 bn capital expenditure for the year ended March, 2010.
During the week two IT majors disclosed their plans in terms of spending on manpower. While the TCS is looking to hire nearly 25,000 people globally this year, Infosys has freezed salary hike to its over 1 lakh employees in the current fiscal. This move is expected to translate into a savings of Rs 5.6 bn, which is roughly 2.2% to 2.6% of the revenues. While the company has taken a decision not to give any salary hikes to support margins, it has not sidelined growth options. The company is planning to go for smaller acquisitions and for the same is studying two to three companies in areas of consulting or platform-based services in the BPO space based in Germany or France. With several big-ticket IT outsourcing contracts coming their way there are certainly signs of revival of the business environment for Indian IT sector. However, challenges on account of reduced IT spending due to global economic crisis remain.
Movers and shakers during the week
Inflation (as measured by the wholesale price index) for the week ending August 22 moved up to -0.21% from -0.95% recorded in the week before. The rise in inflation was mainly on account of higher prices of primary articles (especially food items) which has 22% weightage in wholesale price inflation basket. The index of primary articles witnessed rise of 8.5% in the week. Prices of fruits, vegetables, lintels, tea, oil seeds, aviation turbine fuel and electricity rose in the week.
This is a 12th consecutive week in which inflation has been in the negative zone. However, considering the soaring food prices this trend is likely to reverse soon. The Planning Commission has also revealed its concerns that inflation may once again surpass the RBI's estimate of 5% by the end of this fiscal. The weakest monsoon in at least seven years has caused drought in 278 of India's 626 districts this year, damaging crops including sugar cane, rice and oilseeds. Sugar prices are up by 7% during the week that ended on August 22. With reduction in harvest owing to poor rains food prices are bound to surge and have an impact on the inflation levels.
Moving to the sectoral news. As per a leading business daily, the volume numbers reported by the major cement players for the month of August conflict the apprehensions of low demand. While the industry was expected to report 9% to 10% growth for the month of August, the actual growth numbers for several of the bigger players have come in much higher than that. The Aditya Birla group companies that have interest in cement business- Grasim and UltraTech Cement reported 32% growth in dispatches. Similarly North Indian majors like JP Associates, Shree Cement and JK Lakshmi Cement have grown their dispatches by 43%, 30% and 15% respectively. Ambuja Cements and ACC, in which Swiss cement maker Holcim holds a stake, has reported over 15% and 7% growth in volumes respectively.
Here one must also note that, during the same time last year exports were banned and duty free imports were allowed. The government had doled out slew of measures to curb inflation which impacted volumes of domestic cement manufacturers, especially of the one's catering to the northern region. Thus, this high growth is largely due to low base effect. Further, the impact of poor monsoons will be deffered. Bearing in mind these factors and the capacity additions taking place, one should not get excited with the cement dispatch numbers from a medium term perspective.
On the economic front, around 80% of the world's traded goods by volume are transported by sea. While shipping companies are recovering from a massive rate crash last year, they will have to brace for another rate drop. As per a survey conducted by Bloomberg, shipping rates may fall as much as 50% from their current levels by the end of 2009. This comes on the back of China reducing raw-material imports and a record number of new vessels that are slated to set sail in the near future. Things have been exacerbated by the fact that China's state council called for curbs on steel and cement production last week. Also, reports suggest that a record 146 capesizes (a kind of a large cargo ship) will be added this year, which equal to 28% of the current fleet, thus making for an even grimmer future for shipping rates. With many pinning hopes of a world economic recovery via resurgence in freight activity, another crash in shipping rates indicate that economic revival is likely to take longer than expected.