After witnessing strong buying interest during the previous week, the Indian markets ended up as the top losers amongst key world markets during the latest completed week. We assume that the two key reasons behind the same would be - one, stretched valuations and two, corporate results not meeting market expectations.
India's benchmark index, BSE-Sensex ended lower by 3% this week. The scenario in the global markets was quite mixed. While Asian markets ended higher, indices from Europe and the Americas ended on a weak note. China (up 4.4%) and Hong Kong (up 3%) were the top gainers this week. They were followed by UK (up 1%), Singapore and Japan. Brazil, France and the US were amongst the top losers this week down by about 1.7%, 0.5% and 0.2% respectively.
|Source: Yahoo Finance
Coming to the performance of sectoral indices in India, barring stocks from the IT and FMCG sectors, selling activity was seen across the board. Stocks from the oil & gas and capital goods bore the brunt of profit booking as the BSE-Oil & Gas and BSE-Capital Goods indices ended lower by about 6% each. Stock from the consumer durables, realty and banking spaces followed suit as their respective indices ended lower by about 3-4%.
Smallcap and midcap stocks seemed to be preferred choice (as against large caps) again this week. While the BSE-Smallcap Index ended marginally higher, the BSE-Midcap Index ended lower by about 1.5% only. As mentioned above, the BSE-Sensex ended lower by 3%.
Moving on to corporate news - The week saw a number of corporate giants announce their September 2009 quarter results this week. The cigarettes to hotels conglomerate, ITC was one amongst them. The company's topline grew by 13% YoY during the quarter. This was largely on the back a strong 21% growth in its cigarettes business. On the back of a 5% YoY improvement in operating margins, the company's operating profits surged by 31%, while its net profits were higher by 26% YoY during the quarter.
Engineering and construction major, L&T also announced its results this week. While the company reported a muted performance on the revenues front, it put up a good show at the bottomline level. While standalone revenues grew by a marginal 2% YoY during the quarter, net profits were higher by 20% YoY (on exclusion of extraordinary items). The reason behind the surge in profits was a huge jump in other income. As per the company's management, the reason for the company's poor topline performance has been a combination of delay in project execution (especially of road projects), and a slowdown in off-take of products under its electrical & electronics and Machinery & Industrial Products segments.
Two wheeler market's leader Hero Honda also announced its 2QFY10 results. The company witnessed a strong revenue growth of 27% YoY during the quarter. This was largely on the back of a 22% YoY increase in volumes. The quarter ending September 2009 was a milestone quarter for the company as it crossed the 1 m volume mark during the quarter and in the process also reached a market share of 59%. A combination of factors such as strong brands, investments in brand building, market expansion and new launches have all helped the company witness this strong performance over the past few quarters. Further, on the back of a 5% YoY expansion in operating margins, the company's operating profits grew by 71% YoY largely due to lower raw material prices. During the quarter, Hero Honda's bottomline grew by 95% YoY.
In other news, it was a significant week for Wipro as it signed a 10-year outsourcing agreement with Delhi International Airport Ltd (DIAL) to provide information technology infrastructure and services for the latter's Indira Gandhi International Airport (IGIA). As part of the contract, Wipro will deliver business IT alignment for DIAL by combining airport solutions with governance and integrated service delivery. The scope includes airport specific applications, data centre, networks, security and surveillance systems and end-user systems. In addition, the IT major will be responsible for managing a host of intelligent systems, including building management systems, access control, public address and telephony. It may be noted that the two have also signed an agreement to form a JV (which will be called Wipro Airport IT Services) with focus on emerging business models and airport specific applications wherein Wipro will hold 74% stake in the JV.
Movers and shakers during the week
India's inflation rate as measured by the WPI (wholesale price index), touched a high of 1.21% for the week ended October 10. This rise in inflation was led by a marginal increase in the cost of food and manufactured items. However, what remain a major concern is the fact that the
consumer price index (CPI) continues to remain high and thus for all practical purposes, inflation in India is currently much higher than 1.2%. Food prices have been on the rise for a while now, given that weak monsoons this year had hampered crop production. It may be noted that the RBI has already estimated that inflation (WPI) may rise to 5% by the end of this fiscal.
If there is one parameter that indicates the situation of the world economy, it would be the global trade data. After showing signs of recovery during the months of June and July, global trade flows slipped during the month of August. This gives frail sings of the economic recovery. As per the Netherlands Bureau for Economic Policy Analysis, trade volumes fell 2% from July. This data is compiled on customs data from 23 developed countries and 60 emerging markets, which together account for about 95% of global trade. It is believed that volumes were lower by 13% YoY during the month of August.