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A flat end to the week
Sat, 12 Jan RoundUp

It was a mixed week for the global stock markets. While Japan, UK and US registered modest gains, all the other markets ended the week on a negative note. The US stock markets were up 0.4% during the week. It was a dull week as markets were awaiting corporate earnings for the fourth quarter. While some of the companies have already announced their results no clear pattern has emerged as yet with respect to earnings underperformance or outperformance for this season. Major banks namely JP Morgan Chase, Goldman Sachs, Citicorp, Bank of America are scheduled to announce results next week. Their earnings performance will be a key event for the markets next week.

The Indian equity markets were down 0.6% for the week. Factory output contracted and exports fell for the 8th straight month. The Index for Industrial Production (IIP) for the month of November 2012 contracted 0.1%. These negative events overshadowed markets.

Amongst, the other markets Brazil was down 1.6% during the week while China was down 1.5%. However, Japan was the biggest gainer registering gains of 1.1% during the week followed by UK which was up 0.5%.

Source: Yahoo Finance

Barring stocks from the IT sector - which were up by about 7.8% - all sectoral indices ended the week on a negative note. IT stocks registered a sharp rally amidst better than expected results announced by IT major, Infosys Ltd. However, capital goods and consumer durables stocks registered a sharp fall and were down by 5% and 4.2% respectively during the week.

Source: BSE

Now let us discuss some of the economic developments of the week gone by. There is a possibility that the Reserve Bank of India (RBI) will strongly consider a rate cut in its January 29th review. This expectation is in lieu of the fact that tge industrial production has contracted to a 4-month low of 0.1% in November 2012. This decline in the Index of Industrial Production (IIP) data was due to the poor performance of manufacturing and mining sectors and decline in production of capital goods. This poor data is as compared to a robust 8.3% growth seen in October 2012 and compared to a 6% growth seen in November, 2011. Factory output growth was 1% in April-November period this fiscal, down from 3.8% in the same period in 2011-12, according to official data. The manufacturing sector, constituting over 75% of the index, grew by meager 0.3% in November in 2012, as against a 6.6% in 2011.

The government seems to finally be moving quickly ahead on the disinvestment bandwagon. The government has an ambitious proposal to raise Rs 300 bn by way of disinvestment in 2012-13, however it has barely scratched the surface. So far in FY13, the government has been able to realize just over Rs 69 bn through stake sale in Public Sector Undertakings. Further stake sale in Oil India and National Thermal Power Corporation (NTPC) is lined up for January and February. The government recently approved 10% stake sale in Engineers India Ltd (EIL), an engineering consultancy firm, which may fetch the government around Rs 8 bn. The government currently holds 80.4% stake in EIL. In 2010, the government divested 10% stake in the company through a Follow-on Public Offering in EIL.

Now let us take a look at few corporate events that unfolded during the week. India's second largest IT firm Infosys Ltd has announced its financial results for the quarter ended December 2012. During the quarter, the company reported consolidated revenues of about Rs 104.2 bn as against Rs 98.6 bn during the quarter ended September 2012. This implies a quarter-on-quarter (QoQ) growth of 5.7% in the company's topline. The cost of sales grew at a higher rate of 7.6% QoQ. As such, the operating profit stood at Rs 26.8 bn, reporting a marginal growth of 3.1% QoQ. Operating margins declined from 26.3% in 2QFY13 to 25.7% 3QFY13. At the bottomline level, net profits for the quarter stood flat at Rs 23.7 bn, same as the preceding quarter.

In some other news, Marico Ltd plans to demerge its salon business, Kaya into a separately listed firm. Kaya contributed to 7% of Marico's consolidated revenue but had a loss of Rs 291 m at the EBIT (Earnings before Interest and Tax) level. There were reservations among investors with respect to Kaya's disappointing performance over the last 2-3 years. Thus, it is expected that the splitting of businesses would help improve Marico's (ex-Kaya) valuations. Marico would also combine its consumer products business and international business group for operational cost benefits.

Maruti Suzuki, India's largest car maker has continued to lose market share in 2012 because of multifarious factors. The market share in 2012 has dropped to 37.8% from 44.6% in 2010. While labour trouble at its Manesar plant has been primarily responsible for the loss in optimal production units, a shift in demand towards diesel powered cars because of rising petrol prices also led to the downfall in Maruti's market share. On top of those, another problem in 2012 has been the fall in demand for micro cars such as the Alto, Wagon R, Ritz and Zen Estilo. Alto, the country's top-selling car, has reported an 8% fall in sales, while Wagon R has suffered an 8.5% fall in sales and has slipped to the fourth position from the second position it enjoyed in 2011. However, despite the fall in sales, Maruti still enjoys a huge lead over the second largest player Hyundai Motors, India. Maruti's management is hopeful that it can improve its market share to around 40% in 2013 with the backing of some new launches and a slew of makeovers.

Movers and shakers during the week
Company4-Jan-1211-Jan-12Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Infosys Ltd2,348 2,713 15.5%2960/2102
Mahindra Satyam108 115 6.4%114/64
Unitech36 38 6.4%39/18
Jain Irrigation79 84 5.9%119/60
Havells India637 673 5.7%685/409
Top losers during the week (BSE-A Group)
United Breweries927 810 -12.6%1007/340
Oberoi Realty300 271 -9.6%316/205
Ambuja Cement206 186 -9.4%219/136
Aurobindo Pharma202 185 -8.5%204/96
Mahindra Finance1,211 1,109 -8.5%1211/602
Data Source: Equitymaster

The decision to raise diesel and cooking gas prices has been pending for long. However, the government announced that it is committed to take the decision soon so in order to reduce the strain on its finances. It is being contemplated that the diesel prices will be raised by Rs 4 per litre, kerosene by Rs 2 per litre and LPG by Rs 50 per cylinder. The decision to raise LPG prices comes in the wake of finance ministry refusing to bear the additional subsidy burden that will come in from raising the subsidy cap on cylinders to nine from six. It is believed that the prices will be raised very soon as state owned companies are losing Rs 10 per litre on sale of diesel, Rs 32 per litre on sale of kerosene and Rs 490 per cylinder on sale of LPG. If the prices are not raised the financial condition of oil companies will deteriorate further.

The earnings season for 3QFY13 has begun with a bang with Infosys beating street expectations. However, it would be interesting to see how the companies from other sectors perform during the quarter. If the performance is excellent we may see earnings driven rally in the days to come by.

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