Most of the key global stock markets ended the past week on a negative note. Asian markets were amongst the top underperformers with China, Japan, Singapore and Hong Kong ending with weekly losses of about 2% to 3%. Losses in these regions were mainly on concerns over policy tightening measures in order to prevent the economy (especially China) from overheating.
As for the other markets, Brazil and UK were amongst the top underperformers with losses of about 2% to 2.5%, while France and the US ended with weekly gains of about 1% each. India’s benchmark index, the BSE-Sensex was amongst the top gainers this week, ending higher by 0.8%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India - Banking stocks did well with the BSE-Bankex being the top gainer with a weekly gain of 4%. IT and metal stocks were amongst the key other gainers with the BSE-IT and BSE-Metal indices ending higher by 3% and 2% respectively. Amongst the underperformers were stocks from the oil & gas and capital goods spaces as the BSE-Oil & Gas and BSE-Capital Goods indices ended lower by 2% each.
Moving on to key corporate developments during the week - a handful of large cap companies announced their results for the quarter ended December 2010. Engineering behemoth L&T recorded a strong 40% YoY growth in sales during the quarter, with its engineering and construction business leading the growth (42% YoY). However, at the operating level it faced some pressure as its operating margins dropped to 10.1% (from 11.6% during 3QFY10). This was mainly due to higher commodity prices. Subsequently, its net profits (excluding extraordinary items) grew by just around 16% during the quarter. As for the 9mFY11 performance, sales were up by 22% YoY, while net profits (excluding extraordinary items) came in higher at 18% YoY. At the end of the quarter, the company had a massive order backlog of Rs 1.1 trillion. This stands at a strong 3.1 times its FY10 revenues.
IT majors - TCS and Wipro - also announced their numbers this week. We’ll start with TCS first. The company recorded a 4% QoQ growth in net sales during the quarter, led by a near 6% QoQ growth in volumes. Its net profits surged by over 9% QoQ. The company added a gross of around 12,500 employees during the quarter suggesting that it is seeing a good visibility of order flows in the future. TCS’ stock ended higher by 7% this week and was amongst the top gainers from stocks forming part of the BSE ’A’ Group. Gains were largely due to the company’s results being better than that of its closest peer Infosys, which announced its numbers last week.
Wipro’s quarterly performance was quite poor when compared to TCS’ performance for the quarter. The company reported a flat 0.6% QoQ growth in sales but a 2.6% QoQ growth in profits. While its IT services business (76% of total sales) grew by 4% QoQ, its IT products business (11% of total sales) witnessed a decline of 18% QoQ during the quarter. Operating margins declined by 0.3% QoQ due to lower number of working days as well as lower utilization. The lower operating margins were offset by higher other income and lower interest expenses. The company's attrition rate rose to 21.6% as compared to 19.4% for the preceding quarter.
Falling by 13% this week, the stock of battery manufacturer Exide Industries was not in favour as the financial performance for the quarter ended December 2010 did not meet market expectations. While the company reported a 15% YoY increase in revenues, a 28% YoY increase in expenses led to its operating profits for the quarter to fall by 27% YoY. The rise in expenses was largely due to a 33% YoY increase in raw material costs, which formed about 65% of revenues (as compared to 56% last year). The company’s net profits, however, declined by 5% YoY only. This was largely due to a more than 50 fold increase in other income (mainly dividends). On excluding the same, the company’s profits would have declined at an even sharper pace as compared to the decrease in operating profits. This is on the back of a 13% increase in depreciation charges.
Moving on to banking stocks, Axis Bank put up a good show during the quarter ended December 2010. The bank reported a whopping 37% growth in net interest income on the back of a 46% advance growth. Even in a period of tight liquidity the company managed to put out very impressive credit growth. The growth in the loan book was nearly 2 times the average sector growth. Profits grew by 35% in 9mFY11 due to the above reasons. Its net interest margins (NIMs), however fell slightly to 3.8% from 4% previously on higher cost of funds. Net NPAs (non performing assets), as a percentage of advances, saw a marginal improvement in the quarter and stood at 0.3%. However, the management cited concerns over possible delinquencies in the restructured assets.
Two-wheeler majors Bajaj Auto and TVS Motor announced their numbers last week as well. Bajaj Auto reported a revenue growth of 27% YoY during the quarter, while its profits grew by 28% (adjusted for extraordinary items). Growth was led by a 17% YoY increase in volumes and a 9% YoY increase in average realisations. Operating profits increased by 18% as operating expenses increased at a faster pace. Operating margins during the quarter contracted by 1.4% as input costs increased as a percentage of sales. During 9mFY11, net sales and profits (adjusted for extraordinary items) rose by 45% YoY and 66% YoY respectively.
TVS Motor reported a revenue growth of 50% YoY, led by a 39% YoY increase in total 2-wheeler volume sales. Its motorcycles sales volumes formed nearly 41% of the total volumes and grew by 40% YoY during 3QFY11. Sales of scooters, on the other hand, grew at a faster pace of 63% YoY and contributed to nearly 24% of total sales volumes during the quarter. The company, however, saw some pressure at the operating level as margins dropped to 5.2% (6.2% in 3QFY10) on the back of higher raw material costs. However, on the back of a 132% YoY growth in other income and a 47% YoY decline in interest costs, TVS' net profits surged by 137% YoY during the quarter.
In other news from the auto sector, a leading business daily has reported that passenger vehicle manufacturer Maruti Suzuki has increased prices of its vehicles by up to Rs 8,000 across models (except its newly launched compact car Alto K10) on the back of rising input costs. As per the management, the price hike has been in the range of 0.5% to 2.2%. As per the management, the company had no choice but to do so as prices of commodities have become ‘unbearable’. For example, natural rubber prices have doubled to Rs 200 per kg, while copper and steel prices have increased by 12% to 15%.
According to think tank CMIE, India's economy is expected to grow by a strong 9.2% this year. The agency believes that the economy will perform better during the second half of the year led by the agricultural sector coupled with trade, transport, communications and hotel sectors. It expects the second half growth to be at levels of 9.7% as compared to the first half growth figure of 8.9%.
Incidentally, Agriculture Minister Sharad Pawar recently stated that the agricultural sector growth is expected to rise to 3.5% (0.2% in the previous year). This would be mainly due to higher foodgrains production. During 1QFY11 and 2QFY11, the sector is believed to have grown at 2.5% and 4.4% respectively. The minister also stated that the food situation was comfortable and production of wheat, rice, pulses and sugarcane would be higher than last year. However, he believes that more work needs to be done towards the production of oil seeds.
Anyways, the projections made by CMIE are similar to the projections of the finance industry which expects the Indian economy to grow by about 9%. However, one needs to keep an eye on the real GDP growth rate considering that the inflation numbers have been way above comfort levels in recent times.