India ends flat ahead of RBI review

Fri, 25 Jan RoundUp

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Majority of the global stock markets ended the week on a firm note, barring China and Brazil which were both down by over 1% each. Within other Asian markets, gains were seen in Japan and Singapore. Japanese stocks performed well during the latter half of the week on the back of a weaker Yen. Chinese markets declined despite manufacturing surveys from the region - in addition to those from Europe and the US - pointing to an improvement in the global economy. In this week, US saw the strongest expansion in manufacturing since March 2011. The US markets ended higher by 1.3%, while the UK ended higher by 2%. India's benchmark index the BSE-Sensex rose by 0.3% during the week.

Source: Yahoo Finance

Amongst sectoral indices, stocks from the capital goods and FMCG spaces were the top gainers. Stocks from the realty, small and midcap spaces were amongst the worst performers during the week gone by.

Source: BSE

Now let us take a look at few company specific developments of the week gone by. A handful of largecap companies announced results for the quarter ended December 2012. Cement major, UltraTech Cement reported a 6.4% YoY increase in revenues. The company's operating profits grew by 6.3% YoY. This was almost in line with the rise in the topline. As a result operating margins remained unchanged at 20.9%. However, the company's profits came in lower by 2.6% YoY. The decline was largely attributable to lower other income (including other operating income) and a sharp rise in interest expenses.

National Thermal Power Corp (NTPC) also announced its results during the week. While its revenues increased by 1.7% on a YoY basis, its net profits surged by 22% YoY. This was largely on account of improved capacity addition, higher generation and reduction in raw material cost. The company successfully commissioned a 500 megawatt (MW) unit at Rihand thermal power project during the third quarter. Overall, the company added 3,820 MW during CY12. The company's stock was favored even more on the back of news of the power minister Mr. Jyotiraditya Scindia stating that NTPC would be reallocated three coal blocks (that were earlier taken away from it by the coal ministry) after getting law ministry's approval. However, it seems though that this move is likely done to help the impending 9.5% government stake sale in the firm.

The country's biggest mortgage lender HDFC posted a 16% YoY net profit growth during the quarter ended December 2012. This was largely driven by the individual home loan segment as the company reported a 31% loan demand in that segment. The loan book grew by 25% YoY. Nearly 68% of the loan book caters to the individual segment. HDFC's net interest income climbed up by 18% YoY to Rs 47.8 bn. The net interest income margin stood at 4.1% for the nine month period ending December 2012. The company also managed to bring down its non-performing loans for 32 quarters in a row to 0.75% of the total loan portfolio. HDFC's management has stated that it would take a call on excess provisioning in the fourth quarter. This is given the new regulatory requirement of maintaining provisions on standard assets as well.

Larsen & Toubro (L&T) reported a revenue growth of 10.2% YoY during 3QFY13. Revenue growth was driven by 10.8% YoY rise in revenues of its Engineering & Construction (E&C) business. Operating margins remained flat at 9.6% during the quarter, while its net profits increased by 13.1% YoY. Strong performance at the operating level and higher other income (up 18.2% YoY) led the profits to grow at a faster pace. L&T registered an order inflow of Rs 195.4 bn during the quarter, a growth of 14% YoY. The total order book at the end of the quarter stood at Rs 1,623.3 bn.

FMCG major HUL announced their results during the week gone by as well. HUL reported an 11.7% YoY rise in revenues, while its operating profits increased at a marginally faster pace of 12.2% YoY. This led to a 10 basis points (0.1%) increase in margins to 16.4%. Its net profits increased by 15.6% YoY largely due to higher other income. As for its 9mFY13 resyults, the company's revenues and net profits (including extraordinary items) grew by 12.8% YoY and 45.4% YoY respectively.

Moving on from the news relating to results, FMCG major ITC is looking at investing Rs 10 bn in the foods and consumer goods sector over the next two to three years. The company will be building a facility for integrated food and consumer goods facility at Howrah district of West Bengal.

Moving on to news related to the information technology sector. Infosys' Co-chairman S. Gopalakrishnan is bullish on the outlook of the Indian IT sector given the improving global economic scenario and the announcement of reforms in India. Since the major uncertainties - including the completion of US elections, the non-splitting of Europe - of 2012 are behind us, Mr. Gopalakrishnan believes 2013 to be a better year as compared to 2012 (in terms of growth). Given the better growth opportunities for the Indian IT sector, he expects the large job creation as well. The figure mentioned by him stands at about 25 m people being hired by the industry, which is a 10% increase is witnessed on a year on year basis.

Movers and shakers during the week

Company	18-Jan-12	25-Jan-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Suzlon Energy	19	21	11.1%	32/15
Berger Paints	160	174	8.6%	178/93
Jet Airways	574	612	6.5%	639/233
Kotak Bank	627	665	6.0%	677/475
Sun TV	419	444	6.0%	449/177
Top losers during the week (BSE-A Group)
HDIL	121	83	-32.0%	135/60
Opto Circuits	105	87	-16.8%	225/82
Lanco Infratech	14	12	-11.6%	25/10
Coromandel International	253	224	-11.4%	314/210
Gujarat Fluorochemicals	324	293	-9.7%	542/275

Source: Equitymaster
In its mid-quarter monetary policy review on December 18 2012, Reserve Bank of India (RBI) had left the short-term lending (repo) rate and the cash reserve ratio - the amount of deposits banks have to park with RBI - unchanged at 8% and 4.25%, respectively. But, in the meanwhile, the inflation based on movement in wholesale prices, touched a 3-year low of 7.18% in December 2012. However consumer price inflation continued to be in double-digits at 10.56%. Both these levels are much above the RBI's comfort zone of 5 to 5.5%, but inflation is showing some signs of easing in recent months. With the inflation pressure easing slightly, the focus is expected to shift towards the GDP growth which has been slacking. As a result, it is expected that the RBI, in its third quarter monetary policy review, will cut rates by at least 0.25% in order to buoy growth in the Indian economy. India is currently growing at 5.7%, well below its potential growth of 8%.