The world stock markets were a mixed bag of positive and unfavorable news during the week. There was optimism in Europe on the possibility of Greece's debt swap deal with its private creditors. However, the US GDP grew at an annualized rate of 2.8% last year but still fell short of the economists' expectations. This could mean that the US needs more help from the Federal Reserve.
The Indian stock markets were up by 3% during the week. This was largely due to the CRR cut by the central bank during the week. The investors are hopeful that this rate cut would help revive the Indian economy. Also, encouraging results by a few corporates despite the gloomy economic scenario helped the markets register gains for the fourth straight week.
Amongst the other world markets, all ended the week in the green except for France (down by 0.1%) and US (down by 0.5%).
The Indian stock markets saw an overall strong performance during the week. Barring realty (down by 0.3%), all sectoral indices closed higher. The top gainers were capital goods (up by 5.6%) and automobiles (up by 4.3%).
Let us now take a look at key economic developments during the week. The Reserve Bank Of India (RBI) reduced the Cash Reserve Ratio (CRR) by 0.5% from the earlier 5.5%. The repo rate although has been kept unchanged at 8.5%. Repo rate is the rate at which banks borrow from the RBI. This the central bank has done with the aim of easing liquidity. It is expected that Rs 320 bn will now be injected into the system. This is a change in the RBI's policy that was focusing on controlling inflation to now promoting growth. The RBI governor also hinted at further lowering of the CRR in the future.
Now let us take a look at the key corporate developments during the week. The week saw many large corporates declaring their quarter ended December 2011 earnings. The list included names like Gas Authority Of India Ltd. (GAIL), Lupin Pharmaceuticals, Axis Bank, Maruti among many others. Let us see how these four have fared in Q3FY12.
Axis Bank declared results for the third quarter as well as the first 9 months of FY12. The bank's net interest income grew by 21% YoY and the net profits by 25% YoY for the 9 month period. The growth in net interest income is on the back of 20% YoY growth in advances during the same period. Net interest margins however did not change much. These were stable at 3.8%. Net Non Performing Assets (NPAs) to advances stood at 0.4% of advances at the end of 9mFY12 as against 0.3% in 9mFY11. The bank continued to expand with 103 new branches and 2,054 new ATMs set up during the 9 months so far.
Gas Authority of India Ltd reported numbers for the quarter ended December 2011. The company registered an increase of 35% YoY in net sales and 13% YoY in net profits during the quarter. Revenues from natural gas transmission business were up by 9% and those from petrochemical business jumped by 54%. Increased natural gas trading, more transmission of natural gas boosted the profits of the energy company. GAIL declared an interim dividend of 30% i.e. Rs 3 per equity share on the paid up equity share capital of the company.
Pharma company, Lupin Pharmaceuticals announced results for Q3FY12. The company reported a 20.4% YoY growth in sales. This was mainly because of a 30% YoY growth in the domestic formulation business and positive impact of rupee depreciation. The operating margins increased by 0.8% to 20.5% due to lower raw material costs. Higher realizations in the local markets also helped. Employee costs were higher and so were the depreciation charges. The net profits thus registered an increase of only 4.9% YoY.
In news from the automobile space, country's largest carmaker Maruti Suzuki posted a dismal performance for December quarter. The sales were down by 17.4% over the same quarter last year. The number of vehicles went down from 99,225 in December 2010 to 92,161 in December 2011. This was largely due to a slowing demand in the small car segment. Higher interest and rising fuel costs too did not help the auto maker. Operating margins tumbled to 5.3% as against 9.5% in the same period last year. Net profits fell by 63.6% YoY during the quarter.
Besides the results there were a few other important news announcements during the week too. Let us discuss these.
In the power sector, National Thermal Power Corporation (NTPC), India's largest power producer is planning to expand in a big way. It is thinking of establishing a major power project of 4,000 megawatt at Pudimadaka (close to Vishakhapatnam) in Andhra Pradesh. The plant that was expected in the 13th plan will now be set up in the 12th plan. As per the management, the Andhra Pradesh state government was very keen on this and thus it decided to include it in the 12th plan itself. It may be noted that NTPC is presently expanding in the southern states of Karnataka, Kerala and Andhra Pradesh in a big manner. At present, the operating capacity in South India stands at 4,450 megawatt as against the total installed capacity of 36,000 megawatt.
Steel Authority of India (SAIL) is likely to spend Rs 145 bn towards capital expenditure in the next financial year. This is 15% more from the amount set aside for this in this financial year. The state run steel company's annual production capacity would rise to 19 m tonnes by the end of the next fiscal. SAIL is expecting demand for steel to grow 7% in this fiscal. The steel prices are expected to remain stable and SAIL would look at revising these once coking coal prices stabilize.
The results season is not yet over and more announcements are expected over the next couple of weeks, which could have a bearing on where the stock markets head. However, we believe that investors should not base their investment decisions on quarterly results but on the long term growth prospects of a particular company, soundness of the management and availability of the stock at reasonable valuations.