Key markets across the world ended the week on a grim note. Asian stocks were amongst the worst hit this week. India ended the week on a weak note as well. This was on the back of hectic activity happening within and around the country. India’s benchmark index, the BSE-Sensex ended lower by about 3%, making it amongst the top losers. These losses were because of various reasons. The primary one was of investors being on a selling spree in anticipation of an unfavorable review of the monetary policy, which was announced on Friday (29 January 2010) this week. In addition, global developments also played their part as the week progressed. This led to further losses.
Moving on to other Asian markets - Benchmark indices of China (down 4.5%), Japan (down 3.7%), Hong Kong (down 2.9%) and Singapore (down 2.6%), all ended in the red this week. This was mainly on the back of concerns over the region’s central banks tightening monetary policy in a move to curb inflation. As for global markets, US, Brazil and Germany were amongst the lowest losers this week, with their respective indices ending lower by 1% to 1.5%. France and UK ended lower by about 2% each.
Source: Yahoo Finance
Moving on to the performance of the various sectoral indices - the past week saw no gainers. Amongst the top losers were stocks from the metal, realty, auto and IT sectors. While the BSE-Metal index ended lower by about 8%, the BSE-Realty index ended lower by about 7%. The BSE-Auto and BSE-IT indices ended lower by about 6% and 4% respectively. Losses in metal stocks were due to a fall in commodity prices during the week. Metal and crude oil prices ended the week on the back of monetary tightening in India and China, which would eventually lead to lower demand for commodities.
Coming to the institutional activity this week - Foreign institutional investors (FIIs) and domestic financial institutional (FIs) had the opposite views this week. While FIIs sold investments worth (net figure) Rs 70 bn this week, FIs went shopping as they purchased investors worth (net figure) Rs 8 bn. It should be noted that FI data for 29 January was not available at the time of writing.
Let us now look at the key corporate developments of the week. Corporate India’s results for the quarter ending December 2009 continued to pour in through the week. Steel major, Tata Steel was amongst the many companies who announced their numbers this week. The company reported a topline growth (standalone) of 33% YoY. This was mainly due to a volume growth of 49% YoY. Its bottomline increased by 156% YoY. This was on the back of a strong operating performance (OPM expanded by 3.8% YoY) and higher other income and lower forex losses. As for the company’s 9mFY10 performance, revenues are higher by about 30% YoY, while profits are lower by about 23% YoY (including extraordinary items).
Real estate major reported DLF a 48% YoY growth in revenues during the quarter. This was mainly due to strong sales booking and a lower base effect. As for the 9mFY10 period, revenues are down by about 39% YoY. Profitability wise, the company’s 3QFY10 numbers are 30% YoY. This is on the back of higher interest costs and contraction in operating margins, which fell to 42% from 57% last year. This is on the back of higher overall expenditure primarily related to land acquisition and development rights.
India's largest public sector bank SBI registered a 14% YoY growth in its interest income during 9mFY10. The same growth figure for the quarter ending December 2009 stood at 4% YoY. The bank tripled its provision during the quarter. This was for the incremental slippage as well as to comply with RBI’s provision mandate. The bank’s gross and
net NPAs (non-performing assets) stood at 3.1% and 1.9% respectively, while its capital adequacy ratio stood at 13.8% at the end of 9mFY10. Presently, SBI has excess liquidity on account of increased deposits. However, its advances are not increasing in same proportion, making it unable to deploy its excess capital effectively.
FMCG behemoth HUL also announced its results this week. It reported a 4.4% YoY growth during 3QFY10. This growth was largely aided by its personal products segment, and was partly offset by the soaps and laundry segment due to a cut in laundry prices. Operating margins for 3QFY10 fell by 0.2% YoY and stood at 17.2%. This fall came on the back of higher advertisement costs (as a percentage of sales). The bottom line for 3QFY10 grew by 5.4% YoY on the back of higher extraordinary income. On adjusting for non-recurring income, the bottom line stands lower by 9% YoY. The net profits for 9mFY10 fell by 6% YoY due to a lower exceptional income. However, when adjusted for one time income/loss the bottom line grew by 4% YoY.
In other developments, a leading business daily has reported that IT major, Wipro has hiked salaries for its employees. This is with effect from next month, employees will get a pay hike in the 8% to 12% range with some even getting a 15% increase. Considering that the company is hiking salaries after a period of twelve to eighteen months does indicate some good signs for itself and the sector as a whole. After witnessing a rough patch of uncertainties, slowdowns, layoffs, recruiting and salary freezes, this development comes in as good news.
The much-awaited 3G spectrum auction, which was to take place during the beginning of 2010, is likely to be delayed again. As per a leading business daily, the law ministry has warned the telecom department not to auction the airwaves, until the current occupier, the armed forces, frees it. It is believed that the ministry will impose heavy penalties if it does occur as per original plan. The armed forces had earlier committed that they will free the airwaves by August–September this year. However, the government, which is currently facing fiscal deficit issues (6.8% of GDP) has been under pressure to lower the same. This would be possible by auctioning the spectrum before the end of this fiscal. This development may be a mixed on for telcos. While they may not be able to start their 3G services and get the much-needed additional spectrum, it would allow them to plan their funding and strategies for a little longer.
During its monetary policy, the Reserve Bank of India (RBI) has initiated steps towards
sucking excess liquidity in the system. This clearly sends out the message, the message that the system is awash with funds. The RBI hiked Capital Reserve Ratio (CRR) by 0.75% to 5.75%, which will take place in two tranches. This move is likely to suck out liquidity to the tune of Rs 360 bn. It is interesting to note that the RBI believes that its monetary measures will be of little consequence unless the government mends its ways. In our view, this watershed event marks the bottoming out of the easy liquidity scenario, which unfolded since late 2008. However, the reversal of accommodative monetary stance cannot be effective unless there is also a roll back of government borrowing.