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Global markets close on a weak note
Fri, 30 Jan RoundUp

Most of the global markets ended on a negative note in the week gone by. Disappointing macro economic data and weak corporate earnings cut short the market optimism.

Among the global indices, the Chinese market (down 4.2%) was the top loser during the week. This was largely due to disappointing December industrial profits growth. Over and above, the ongoing global growth concerns continue to impact the stock markets.

On the other hand, the stock markets in Germany (up 1%) and Japan (up 0.9%) were among few gainers. Japan markets cheered the positive data on jobs released during the week. The jobs availability rose to the highest level in last two decades. Also the jobless rate fell in December.

After a stellar 10-day rally, selling activity took its toll and dragged the benchmark Indian Indices lower too. The benchmark indices were down by 0.3% for the week gone by. Besides various macro factors, lower than expected earnings of some blue-chip companies pushed the indices to lower levels.

Key world markets during the week
Source: Yahoo Finance
*Closing price as on 29th Jan 2015 or trading as on 30th Jan 2015

Among the sectoral indices, stocks from metal and banking sector were out of investors favour, while those from realty and consumer durable sectors were in demand for the week.

BSE indices during the week
Source: BSE

Now let us discuss some of the key economic and industry developments in the week gone by.

As per a leading business daily, the new National Textiles Policy is slated to be unveiled after the upcoming Union Budget next month. In the backdrop of the various changes that have taken place in the textile industry on both the domestic and international fronts, the Ministry of Textiles had initiated the process of reviewing the National Textile Policy, 2000. The new policy is expected to be a long term road map for the textile and apparel industry and aims to achieve US$ 300 bn exports by FY25.

According to a financial daily, the Cabinet has approved a base price of Rs 37 bn per megahertz (MHz) for 3G spectrum auction. Reportedly, the the Cabinet has approved the reserve price for 2100 MHz band which is used for 3G mobile services. This would help the government to fetch over Rs 1000 bn along with sale of other mobile frequencies.

The offer for sale issue of Coal India on 30th of January 2015, one of the biggest disinvestments in recent months, in which the government is offloading 10% stake in Coal India, is also expected to fetch the government Rs 226 bn. According to the latest data, the retail portion was undersubscribed by approx 0.42 times, while the institutional category was oversubscribed by 1.2 times.

Movers and shakers during the week
Company23-Jan-1430-Jan-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Housing devlopment Infra79 112 41.8%114/39
Adani Enterprise520 643 23.7%596/210
MRPL48 59 23.4%81/38
Jet Airways437 512 17.3%530/204
HPCL559 654 17.0%640/227
Top losers during the week (BSE-A Group)
Oriental Bank325 266 -18.1%377/161
Union bank247 209 -15.3%260/101
Bank of Baroda224 193 -13.8%229/102
Indian bank211 186 -12.0%224/86
Core Education12 11 -11.9%22/9
Source: Equitymaster

Now let us move on to some of the key corporate developments of the week gone by.

The US Food and Drug Administration (FDA) has banned imports from Mumbai-based generic drug maker Ipca Laboratories Ltd's Ratlam plant in Madhya Pradesh due to violations of manufacturing norms. In July last year, FDA had informed about data integrity issues at the Ratlam plant and Ipca had voluntarily halted shipments to the United States from the plant. The voluntarily stoppage will also have an impact on the company's formulations export business to the US market. As of FY14, the US market contributed sales of Rs 4.2 bn (12% of total sales) for Ipca Labs.

As per a leading financial daily, State run Bharat Petroleum Corporation Limited (BPCL) is planning to raise $2 billion through medium term notes to finance its capital expenditure. BPCL is the third largest refiner in the country with a capacity of 30.5 m tonnes per annum (mtpa) accounting for 14% of refining capacity in India. It is also the second-largest marketer of petroleum products with a 21% market share. BPCL has outlined a capex of more than Rs 300 bn over the next four years. The largest part of the capex is for the expansion of the Kochi refinery to 15.5mtpa from the current 9.5mtpa at a cost of around Rs 165 bn. BPCL also plans to invest Rs 130 bn in hydrocarbon exploration and production in Mozambique and Brazil over the next four years.

According to a leading financial daily, Tata Power will acquire group firm Nelco's defense business of Unattended Ground Sensors (UGS) for about Rs 0.8 bn. The UGS business involves supply, installation and servicing of sensors for the Ministry of Defense. Tata Power has entered into a "binding understanding" with Nelco for the deal on a "slump sale basis". The UGS business would be housed in Tata Power's strategic engineering division (SED), which is also a supplier of defense equipment and solutions. Acquisition of the UGS business will provide synergy to the existing business of Tata Power SED. Tata Power is currently trading down by 0.7% on the BSE.

As reported in a business daily, Suzuki Motor Corporation plans to invest Rs.80 bn in Gujarat by setting up three manufacturing units with a total capacity of 750,000 vehicles annually. The first phase of the new plant will entail an investment of Rs 30 bn to make a 250,000 unit assembly line, which will begin operation in the middle of 2017. It will add two more lines to take the capacity to 750,000 vehicles. For Suzuki, India is one of the most important markets and Maruti Suzuki is its largest unit as it contributes about 30% of Suzuki's turnover.

Now that the result season has begun, let us take a look at the interim performance of some of the companies.

Dr Reddy's Laboratories has reported results for the quarter ending December 2014. The topline grew by 9% YoY during the quarter, led by growth in the Pharmaceuticals Services and Active Ingredients (PSAI) segment. In the global generics segment, growth was moderate. Due to ongoing issues in Russia, the revenues from Russia also declined. On the back of this poor operating performance and sharp surge in interest expenses, the bottom line declined by 7% YoY.

Ranbaxy has reported a loss of Rs 10.29 bn for the 2014 December quarter compared to Rs 1.5 bn in the year ago period. It's the company's biggest quarterly loss. Net sales fell 9.5% to Rs 26.18 bn from Rs 28.93 bn in the year-ago period. Sales in the Indian market saw a growth of 1% at Rs 5.9 bn. Sales in the US market fell to Rs 8.2 bn in the December quarter. Company's forex loss stood at Rs 1.3 bn this quarter compared to Rs 0.1 bn profit from the 2013 December quarter. Last year, the company had agreed to settle litigation related to its participation in Texas Medicaid, the US federal-state health care. The settlement deal was worth about US$ 40 m.

Telecom service provider Idea Cellular reported a 64% jump in consolidated net profit to Rs 7.6 bn for the quarter ended December 2014 due to growth in data volume and voice minutes. Consolidated revenue grew 21.2% to Rs 80.1 bn for the quarter over a year before. Idea also reported a significant improvement in EBITDA margins due to healthy turnover growth, scale benefits and cost rationalizations. The average revenue per user increased to Rs 179 from the same period a year ago. Average realization per minute stood at 46.3p in the third quarter vs 45.9p in the second quarter.

State run Gujarat State Fertilizers and Chemicals Limited (GSFC) posted a marginal 2% rise in net profit for the quarter ended December 31, 2014. GSFC posted a net profit of Rs 1.03 bn in the recently ended quarter compared to Rs 1.01 bn for the corresponding period in the previous financial year. The company's total income decreased from Rs 15.1 bn for the third quarter of 2013-14 to Rs 13.4 bn for the third quarter of the 2014-15. GSFC recently announced expansions worth Rs 12.09 bn.

Union Bank has announced results for the quarter ended December 2014. The net profit for the quarter declined 13% YoY, mainly on account of higher provisioning. The provisions and contingencies in the quarter increased by 39% YoY. The provisioning for bad loans increased by 36% YoY. The bank's net interest margin (NIM) rose marginally to 2.57% YoY, but fell 3 basis points (bps) on a sequential basis. The net interest income (NII) was up 8% YoY during the quarter. The bank's non-interest income was up 29% YoY during the quarter. The management expects the credit growth to be around 10%-11% and deposit growth at 9%-10% in FY15. The gross non-performing assets (NPAs) as a percentage of gross advances stood at 5.08% for the quarter, up 39 bps sequentially. The bank restructured Rs 12 bn of assets in the quarter. Its total advances increased 8.9% YoY while deposits were up 9.8% YoY. The share of current account and savings account (Casa) in total deposits was 28.7% in the quarter.

Passenger car manufacturer Maruti Suzuki reported results for the quarter ended December 2014. The company reported a profit growth of 18% YoY while revenues were up by about 15% YoY. As per the company, it was the higher volumes coupled with cost reduction efforts as well as favourable forex movement which led to a faster rise in profits. Sales volumes for the quarter were higher by 12% YoY at about 323,911 units as compared to 288,151 units in the same period last fiscal. From this, domestic sales formed about 91% of volumes (295,202 units) as against 92% or 268,185 units in the same period last fiscal, while exports formed the balance.

On the macro front geopolitical events will continue to influence the stock market direction. In India, corporate earnings are mixed bag so far. Various developments on the policy front have been taking place, which indicate a positive sign. While the long term fundamentals of the country remains intact, the small term hiccups are expected to negatively impact the stock prices. Hence investors should not get swayed by short term jitters, particularly short term earnings performances and focus on investing in fundamentally strong stocks.

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