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No respite for global markets
Sat, 8 Feb RoundUp

Global stock markets began the week on a negative note and this trend continued throughout the week. This was the second straight week where US monthly payroll report underscored the fragility of the US economic recovery. Only 113,000 US jobs were added in January, far below the 188,000 economists expected. Also, contrasting with the lackluster payroll numbers is a drop in the unemployment rate to 6.6%. The US markets closed 0.3% down for the week.

The Eurozone's purchasing managers' index for manufacturing and its composite PMI, which also includes services, both rose in January. The composite PMI rose to 52.9, the highest reading since June 2011, from 52.1 in December. The manufacturing PMI climbed to 54 from 52.7 in December. The region's improvement was led by Germany. Economic activity accelerated in Spain, and Greece rose above the 50 mark, indicating expansion, for the first time since August 2009. In contrast, Italy's manufacturing sector slowed and France's contraction eased. All the major European Indices ended the week in the green.

The Indian equity markets ended the week on a negative note. According to the advance estimates released by the Central Statistics Office, Indian economy is expected to grow 4.9% in 2013-14, dragged down by contraction in the manufacturing sector, a first since 1991-92. This would be a consecutive year of sub-five per cent growth. In the previous financial year, gross domestic product (GDP) growth was 4.5%. The Indian markets finally closed the week down by 0.7%.

Key world markets during the week
Source: Yahoo Finance

Majority of the sectoral indices ended in the red with IT (down 3.3%), oil and gas (down 1.5%) and capital goods stocks (down 1%) witnessing maximum selling pressure. Stocks from Pharma (up 2.2%) and Auto (up 2%) sectors were the top gainers for the week.

BSE indices during the week
Source: BSE

Now let us discuss some of the economic developments of the week gone by.

The last session of the Indian Parliament before the general elections began this week. There seems to be no chance of the passage of key bills in the session. The vote on account budget would be passed but very few other bills are being considered for debate. The finance minister has said that the maximum that can be achieved would be minor changes in indirect tax rates. Important bills like the GST, DTC, FMC and the Insurance bill will not be brought up for discussion. However the SEBI (amendment) bill would be brought up. This bill, if passed, would empower SEBI to regulate collective deposit schemes. The last parliament session of the 15th Lok Sabha will last for about 12 days to pass the vote on account budget which will allow limited government spending until the next government assumes office.

Services, the biggest sector of India's economy, contracted for the seventh month in a row in January, as shown by HSBC purchasing managers' index (PMI). However, PMI for services showed an uptick, moving up to 48.3 points in January from 46.7 in the previous month. The reading below 50 shows decline in activities, including output, and higher score shows expansion. While the reading is the highest in seven months, it has been stuck below the 50 mark that separates growth from contraction for just as long. In contrast to the services PMI, a sister survey on Monday showed Indian factories had a good start to 2014 with activity growing at its quickest pace in nearly a year.

Movers and shakers during the week
Company 31-Jan-14 7-Feb-14 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
Essar Oil45.752.114.1%94/45
Tata Steel343.4384.512.0%435/135
Tata Com267.5294.410.1%320/127
Power Finance Corp132.0145.110.0%227/97
Top losers during the week (BSE-A Group)
BHEL 168156-7.2%213/100
Guj Mineral Dev 114 107-6.0%196/76
TTK Prestige3,2753,105-5.2%3899/2870
Shriram Transport Finance619591-4.5%842/465
MRF Limited19,61918,798-4.2%20235/11011
Source: Equitymaster

Now let us move on to some more news from the corporate world.

Cement major ACC Ltd has announced results for the quarter ended December 2013. During the quarter, the company's standalone net sales declined by 13.1% YoY to Rs 26,934 m owing to the sluggishness in cement demand and fall in realisations. Operating profits for the quarter declined by 17.2% YoY to Rs 2,626 m. Profit before tax reported a decline of 13.4% YoY in line with the trend in the topline. However, net profits increased by 16.3% YoY on account of tax credit of Rs 363 m arising from reversal of tax provisions relating to prior periods. During the full calendar year 2013 (CY13), while sales declined by 2% YoY, net profits increased marginally by 3.3% YoY. The company's board of directors has announced a final dividend of Rs 19 per share for CY13. Along with the interim dividend of Rs 11 per share, the dividend for the full year stands at Rs 30 per share.

Public sector lender Bank of Baroda has announced its financial results for the third quarter of the financial year 2013-14 (3QFY14). During the quarter, the company's standalone net interest income stood at Rs 30,571 m, higher by 7.6% YoY. Other income grew by 10.9% YoY to Rs 9,321 m. Net interest margins at 3% during the quarter remained almost stable. Net non-performing assets (NPA) increased from 1.12% in 3QFY13 to 1.88% in 3QFY14. At the bottomline level, net profit increased marginally by 3.6% YoY to Rs 10,748 m. It must be noted that the bank's capital adequacy ratio stood at 12.01% at the end of 3QFY14.

Ranbaxy announced results for the fourth quarter and year ended December 2013. Consolidated global sales for the quarter were up 7% YoY. While branded formulations and the over-the-counter (OTC) segment accounted for 52% of total sales, the rest was made up of generics and API. The US, where the company is facing innumerable problems with the USFDA, accounted for 32% of total sales during the quarter. As per the management, the Toansa facility was issued a Form 483 containing certain observations in January 2014. This was subsequently included under certain provisions of the Consent Decree (CD) by USFDA. Because of this, Ranbaxy had suspended shipments of API to the USA market from this facility. The impact of this development was pegged at Rs 2.6 bn on account of stock write-offs and other related costs. As a result, the company reported a net loss before taxes to the tune of Rs 0.6 bn.

India's third largest telecom company Idea Cellular has announced that the department of telecom (DoT) has transferred licenses for two circles to the company which was under dispute. The licenses pertain to the circles of Punjab and Karnataka which belonged to the erstwhile Spice Communications. Idea had acquired Spice in 2010 and ended up with overlapping licenses in six circles. This was reduced to just the two circles, currently under dispute, after the Supreme Court had cancelled 122 licenses in its 2G scam verdict in 2012. These licences will enable Idea to launch 3G services in these circles. However the transfer is still subject to the pending verdict of the TDSAT regarding this case.

Engineering major Bharat Heavy Electricals (BHEL) has announced results for the third quarter of the financial year 2013-14 (3QFY14). The company has reported a 15.7% YoY decline in the net sales. The figures for the quarter are not comparable with the year-ago period due to the merger of Bharat Heavy Plates & Vessels Ltd (BHPV) with the company. Because of the same, around Rs 386 m has been added to the sales. The operating profit for the quarter declined by 39.7% YoY. The company has reported a decline of 41.2% YoY in the bottomline. Again, due to the merger, the pretax profits took a hit of Rs 164 m during the quarter. The company's orderbook stood at about Rs 1,006 bn at the end of December quarter. The company's board of directors has approved an interim dividend of Rs 1.31 per share.

Tech Mahindra has announced the results for the third quarter and nine month period of the financial year 2013-2014 (3QFY14). During the quarter, the company's consolidated net sales stood at Rs 48,985 m, higher by 2.7% on a quarter-on-quarter (QoQ) basis. Operating profits increased by 2.3% QoQ to Rs 11,363 m as operating profit margins contracted marginally from 23.3% in 2QFY14 to 23.2% in 3QFY14. As against other income of Rs 381 m in 2QFY14, the company reported other expenses of Rs 457 m in 3QFY14. While depreciation charges increased by 14.2% QoQ to Rs 1,396 m, interest expenses declined by 2.3% QoQ to Rs 236 m. The company wrote back Rs 1200 m in provisions of previous years relating to the Satyam acquisition. This boosted the company's net profits to Rs 10,099 m, higher by 40.6% QoQ. Net profit margins expanded from 15.1% in 2QFY14 to 20.6% in 3QFY14. During the nine month period, the company's sales and net profits increased by 177.4% YoY and 165.2% YoY respectively

The global markets are expected to keep a close watch on the economic performance of emerging economies. Back home, due to weak economic growth and weak global cues, domestic markets continued to remain under pressure. However, we believe that investors should not get carried away by short term gyrations in the stock markets. The focus should be on selecting companies with sound business models, strong management and available at attractive valuations.

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