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Global Markets Tank
Sat, 13 Feb RoundUp

Global markets nosedived in the week gone by after concerns over global slowdown, falling oil prices and the impact of negative interest rates pulled down sentiments. But the US markets were down by a mere 2% after the Fed president allayed fears of negative interest rates being adopted by US Fed as being premature. Even the European markets managed to recover towards the end of the week as a 0.3% growth reported by the Eurozone last quarter helped offset worries arising from Greece slipping back in recession.

However, Japan was the biggest loser registering a 11% slump last week on a surging yen despite Bank of Japan's negative interest rate policy. The other Asian markets also remained in the red. The stock markets in China were closed last week due to the Lunar New Year Holiday.

Back home in India, global turmoil and weak corporate earnings pulled down markets by 6.6%. Even a sharp downfall in the earnings of banks, particularly public sector, in the wake of asset quality review by Reserve Bank of India further added to the gloom.

Key World Markets During the Week

All the sectoral indices ended the week on a negative note. Stocks in the realty, capital goods and metal sectors were the biggest losers.

BSE Indices During the Week

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

The Index of Industrial Production fell for the second consecutive month in December. India's factory output shrank by 1.3% during the month after witnessing a 3.4% contraction in November. The downfall is partly on account of decline in manufacturing activity after incessant rains in Chennai post Diwali led to shutdowns. The production of capital goods slumped by 19.7% in December reflecting weak investment climate in the country. Even the production of consumer non-durables was down 3.2% for the month. Additionally, the retail inflation as measured by the Consumer Price Index shot upto a 17-month high at 5.7% in January. A sharp jump in price of pulses pushed up inflation for the month.

Amidst weak macro-economic conditions, even car sales fell for the first time in 14 months in January. As per Society of Indian Automobile Manufacturers, car manufacturers sold 1.68 lakh cars during the month that was lower by 0.72% as compared to year-ago offtake. The fall can partly be attributed to the fact that buyers advanced purchases to December to benefit from year-end discounts and freebies offered by companies to clear the inventory. As per SIAM, the marginal fall in sales points to the fragility in the recovery process.

Movers and Shakers During the Week

Company5-Feb-1612-Feb-16Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Idea Cellular1011108.4%204/98
Apollo Tyres1391486.9%223/128
Bharti Airtel3073255.9%452/282
Lanco Infratech663.6%8/2
Emami Ltd1,0281,0572.9%1368/875
Top losers during the week (BSE-A Group)
Oriental Bank10582-21.9%265/78
Punjab National Bank9574-21.8%181/73
Opto Circuits129-21.4%27/8
BHEL 133105-21.3%290/102
Allhabad Bank5241-20.8%116/40
Source : Equitymaster

Now let us have a look at some quarterly results that were announced in the week gone by.

State Bank of India (SBI) reported a slump in earnings for the December 2015 quarter. The company's net profit fell by 62% to Rs 11.1 billion due to higher provisions. The fresh slippages tripled to Rs 206.9 billion as compared to the preceding quarter. This pushed up the gross non-performing assets (NPA) to 5.1% from 4.1% at the end of September 2015 quarter.

The bad loans increased on account of asset quality review as per the recent directives of the RBI to recognize visible stressed assets. The bank has set aside a sum of Rs 76.4 billion to manage these bad loans during the quarter. The management has hinted at asset quality review in the March 2016 quarter as well. The bank's advances grew by 12.9% YoY led by a growth in corporate loan book. Net interest income (NII), difference between interest spent on deposits and that earned on loans, declined by 1.24% to Rs 136 billion. The net interest margin too fell to 2.93% from 3.01% in the preceding quarter.

Hero MotoCorp reported a profitable growth for the quarter ended December 2015. The company's net sales grew 7% YoY to Rs 72.9 billion on the back of festive demand. The company's two wheeler sales in volume as well as value terms grew by 2.5% and 6.7% respectively as compared to a year ago. The average vehicle revenue grew by 4% because of a better product mix. However, demand for two-wheelers remained sluggish due to deficit monsoon in the preceding two years that have impacted rural wages and discretionary spending.

Despite tepid growth, the company's net profits grew by 36.5% YoY to Rs 7.9 billion on the back of lower raw material costs. The cost reduction programmes introduced three year back also reduced the overall expenditure. This led to operating margins expanding by 3.5% to 15.6%.

Cipla Ltd posted a subdued performance in the December 2015 quarter. The sales fell marginally by 0.4% YoY due to change in sales distribution policy under which the accounting of a portion of the sales was deferred to the next quarter. Excluding this one off item, total sales grew by 11% YoY. On the domestic front, company's prescription and generics business reported a growth of 13% and 9% respectively. Further, exports grew by 28.5% YoY led by growth in South Africa and other emerging markets.

However, operating margins declined by more than 5% YoY because of the one off items, higher research & development expense and depreciation of South African currency. Reportedly, R&D expenses increased to 8% of sales from 6% a year ago. Further, the company's net profit grew by 4.6% YoY. Going forward, sales from the US geography will be the key things to watch out for as the company has stepped up its product fillings in this geography.

BHEL clocked a dismal result in December 2015 quarter. The company has reported a net loss of Rs 11 billion during the quarter as compared to net profit of Rs 2 billion in December 2014 quarter. The company's total income decreased by 15% YoY to Rs 54 billion for the quarter.

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

ITC has launched three major projects in West Bengal at an investment of Rs 30 billion. There are two integrated consumer goods manufacturing facilities in Uluberia and Panchla and an information technology (IT) facility in Rajarhat, near Kolkata. Production of agricultural commodities from its plant in Uluberia is poised to start from May, while the other agro-processing unit in Panchla will commence operations by March 2017. The IT park, which includes a 140-key hotel and residential accommodation, will be completed in phases beginning 2018.

Another major player in the food & beverages space, Britannia is gearing up to enter the dairy segment in a big way as part of its overall strategy to be a total food company. As per the company, its total consumption and sales of dairy products presently stands at Rs 7 billion. The company would be seeking board approval for expansion in the dairy segment that would reportedly entail a minimum investment of Rs 3 billion. In the first step, the company will be establishing its back-end and will focus on value-added dairy products that it already sells.

There was some relief for domestic steel companies that raised prices by upto 4% following the imposition of minimum import price (MIP) on 173 steel products by the government. The move comes in the wake of domestic steel companies selling products at distressed prices owing to large scale dumping by countries like China, Russia, Japan and Korea. Companies such as JSW Steel, Essar Steel and Jindal Steel and Power have raised prices, These companies will be further hiking prices gradually.

BHEL has won a Rs 35 billion order from NTPC for supply of power equipment. As per the deal, BHEL will set up two 800 MW steam generator island package at Telangana Super Thermal Power Project. BHEL's scope of work involves design, engineering, manufacture, supply, construction, erection, testing & commissioning and civil works for the Steam Generator island package.

Global markets are expected to remain volatile on recessionary conditions and falling crude price. Back home, falling production and rising inflation are likely to have a bearing on the Union Budget and monetary policy review by RBI. These events in turn are likely to set the course of the equity markets over the medium term. However, investors need to focus on the long term fundamentals of stocks and utilize the current sell-off to invest in blue-chip stocks with strong moats.

And here's an update from our friends at Daily Profit Hunter...

Horrible... One word is enough to describe last week's market action. The index witnessed largest ever drop of 7% in a week since 2009. Bulls saw the index with dropped jaws as one support level after the other was breached. The appearance of hammer candle on daily charts with heavy volumes indicates that a panic bottom could be in place or at least developing around these levels. Early action in the next week will help us confirm this view. You can read the detailed market update here...

Indian Markets Crash

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Mar 21, 2018 (Close)