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A good week for global markets
Sat, 15 Feb RoundUp

Barring Japan, global stock markets closed the week on a positive note. The US markets shrugged off weak economic data relating to factory output. The harsh weather conditions in the US have had a minor impact in on economic activity in the US, at least the near term. However, US exports rose 0.2% YoY in January for the third straight month. The benchmark S&P 500 index, closed near its all time high at 1,838.63 on Friday.

The European markets delivered a strong performance in the week gone by. The major indices of the U.K, France and Germany were up by 2.6%, 4.8% and 3.9% respectively. The markets cheered positive economic data. Fourth quarter GDP data in France and Germany was above market expectations. The GDP growth for the Euro Zone came in at 0.3%. The markets also seemed to welcome a change in the political leadership in Italy as the previous government had failed to pass any major reforms.

The Indian equity markets ended the week on a flat note. The markets struggled for a clear direction in the wake of divergent performance across different sectors. Economic data remained weak as the IIP data for the first nine months of the financial year indicated a contraction in economic activity by 0.1%. However on a positive note, the Wholesale Price Inflation (WPI) for January 2014 has come in at the lowest level in the last eight months at 5.05%. This has raised hopes that the Reserve bank of India (RBI) might not raise interest rates at its next meeting, even as it might not reduce them.

Key world markets during the week
Source: Yahoo Finance

The sectoral indices ended mixed this week with consumer durables (up 2.3%) and IT stocks (up 2.1%) leading the gainers and power (down 2.8%) and metal stocks (down 2.7%) leading the losses.

BSE indices during the week
Source: BSE

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

Inflation data for the month of January 2014 has been announced. Inflation seems to be cooling off. As reported, inflation as measured by the wholesale price index (WPI) came in at a figure of 5.05%. This is the lowest figure in about eight months. During the preceding month i.e. December 2013, the figure stood at 6.16%. A key reason for the decline in the same is lower vegetable prices, which declined sharply on a month on month basis. As per data, food inflation reduced sharply to 8.8% as against 13.86% reported in December 2013. Vegetable inflation especially reduced at a very sharp rate, falling to 16.6%, which is still high in absolute terms. This compares to a vegetable inflation of 57.33% for the month of December 2013. With this announcement, the focus has come back to the RBI and its stance on interest rates. However, in the recent past, RBI governor Dr. Rajan has strongly hinted that the focus in the short to medium would be on curbing inflation levels, rather than propping up growth levels.

As per the Ministry of Statistics and Programme Implementation (MOSPI), Index of Industrial Production (IIP) contracted for the third month in a row in December 2013. IIP declined by 0.6% YoY for the month mainly on account of slowdown in manufacturing that shrank by 1.6% YoY. Eight out of 22 industries in manufacturing have shown negative growth during the month. However, mining and electricity sectors reported growth of 0.4% and 7.5%, respectively during the month. Consumer durables posted a steep fall of 16.2% YoY whereas consumer non-durables grew by 1.6% in December 2013. IIP for the cumulative period April-December 2013 was lower by 0.1% YoY.

India's January 2014 trade data has brought some respite to the country's economic woes. Trade deficit has almost halved to US $9.92 bn in January 2014 as compared to that of US $18.87 bn in the same month last year. The fall is mainly on account of huge fall in the gold and silver imports, that declined by 77% YoY during the month. Imports of precious metals declined due to restriction on gold imports, which ministry plans to abolish going forward. Further, the deficit would have been much lower had the exports not grown at a moderate rate of 3.79% YoY in January 2014 as a result of global slowdown. The marginal rise in exports was largely due to fall in shipment of gems & jewellery, petroleum products and decline in crude prices. It may be noted that, low trade deficit would help to contain our already high current account deficit and to improve the balance of payment.

As per leading financial news daily, the Centre has raised grave concerns over the high number of illegal mining cases and on the quality of reports shared by Maharashtra government in this regard. The Centre has decided to focus upon understanding the issue of illegal mining by Maharashtra and other states including Andhra Pradesh, Chhattisgarh, Goa, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Odisha, Rajasthan and Tamil Nadu. According to the compilation by the department of mines, 34,265 cases of illegal mining were reported in Maharashtra in FY11, 40,642 in FY12, 42,918 in FY13 and 7,248 in FY14 (up to June 2013). Given the fact that illegal mining results in loss of revenue and other realizations, the Centre has asked to remove the difference and disparity in the report given in this regard. Moreover, augmentation of manpower, allocation of budgetary resources and creation of additional posts would help strengthen the machinery of the states mentioned above.

Movers and shakers during the week
Company7-Feb-1414-Feb-14Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Muthoot Finance132.0164.524.6%222/74
Cadila Healthcare853.2950.011.3%985/631
Motherson Sumi206.1226.810.0%232/116
Astrazeneca Pharma744.2810.89.0%1,248/595
Tata Motors357.7389.08.8%405/252
Top losers during the week (BSE-A Group)
Torrent Power9586-9.7%180/167
Sun Pharma364330-9.4%459/327
Idea Cellular145133-8.6%188/101
Source: Equitymaster

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

The 2G telecom spectrum auctions have finally come to an end. After 10 days of fierce bidding, the total amount that the government will collect will be Rs 611.62 bn. The incumbent GSM operators, Vodafone, Bharti Airtel and Idea Cellular have managed to retain the spectrum that they held, in the crucial 900 MHz band, in Delhi, Mumbai and Kolkata. However they have had to pay a steep price for the same due to competition from Reliance Jio. The new entrant has won spectrum, in the 1,800 MHz band, in 14 circles. Reliance Jio will now launch voice services along with 4G services, as it now has spectrum for both.

Tata Motors announced results for the quarter ended December 2013. During the quarter, the company's standalone net sales declined by 27.1% YoY to Rs 76,714 m owing to the sluggishness in demand for commercial vehicles and strong competition the passenger vehicles space. At the operating level, the company reported a loss of Rs 4,591 m during 3QFY14 as against a profit of Rs 1,453 m in corresponding quarter of the previous financial year. Other income rose sharply from Rs, 1,118 m in 3QFY13 to Rs 19,881 m in 3QFY14. Owing to the significant boost in other income, the company reported net profit of Rs 12,514 m in 3QFY14 as against a loss of Rs -4,585 m in 3QFY13. At the consolidated level, the company's net sales increased by 38.7% YoY to Rs 635,361 m and net profit increased by 194.6% YoY to Rs 48,191 m during the quarter. This was on account of continued strong performance of Jaguar Land Rover (JLR).

Leading steel manufacturer Tata Steel has reported results for the quarter ending December 2013 (3QFY14). The net sales during the quarter were up 14% YoY. The sales volumes in India for the quarter increased 9.5% YoY. The delivery volumes in the European market have increased by 6% YoY during the quarter. The operating profits for Indian operations registered a growth of 24% YoY. For European operations, the company posted operating profit of Rs 8.6 bn versus losses of Rs 4.3 bn in the corresponding quarter last year. The company reported net profits of Rs 5 bn for the quarter compared to a net loss of Rs 7.9 bn in 3QFY13. This was mainly led by higher sales volumes and improved profits in the European business. The management has said that with an improvement in the European economy, the company is likely to benefit from the growth in European steel demand.

Coal India has announced the consolidated results for the quarter ended December 2013. The company has posted a decline of 2.3% YoY in net sales for the quarter ended December 2013. The decline in sales was mainly due to lower sales volumes. Other income declined by 7.5% YoY. It reported 11.4% YoY decline in net profits during the quarter on account of lower realizations and higher cost. Its net profit margins declined to 23% YoY during the quarter. It has declared interim dividend of Rs 29 per share.

India's largest lender, State Bank of India (SBI) announced disappointing earnings performance for 3QFY14. The profitability for the quarter fell 34.2% YoY to Rs 22.3 bn on account of higher provisions and expenses. The net interest income increased 13.3% YoY to Rs 126.4 bn from Rs 111.5 bn a year ago. The expense for the quarter jumped 20% YoY to Rs 314 bn while other income was up by 15.5% YoY to Rs 41.9 bn same quarter a year ago. The employee expenses stood on the higher side and jumped 35% YoY to Rs 58.7 bn primarily due to higher provisions for salary and pension. The domestic net interest margins stood at 3.5% during 3QFY14. The gross NPAs increased to 5.7% during 3QFY14 as against 5.6% in 2QFY14 while net NPA rose to 3.2% from 2.9% during the same period a year ago. The provision coverage ratio declined to 58.3% from 60.2% on sequential basis. The total advances for the company grew 17.3% YoY and the deposits grew 16.4% YoY during 3QFY14.

The Indian IT industry is expected to grow at 13%-15% in FY15 according to Nasscom. The software body has predicted that the tough times faced by IT companies, might be behind them. The annual projection also says that the industry is expected to add US$ 15-17 bn in incremental revenue in the current financial year. The revival has been attributed to the improving economic situation in the developed world. Nasscom has also stated that the nature of future growth, for the sector, would be different from the past. New digital technologies are rapidly changing the dynamics of the industry and it already accounts for about 5-10% of the industry's revenues.

In the week to come, the global markets are expected to keep a close watch on the economic outlook for developing countries. Also any commentary regarding the movement of interest rates by the US fed and the European central bank (ECB) will be closely tracked and analysed. 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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