The world markets ended on a mixed note this week. While most of the Asian markets ended on a weak note, Europe and the Americas recorded weekly gains. Asian markets ended with weekly losses, as investors were concerned over inflation and the withdrawal of stimulus programs. The Federal Reserve raised the discount rate by 0.25% to 0.75%. While this is the first increase in discount rate after three years, the move widens the rate's spread over the benchmark federal funds rate, which is currently 0.25%. The Fed believes that it will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs. There is now a wide consensus amongst bankers and economists that the urgency of monetary tightening will soon dawn upon the Fed.
However, India managed to end the week on a positive note, ending higher by about 0.2% over the previous week. Hong Kong was the top loser this week, ending lower by about 2% followed by Singapore, which ended marginally lower. Chinese markets were closed this week on account of the Lunar New Year. Amongst the top gainers were France (up 5%), UK and Germany (up 4% each). US and Brazilian markets ended the week higher by about 3% each.
Source: Yahoo Finance
Moving on to the sectoral indices in India - Leading the pack of gainers were stocks forming part of the healthcare, banking and IT. While the BSE-Healthcare and BSE-Bankex indices ended higher by about 2% each, the BSE-IT Index ended higher by about 1%. Amongst the key losers were stocks from the realty space as the BSE-Realty Index ended the week lower by about 6%. Key reason for the same was concerns over the US Federal Reserve signaling monetary tightening. Stocks from the energy space were also under pressure this week as the BSE-Oil and Gas Index ended lower by about 2%.
Coming to the key corporate developments this week - A few companies announced their results this week. Castrol India was one of them. The company, being a December ending company announced its ful year and quarterly numbers recently. Castrol's topline grew by about 14% YoY and 5% YoY during the quarter and year respectively. Growth during the quarter was mainly on the back of higher volumes and improved realisations. However, the company operating profits got a boost during the year and the quarter on the back of lower raw material costs (as a percentage of sales) the company's operating profits increased by a strong 72% YoY during the quarter and by 42% YoY during the year. While operating margins stood at 20.9% during 4QCY09 (13.8% during 4QCY08), the same stood at 25.1% for the full year (18.5% during CY08). Growth in net profits during 4QCY09 and CY09 stood at 72% YoY and 45% YoY respectively.
FMCG major, Nestle also announced its results recently. The company's topline grew by about 24% YoY during the quarter. However, the company's profits declined by 6% YoY. This performance at the bottomline level was due to a poor operating performance during the quarter. The latter was on account of higher raw material and employee costs (as a percentage of sales). As for its full year performance, the company's topline and bottomline grew by about 19% YoY and 23% YoY respectively.
Tata Steel announced its consolidated results (including Corus) for the December 2009 quarter this week. The company reported a 42% YoY decline in net profits during the quarter. This came on the back of a 21% YoY decline in sales and higher tax expenses. Otherwise, its operating profits grew by 2% YoY led by an improvement in operating margins to 11.3% (from 8.7% in 3QFY09). The rise in operating margins was led by higher volume sales of steel as also higher realisations. The company continues to suffer because of recession in the European market. This is even as the developing world of China and India are seeing robust demand due to investments in infrastructure and automobile sectors.
Telecom major Bharti Airtel was amongst the top losers from the stocks forming part of the BSE ĎA' Group this week. This was on the back of investors being concerned over Bharti overpaying for acquiring the African assets of Zain Telecom, a Kuwait based telecom operator having presence in the Middle East and Africa. While Zain has a turnover of about US$ 7 bn, it is barely profitable on the bottomline front. In addition, Bharti will need also to take on a huge amount of debt on its books. These factors put together were the key reason for investors to shun the stock this week.
It is believed that Bharti would have to shell out nearly US$ 9 bn for this acquisition, which would give it a strong foothold in the African continent. Both the companies (Bharti and Zain) are currently in an exclusivity discussion period (until March 25). If the deal goes through, Bharti is likely to add nearly 42 m customers to its currently 125 m subscribers. This would place it amongst the world's top five or six telecom operators.
There was some good news for the engineering heavyweights this week. During the week, a leading business reported that there were very few companies bidding for a large Rs 450 bn bulk equipment tender floated by NTPC and Damodar Valley Corporation (DVC). Engineering majors such as BHEL, L&T, and Bharat Forge are amongst the few companies that have put in bids through their respective joint ventures. While the JV's between BHEL-Alstom and L&T-Mitsubishi bid for both - the supply of supercritical boilers for 11 units of 660 mw (megawatts) each and turbine generator sets, the JV between Alstom-Bharat Forge and Toshiba-JSW bid only for the turbine generator package.
Chinese and Korean power equipment majors such as Doosan, Shanghai Electric and Dogfang Electric (either on a standalone basis or through joint ventures with non-Indian firms), which have been giving a
tough time to domestic power equipment manufacturers , were not allowed to submit their bids. This is on the back of the Indian government making it mandatory for bidders to have a joint venture with an Indian company or a 100% Indian subsidiary to become eligible to bid for projects. In addition, they are also required to supply equipment that is manufactured in India.
Moving on to economic news, a leading business daily has reported that the Prime Minister's Economic Advisory Council, or PMEAC expects the growth during the next financial year (FY11) to remain at 8.2%. This optimism is over the belief that the agriculture sector is likely to do better next year and that the services and industrial sectors would continue to expand going forward. In addition, the panel believes that GDP growth will return to levels of 9% during the next fiscal. As for the current fiscal year (FY10), it expects growth to remain at levels of about 7.2%.
Apart from sharing their view on the economic estimates for the future, the panel also pitched for raising duties in the coming Union Budget. This would be part of the rollback of stimulus measures. One of the suggestions was to increase the excise duty to the levels of 10% to 12%. However, rolling back the stimulus with hurting growth prospects seems to be difficult.