Markets jittery ahead of the Union Budget

Sat, 23 Feb RoundUp

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It was a mixed week for the global stock markets. Japan and European nations were amongst top performers while US ended the week flat (up by 0.1%). In the US, stock markets shed all gains registered during the first half of the week amid disappointing economic reports announced later. Data about rising jobless claims, sales of homes were a cause of worry. Also, anticipations about Federal Reserve ending its easy monetary policies scared investors.

In India, the week saw Bharat Bandh by trade unions across the country to protest against the government policies. This resulted in a few corporates like Coal India and others suffering fall in production and revenues. Investors traded very cautiously ahead of the Union budget to be announced next week thereby causing the Indian equity markets to close the week down by 0.8%. Also, weak global cues came to haunt the investors towards the latter part of the week.

Amongst the other markets, China (down by 4.9%) was the biggest loser followed by Hong Kong (down by 2.8%) and Brazil (down by 2.1%). Japan (up by 1.9%) was the top performer.

Source: YahooFinance

Amongst sectoral indices, realty (up by 3.8%) and IT (up by 2%) stocks were the top gainers during the week while metal (down by 3.5%) and FMCG (down by 2.3%) were the top losers.

Source: BSE

Now let us discuss some of the corporate developments of the week gone by. Result season continued for the companies with quite a few declaring their numbers for the quarter ended December 2012 during the week.

FMCG major, Nestle India announced its results for the fourth quarter ended December 2012. Backed by 9.6% YoY rise in domestic sales and 20.6% YoY jump in exports mainly to third parties, topline grew by 10% YoY. For CY12, revenues were up by 11% YoY. The FMCG company was able to expand its operating profit margin due to reduction in raw material and other expenses. Operating profits increased by 24% YoY during the quarter. Net profits grew by 21% YoY. Net profit margins also expanded to 12.9% from the previous year's 11.8% during the December quarter.

Engineering company ABB also announced its results during the week. It posted a massive 73.8% year-on-year decline in December quarter profit to Rs 16.8 crore. Standalone net sales were down by 5.4% during the quarter. Other income also fell sharply. The company's products businesses delivered improved profitability. However, the project business faced several challenges due to cost overruns mainly caused by project delays on account of external factors. The company also fared badly on operating parameters. Earnings before interest, tax, depreciation and amortization (EBITDA) slipped 14.4% YoY in the quarter ending December 2012 and margins also dipped on delays in receipt of payments due to tight liquidity conditions, forex volatility and lower price realizations.

Oil and Natural Gas Corporation (ONGC) is reviving its plans to set up a liquefied natural gas (LNG) import terminal in Karnataka. The terminal to be set up in Mangalore has been shelved for approximately 6 years now. As per the oil minister, Mr Moily, ONGC and Bharat Petroleum Corporation Limited (BPCL) will sign an MoU (Memorandum of Understanding) within next fortnight to set up a 5 m tonne capacity LNG terminal at Mangalore. ONGC has already initiated talks with Mitsui Group of Japan regarding the project. The gas imported at the Mangalore terminal will be pumped into the Dabhol-Bangalore pipeline (which is to be extended to Mangalore by next year) for consumption by industries in Karnataka and neighboring state Tamil Nadu.

Steel company Steel Authority of India Limited (SAIL) India's second largest steel producer, is likely to face tough times on back of delay in projects, lower sales volumes and wage hike. The company is looking to increase the captive consumption of steel, which will help improve the margins. However, delay in execution of the projects will impact the overall performance of the company. In addition, SAIL's inventory levels have gone up by 0.3 MT to 1.7 MT in the December quarter due to lower sales volumes. Even if the company's production picks up, it might be difficult for it to increase its sales in line with the rise in production. The company has also increased the price per tonne since January this year. However, competition from Chinese players and discounts offered by domestic companies might make it difficult to sustain the price rise.

Moving on to other corporate developments during the week, manufacturers of health food drinks (HFD) have come under scanner after the Food Safety Standards of India (FSSAI) has issued them notices for misleading consumers about health benefit claims made without proper scientific data back-up. Companies such as GlaxoSmithKline Consumer Healthcare (GSKCH) with Horlicks and Boost brands and Heinz owning the Complan brand have been asked by FSSAI to take the brands off the shelf until they prove their claims of rapid growth in height and intelligence being promoted through their brands. Thus HFD companies, which had been aggressively marketing their products, have been left in a lurch.

Movers and shakers during the week

Company	15-Feb-12	22-Feb-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Wipro	399	416	4.2%	445/326
Sun Pharma	786	811	3.2%	811/536
Reliance Industries	845	863	2.1%	923/671
Infosys	2,785	2,837	1.8%	2953/2102
GAIL	338	341	1.0%	392/303
Top losers during the week (BSE-A Group)
Jindal Steel	386	357	-7.5%	613/321
Coal India	350	332	-4.9%	382/301
Tata Motors	304	293	-3.6%	333/203
Tata Steel	376	364	-3.1%	478/348
ITC	301	292	-2.9%	309/204

Source: Equitymaster
The merger of Bharat Heavy Electricals Limited (BHEL) and Bharat Heavy Plate & Vessels (BHPV) of Vishakhapatnam has been approved by the government. BHPV is into engineering and heavy fabrication. It was declared a sick entity by the Board for Industrial and Financial Reconstruction (BIFR) in October 2005. In 2008, BHEL had taken over its operations and made it a 100% subsidiary. Post this too, BHPV's performance was not up to the mark as it remained a separate company and it could not derive full benefits of synergy with BHEL. According to the official release, the merger will facilitate BHPV to become a unit of BHEL. It will also help BHPV to participate in tenders, obtain orders and attract best vendors for procuring materials and capital goods

With results season coming to an end, investors are now looking forward to the very important Union Budget 2013-14 scheduled for February 28, 2013. The budgetary announcement is expected to make the stance of the government clear on further policy measures. Along with it the government may also declare measures that it plans to undertake to boost the slowing economy of the country.