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Middle East tension worries markets 
(Sat, 26 Feb RoundUp) 
 
All the global markets closed in the red this week. The biggest loser was Germany down 3.3% while China lost the least (down 0.7%) among all key global markets. This dismal performance was due to the political tension in the Middle East which drove up crude oil price by 12.2% WoW.

In Asia, the biggest loser was Japan (down 2.9%) while India followed close behind (down 2.8%). Hong Kong and Singapore also closed the week down 2.5% and 2% respectively. In Europe, France closed the week down 2.1% while UK was down 1.3%. In the Americas, US was down 2.1% while Brazil was down 1.7%.

Source: Yahoo Finance


Moving on to the performance of sectoral indices in India, predictably, barring BSE-Oil & Gas index (up 0.8%) all indices closed the week in the red. The biggest loser of the week was BSE-Capital Goods index (down 6.1%) along with BSE-Auto index (down 5.4%) on concerns of another interest rate hike. BSE-Banking (down 4.7%), BSE-Realty (down 4.7%) and BSE Midcap (down 4.6) were amongst the top 5 worst performing indices of the week. BSE-FMCG (down 0.3%) figured in the best performing index of the week along with BSE-Consumer Durables (down 1.5%), BSE-IT (down 1.9%) and BSE-Sensex (down 2.8%).

Source: BSE

Moving on to key corporate developments during the week, several companies announced their results for the quarter ended December 2010. We discuss the results of some large cap companies here below:

Engineering major ABB announced its 4QCY10 results last week. The company's top line grew by 8.8% YoY during the quarter. This was led by ABB's power systems business which turned in a quarterly growth of 48.9% YoY. The discrete automation & motion business also recorded a strong performance during the quarter with a growth of 12.2% YoY. Low Voltage Products grew by 16.8% YoY during the quarter. On the other hand the power products and process automation segments saw a decline in sales growth by 8.8% YoY and 2.2% YoY respectively. The company disappointed on margins front as its operating margins contracted by 6.3%. This was the result of lower price realization and continued higher provisioning costs on exit from rural electrification business. Increase in key raw material costs like coal, steel and copper also impacted margins. Net profits declined by 93.8% YoY on the back of fall in operating income, forex losses and increase in effective tax rates.

Moving to news from the healthcare space, Ranbaxy announced its CY10 results. The company's revenues grew by a strong 18% YoY on the back of strong sales of the US business and the emerging markets. The US business recorded sales growth of around 80% YoY. This was on the account of ‘Valacyclovir' which continued to enjoy a healthy market share even after loss of exclusivity. The company's US business was also supported by the launched of its FTF product ‘Donepezil Hydrochloride' in the strengths of 5 mg and 10 mg with 180 days exclusivity in the fourth quarter of the year. In emerging markets, sales from Russia and CIS grew by 18% YoY each, while Africa recorded a 23% YoY growth in sales. The Latin American business grew by 17% YoY during the year. Sales from the domestic market (including global consumer healthcare) grew by 8% YoY during the year. However, Europe disappointed with its performance with a growth of only 1% YoY during the year. Operating margins of Ranbaxy increased by 12.8%. This was due to reduction in all costs (as percentage of sales). Raw material costs fell from 42% of sales in CY09 to 35% of sales in CY10. This was mainly on account of the 180 day exclusivity products which enjoy higher gross margins. Net profits of the company increased by an impressive 459% YoY, primarily due to the impact of forex gains and extraordinary income. On excluding the onetime gains, the company reported a profit of Rs 11 bn during this year as against a loss of Rs 2 bn in CY09.

Power to EPC major, Reliance Infrastructure come out with its 3QFY11 results. The company's top line grew by 14% YoY. This was on the back of the company's segments EPC (engineering, procurement and construction) business, the sales for which grew by a strong 91% YoY during the quarter. Reliance Infrastructure saw sales from the electrical energy business, which is around 80% of the company's total consolidated sales, declined by 3% YoY during the quarter. This was due to an 11% YoY decline in the volume sales of electricity. Operating margins rose from 12.75 in 3QFY10 to 14.9% in 3QFY11, led by led by lower cost of power purchased (both in absolute terms and also as percentage of sales). Bottom line of the company increased by 10.2% YoY during the quarter. This was slower than operating income growth and was a result of fall in other income, increase in interest costs and higher effective tax rate.

In news from the energy sector, Castrol declared its CY10 results. The company's top line grew by 17.8% YoY. This was a result of higher sales of premium products and higher unit realizations. Operating profit of the company on the other hand increased by 25.3% YoY. This was fall in staff costs and other expenditure and slower than sales growth in advertisement costs and in Carriage, Insurance & Freight costs. The operating profit could have been higher but for sharp growth of 23.2% YoY in raw material costs. Bottom line of the company grew by 28.7% as a result of rise in other income, fall in interest costs and lower effective tax rate.

In news from the consumer goods sector, it seems that our expectations from FMCG in 2011 are already coming true. A fresh round of acquisitions has begun in the FMCG industry. While Emami is looking for acquisitions in the branded personal and healthcare sectors, Marico is looking at further acquisition opportunities after acquiring an 85% equity stake in International Consumer Products Corporation (ICP), a Vietnamese company, a few days ago. Godrej Consumer Products is also scouting for acquisitions in developing markets across the globe. Dabur like Emami is also looking for acquisitions in the branded personal and healthcare sectors. As per a spokesperson for Emami, the company is looking for acquisitions in both domestic as well as global markets. It may be noted that Emami is in talks with Marico for acquiring its refined sunflower oil brand Sweekar. Dabur is also looking at acquisitions in the beauty and wellness space in domestic markets while at the same time scouting for acquisitions in Africa and West Asia in health & wellness space and toiletries.

Movers and shakers during the week
Company 18-Feb-10 25-Feb-11 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
NALCO 410 440 7.3% 448/345
CONTAINER CORP 1,084  1,130 4.3% 1,500/1,060
REI AGRO LTD. 27   28 3.8% 40/19
CAIRN INDIA 321 330 2.7% 368/252
GODREJ CONSUMER 354   363 2.5% 480/240
Top losers during the week (BSE-A Group)
MPHASIS LTD 690   448 -35.0% 752/549
JET AIRWAYS 511   419 -17.9% 926/398
PUNJ LLOYD 75   62 -17.6% 190/60
KOUTONS RETAIL 33   27 -16.9% 399/26
EVEREST KANTO CYLINDER 82   68 -16.4% 146/67
Source: Equitymaster

In news from the economy, India's Finance Ministry has said that economic growth may accelerate to as much as 9.25% in the next financial year while signaling a cut in the budget deficit to help slow inflation. As per a report, growth may accelerate as India's savings and investment rates have turned around. The savings rate rose to 33.7 % in the year ended March 31, 2010, from 32.3% the previous year, while the investment rate climbed to 36.5%. Since savings and investments now show a positive momentum and the government is implementing a gradual exit from the stimulus package, the savings and investment rates are likely to rise further. It is therefore expected that the economy's growth will breach the 9% mark in 2011- 12. Furthermore, as per Mr Pranab Mukherjee, inflation is a concern going forward and the government needs to narrow the fiscal deficit alongside interest- rate increases to curb inflation. It is expected that the budget which will be presented on Monday will focus on these issues.

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