Positive eco. data spurs global markets

Sat, 3 Apr RoundUp

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World markets ended the week past by on a buoyant note as investor sentiments were boosted by some positive economic data. The key ones were that of an increase in China's Purchasing Managers' Index and a rise in consumer spending in the US. This signs of recovery also led to commodity prices (crude oil and metals) to rise sharply during the week. While India's benchmark index, the BSE-Sensex also managed to record gains during the week, it was amongst the lowest gainers. The BSE-Sensex ended higher by about 0.3%.

With gains of about 4%, Brazil's benchmark index was the top gainer this week. It was followed by Asian markets namely China (up 3%), Japan (up 3%) and Hong Kong (up 2%). Germany, France and UK ended higher by about 1% each. US markets also ended the week with gains of about 1%.

Source: Yahoo Finance

Moving on to the sectoral indices in India - while most of the indices ended on a higher note, stocks forming part of the BSE-IT and BSE-FMCG indices recorded losses of about 3% and 1% respectively. Stocks from the realty, consumer durables and metal spaces were amongst the top gainers. While the BSE-Realty and BSE-Consumer Durables indices ended higher by about 3% each, the BSE-Metal Index recorded a gain of about 2%. Smallcap and midcap stocks seemed to be in favour this week as the BSE-Smallcap and BSE-Midcap indices ended higher by about 3% and 2% respectively (as against 0.3% gain in the BSE-Sensex).

Source: BSE

With the quarter and fiscal year ending this week, results will be pouring in soon. However, recently, engineering major BHEL announced its provisional flash results for the full year FY10. Recording revenues of Rs 340 bn during the year, BHEL's topline grew by about 21% YoY. However, at the profit before tax level, the company managed to record a 31% YoY increase in profits. Profits grew at an even fast pace of 37% YoY during the year. Order inflows during the year remained almost flat at about Rs 590 bn. With this, BHEL's order book at the end of the year stood at 1,438 bn, which stands at a strong 4.2 times its FY10 sales, thereby giving a good amount of earning visibility for the future. In a recent press conference, the company's management expressed that it is aiming for a turnover of US$ 10 bn to US$ 11 bn by 2011-12 (indicating a topline growth of about 36% YoY) on the back of strong demand from the power generation sector.

With the month of March ending during the past week, auto manufacturers have started releasing their sales numbers. Passenger car major Maruti Suzuki reported sales of 95,123 vehicles for the month of March 2010, which is higher by about 11% YoY as compared to last year. Domestic sales volumes grew by about 7.7% YoY, while exports grew at a faster pace of 32% YoY. The latter contributed to about 16% of total sales as compared to about 14% during the corresponding quarter last year. Domestic sales slowed down this month on the back of a 1% YoY decline in sales of the company's A2 segment, which includes cars such as Alto, WagonR, Estilo, Swift, AStar and Ritz). This segment contributed to about 58% of total volumes sales. The figure during the same month last year stood at 65%. For the full year, sales grew by 29% YoY, with domestic sales contributing to about 85% during FY10 as compared to 91% last year.

Tata Motors also announced its numbers. The company sold over 640,000 units (including commercial vehicles). The sale of its passenger vehicles increased 17% during the year. During the month of March 2010, sales increase by a strong 38% YoY. Commercial vehicles sales grew by about 49% YoY this month, contributing to nearly 58% of sales volumes. The same figure during the corresponding month last year stood at about 53%.

Coming to the two-wheeler segment, Bajaj Auto reported a 85% YoY increase in two wheeler sales during the month. During the FY10, the company sold about 2.5 units in the motorcycle segment, a jump of about 31% over 1.9m units last year. The company has attributed the growth to robust sales of Pulsar and Discover range of bikes. Rival company, TVS Motor sold about 1.5 m units this year, a growth of about 15% YoY.

Moving on from the auto sector to the healthcare sector - during the week, Glenmark Pharmaceuticals announced that its subsidiary Glenmark Generics submitted a new drug application (NDA) for Oxycodone Hydrochloride (used for pain management) capsules and liquid solutions. The company submitted this application to the USFDA (Food and Drug Administration). The company's management is of the view that the FDA should take about 10 months to approve this drug. Once launched, Glenmark could be the only one selling Oxycodone. As per the company's management, the current market size is US$ 16 m (or about Rs 740 m). This would be a positive development for the company and will play a part in enhancing sales from the highly competitive US market.

IT stocks witnessed some pressure this week on the back of the Indian Rupee appreciating against the US Dollar. The Indian IT sector exports over 55% of its services to Western clients in the US and Europe. As such, the industry is prone to foreign exchange currency fluctuations. It is widely believed that a 1% movement in rupee-dollar rate can impact the operating margins by 0.4%. Rupee which is at around 45 for a dollar has appreciated as much as 4% in the last 2 months, thereby impacting the operating margins of Indian IT majors by around 2%. While this may appear to be a cause of worry for the investors in IT stocks, we believe that all the major Indian IT companies are adequately hedged against such normal currency fluctuations. While forex volatility remains a critical risk one must deal with, in constant currency terms, the prospects for the Indian IT sector remain very bright going forward.

A leading business daily has reported that steel manufacturers have hiked prices of their products for the third time this year. Companies such as SAIL and Esaar Steel are belived to have increased prices by about Rs 2,500 per tonne. During the month of January and March (the two months the prices hikes had taken place), prices were increased by about Rs 1,500 and Rs 600 per tonne respectively. Reasons behind the same were the overall rise in steel prices and higher excise duty. This time around, the price hike is taking place due to higher raw material costs (iron ore and coking coal). While this move will affect companies across sectors, it will also cause pressure on inflation numbers, which is currently hovering below 10%.

Movers and shakers during the week

Company	26-Mar-10	1-Apr-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
P&G Hygiene	1,918	2,315	20.7%	2,372 / 740
LIC Housing Finance	815	881	8.1%	915 / 229
Bank of India	322	346	7.7%	475 / 205
Andhra Bank	101	109	7.7%	125 / 46
Nagarjuna Const.	156	167	7.4%	184 / 61
Top losers during the week (BSE-A Group)
Tech Mahindra	907	859	-5.3%	1,158 / 268
Balrampur Chini	93	88	-4.9%	167 / 53
Shree Renuka Sugars	72	68	-4.7%	124 / 46
M&M Financial Services	390	374	-4.1%	402 / 201
Dabur India	165	158	-4.0%	180 / 94

Source: Equitymaster
Moving on to news related to the power sector. A leading business daily has reported that power projects using the super critical technology as likely to get coal linkages on a priority basis. This development is mainly towards encouraging the technology, which is relatively more efficient and environment friendly method of generating power. However, this technology is more expensive compared to the subcritical technology. While this is move in the right direction, one must keep in mind that the sector as a whole is facing problems relating to execution. Power companies have not been able to set up anywhere close to the original targets set by the government in FY07 (the start of the eleventh five-year plan).

However, the government is planning to increase the presence of supercritical power generation in the country. As per the Central Electricity Authority, India is constructing 38 supercritical units, some of which are likely to get commissioned during the Eleventh Five-Year plan period. About 60% of the thermal power generation capacity in the Twelfth Plan period could come from supercritical technology, while the entire coal-based capacity that is expected to be set up in the five-year plan thereafter would be on supercritical technology.

The Finance Minister expects the Indian economy to return to the 9% growth trajectory soon. His belief stems from the confidence that the investments by the country's private sector will see a revival in the future. While we certainly agree with him on this, it remains to be seen whether the private sector and PSU companies manage the change in economic scenarios well. As corporate India comes out with its annual results and plans for the next fiscal, we hope to have more clarity on this.