A flattish start to FY13

Thu, 5 Apr RoundUp

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It was a truncated trading week for the Asian stock markets. While Chinese markets were closed for the first three days of the week Indian stock markets will remain shut during the last two days. The US stock markets lost 1.0% during the first three days of the week. Fears that the European debt crisis may further worsen amidst weak bond auction in Spain worried investors. However, indications from the last Federal Reserve meeting suggests that the economy is likely to bounce back soon due to strong unemployment data recorded over the last three months.

The Indian stock markets were marginally up 0.5% during the week. The market shed gains in the last trading session after a three day winning streak as investors booked profits. The next few weeks will determine the broader course of the markets from here on as investors keenly await the Reserve Bank of India (RBI's) monetary policy and fourth quarter results of FY12.

Amongst the other world markets, Hong Kong (up by 1.1%) was the biggest gainer for the week followed by India (up by 0.5%). France registered the worst performance during the week and was down by 3.2% followed by Japan (down by 2.6%).

Source: Yahoo Finance *Indian stock markets are shut on April 05 and April 06 2012 and hence we have taken the closing as of April 04 for all markets under consideration to maintain uniformity in comparison. The Chinese stock markets were shut during the first three days of the week due to public holiday.

Sectoral indices registered a mixed performance during the week. Consumer durables (up by 6.4%) was the top performing sector for the week followed by Capital Goods which inched higher by 3.3%. Auto and Pharma stocks ended the week on a negative note losing 0.7% and 0.8% respectively.

Source: BSE

Let us now take a look at key developments during the week. Bharat Heavy Electricals Ltd (BHEL) announced its provisional results during the week. The company recorded a turnover of Rs 493 bn during the FY12 fiscal, seeing a 13.8% increase over the previous year, according to its provisional statement. The earnings per share (EPS) during FY12 stood at Rs 28.1, indicating a 14.2% increase over the previous year. However, the company's order book fell to Rs 221 bn from Rs 600 bn in 2010-11, on account of sluggishness in the power sector. Nonetheless, the company expects flat growth in sales in FY13 on account of various uncertainties the power producers are facing. Shortages of fuel supplies, delays in environmental clearances for power and mining projects and drying up liquidity has severely damaged the power sector. BHEL expects gross sales of Rs 500 bn in FY13, which is pretty much flat compared the previous year.

The company has also decided to put its divestment plan on hold. It has withdrawn the draft red herring prospectus (DHRP) for a follow-on public offering (FPO). This was for the disinvestment of the government's 5% stake in the company.

Titan Industries has been allowed by the Government of India to directly import gold. This is the first time that a private player like Titan, who is an actual user has been allowed to import gold. At present, only authorized agencies and public sector units like Metals and Minerals Trading Corporation of India Ltd. (MMTC) are allowed to import gold. This will open doors to other actual users from the private sector to import gold directly under the approval route. Direct import will help the company in saving 1% of their operating cost and it would also get good quality gold. The company would use gold for its watches and jewellery.

Leading Indian drug-maker Ranbaxy Laboratories is close to capturing 50% market share in the atorvastatin market in the US during the six-month exclusive marketing period. The company sells the low-cost version of Lipitor, the anti-cholesterol drug. As per latest data released by drug market research firm IMS Health, Ranbaxy has been able to lift up its market share from 41% as on February 3 to 45% as on March 16. Watson Pharmaceuticals, Pfizer's generic partner has a little over 20% share. Pfizer Ltd. accounts for rest of the market share. It must be noted that Lipitor is the world's best-selling brand with annual sales of about US$ 7.9 bn in the US market alone. Ranbaxy is selling its drug at about 60-70% discount to Lipitor.

Subhash Chandra promoted, Essel Group has hiked its stake in IVRCL to 12.27% by purchasing an additional 2.08% stake from open market. Two Essel Group entities - Asian Satellite Broadcast Private and Jay Properties Private have acquired 5.6 m shares of the construction company. Just last week, the Essel Group announced that it had acquired 10.2% stake in IVRCL through open market purchases. Now, with the latest round of acquisition the Essel Group now owns more stake than IVRCL's promoters. As per the December 2011 shareholding data, IVRCL promoters, led by founder E Sudhir Reddy, have 11.18% stake in the company. Thus, the control of the company could be soon wrestled away from the promoters.

Movers and shakers during the week

Company	28-Mar-12	4-Apr-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Sterling Biotech	10	13	30.1%	101/9
United Spirits	559	676	21.0%	1109/492
NCC Ltd	47	57	21.0%	117/32
Pantaloon	145	174	19.9%	347/128
Ranbaxy Ltd	414	477	15.3%	565/379
Top losers during the week (BSE-A Group)
REI Agro Ltd	12	11	-11.3%	30/12
Suzlon Energy	27	25	-8.4%	58/18
Alstom T&D	193	182	-5.9%	294/136
Central Bank	107	101	-5.5%	149/65
Welspun Corp	139	133	-4.4%	213/66

Source: Equitymaster
*In order to enable a proper weekly comparison we have taken closing as of 28th March
We will now discuss the other important corporate/economic events that took place over the week.

Most chief executive officers of the banks have a view that RBI must cut Cash Reserve Ratio (CRR) and repo rate to revive the economy. In fact, they have also approached the RBI to put forth their view. They feel that failure to cut the interest rates will derail the growth prospects of the Indian economy. Despite many financial institutions lobbying RBI to cut rates high oil prices (leads to inflation) and deteriorating fiscal balance is holding back the governor from taking a dovish stance. Now with the monetary policy due on 17th April 2012 it would be interesting to see whether the governor pays heed to the corporates and cuts interest rates or continues to maintain its hawkish approach amidst inflationary fears and government's fiscal extravaganza.

Oil marketing companies were contemplating to increase petrol prices due to rising under-recoveries. However, the government has indicated that it may reduce the excise duty on petrol to save the consumers from additional burden of rising prices. As per news reports, the government is actively considering to reduce the excise duty on petrol which currently stands at Rs 14.5 per litre. If the duty is reduced, it would further create a hole in the pockets of the government which is already reeling under high fiscal deficit.

The first week of FY13 ended on a flattish note. With monetary policy just about two weeks away it would be interesting to see whether RBI reduces or holds on to the existing policy rates. That would determine the course of the Indian stock markets in the near term.