Indian stock markets gain on rate cut hopes

Thu, 18 Apr RoundUp

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Most of the global stock markets ended the week in the red. A lackluster wave of earnings from US for the quarter contributed to the decline in its benchmark stock markets (down 1.7%). The European stock markets also showed sign of weakness as car sales dropped and unemployment soared. The concerns that many economies are cash-strapped also weighed down the European stock markets.

The stock market in China (down 0.4%) also posted losses as the reported economic growth was slower than what economists had expected. The markets in Hong Kong (down 2.6%) were also cautious due to a bird flu outbreak in eastern China and the growing Chinese government debt.

The Indian stock markets ended the week in the green, up 4.2%, led by gains in rate-sensitive stocks such as HDFC after exports data raised rate-cut hopes. The decline in gold and crude prices were also positive for the stock markets.

Source: Yahoo Finance

Barring software (down 2.3%), all sectoral indices ended the week in the green with banking (up 7.5%) and capital goods (up 5.8%) sectors witnessing maximum gains.

Source: BSE

Now let us discuss some of the economic developments of the week gone by. The inflation based on Wholesale Price Index (WPI) in March 13 has declined to three-year low of 5.96%. This compares to 6.84% in the preceding month and 7.69% in March 2012. The inflation figures for March 2013 are also considerably lower than Reserve Bank of India (RBI) projection of 6.8% for the month. The key reason for easing in the inflation rate is steep drop in vegetable prices. The inflation in vegetables reached -0.95% in March from 12.11% in the previous month. Hence, inflation in the food articles, with a 14.3% share in WPI basket, dropped to 8.73% in March from 11.38% in February. With inflation cooling off and industrial production remaining sluggish at 0.6% for February, expectations for a rate-cut by RBI in its annual monetary policy on 3rd May have gone up.

In an interesting development in the mining sector, the Supreme Court (SC) has cleared the long awaited verdict on the Category A and B iron ore mining in Bellary district of Karnataka. With this, the SC has stepped back from its stance on imposing a total ban on mining in Karnataka State on account of environmental concerns. However, the Category C mining will remain banned in Bellary. Post this ruling, 49 mining leases in Category C stand cancelled.

Now let us move to some news from the corporate world. The Central Electricity Regulatory Commission (CERC) has given its nod to Tata Power to raise tariffs for power produced from the Mundra ultra mega power project (UMPP). The apex power sector regulator has directed five state governments to compensate the power company for the losses it incurred on account of importing costly coal for its 4,000 megawatt UMPP. This decision is set to impact consumers in five states- Maharashtra, Gujarat, Punjab, Haryana and Rajasthan. Tata Power had signed power purchase agreements to sell power at Rs 2.2 per unit with these five states. However, changes in Indonesian coal regulation resulted in significant increases in fuel costs. If not compensated, it would have resulted in losses of Rs 18.7 bn annually. It must be noted that earlier during the month, the power sector regulator had passed a similar ruling that directed the states of Haryana and Gujarat to compensate Adani Power for its costly coal imports for 2,424 MW of capacity at Mundra.

The Engineering major Larsen & Toubro Ltd (L&T) has recently announced that it will acquire Komatsu Ltd.'s stake in their equally owned joint venture that manufactures construction equipment. As such, L&T will acquire 50% stake in L&T-Komatsu (LTK) held by Komatsu Asia & Pacific, a wholly-owned subsidiary of Komatsu, Japan. The joint venture company posted gross sales of Rs 16.2 bn in FY13. Post the buyout, LTK will become a wholly-owned subsidiary of L&T. As of now, the financial details have not been disclosed. As per the company release, LTK will continue to manufacture construction equipment and hydraulic components and Komatsu will take care of the production of equipment, including hydraulic excavators.

Some of the companies under our coverage have declared their results for the quarter ending March 2013. Now let us take a look at their quarterly performance.

HCL Technologies Limited's consolidated net sales grew by 2.4% QoQ in 3QFY13 (year ending June). The growth in revenues was 3.8% quarter on quarter (QoQ) on a constant currency basis. In terms of US dollar, revenues grew by 3.2% QoQ during the quarter. A marginal volume growth of 0.4% was witnessed during the quarter which was lower than the 3% sequential growth seen during the previous quarter (2QFY13). EBITDA margin dropped slightly from 22.6% in 2QFY13 to 22.4% in 3QFY13. Net profit grew at a much higher rate of 7.8% QoQ, because of forex gains of Rs 231 m in 3QFY13 as compared to a forex loss of Rs 125 m in 2QFY13. The company added 37 new clients during the quarter. The total number of active clients at the end of March 2013 increased to 547 from 544. The company has declared an interim dividend of Rs 2 per share (dividend yield of 0.3%).

Movers and shakers during the week

Company	10-Apr-13	18-Apr-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Reliance Communications	73	86	17.6%	92/47
Unitech	24	28	17.4%	41/18
Indusind Bank	388	450	16.0%	449/288
Axis Bank	1,239	1,431	15.4%	1519/922
United Spirits	1,819	2,095	15.2%	2195/547
Top losers during the week (BSE-A Group)
Muthoot Finance	159	119	-25.3%	246/106
Infosys	2,813	2,295	-18.4%	3010/2163
Mcleod Russel	335	299	-10.8%	387/254
Hexaware Technologies	96	88	-8.6%	142/73
Wipro	402	369	-8.4%	418/302

Data Source: Equitymaster
In the banking sector Yes Bank declared its results for the fourth quarter and financial year ending 2012-13 (FY13).The bank has reported a 37% YoY growth in net interest income in FY13. The growth in net interest income was mainly on the back of 24% YoY growth in advances. Boosted by growth in fee income, the other income grew by 47% YoY in FY13. For the year, the growth in the bottomline stood at 33% YoY despite higher provisioning.

In news from the Pharma sector, Ranbaxy Laboratories (RANB), has announced that the company along with its parent company Daiichi Sankyo have launched the hybrid business model in Brazil to expand the business of both the companies. As a part of this synergy, Ranbaxy will support Daichii Sankyo's Brazil subsidiary, by helping the latter to enter the branded generics market. However, Ranbaxy's Brazilian subsidiary viz., Ranbaxy Farmaceutica Ltd would continue to promote Ranbaxy's generics and also enter the branded generics market in Brazil. In Latin America, Brazil is considered to be the biggest pharma market and is expected to become the fourth largest in the world by 2016.

Going forward, the stock markets are expected to reflect the impact of quarterly results as earnings season gains momentum. Besides, they will be influenced with the Reserve Bank of India (RBI)stance on key rates. However, investors should focus on long term fundamentals and valuations before investing in any company.