The past week was a mixed one for the global markets as the western markets ended on a positive note, while their Asian peers recorded losses. Selling pressure in China was witnessed on account of various reasons varying from worries related to the Greece debt crisis, the Chinese government taking measures to cool the rising property rates as well as the
suit against Goldman Sachs. However, the Indian markets were the sole gainers amongst Asia this week, with the country's benchmark index, the BSE-Sensex ending higher by 0.6%.
Amongst the key global markets, US led the pack of gainers this week with the Dow closing higher by about 2%. Germany followed suit with gains of about 1%. Brazil ended marginally higher, while UK ended marginally lower. China led the pack of losers with losses of about 5%, followed by Hong Kong, which closed down by about 3%. Japan and France ended lower by about 2% and 1% respectively.
Source: Yahoo Finance
Moving on to the sectoral indices in India - the overall market breadth remain positive with most of the indices recording positive weekly gains. Stocks forming part of the banking and auto sectors were in demand the most this week, with their respective indices the BSE-Bankex and BSE-Auto recording weekly gains of 5% and 2% respectively. On the other hand, stocks from the metals and IT spaces were amongst the only losers with the BSE-Metal and BSE-IT indices ending lower by about 3% and 2% respectively. Amongst the lowest gainers were stocks from the pharmaceutical, oil & gas and power sectors. Small and midcap stocks were in favour this week as the BSE-Smallcap and BSE-Midcap indices recorded gains of about 2% each.
Moving on to key corporate developments during the week - A handful of large companies announced their quarterly and full year results this week. We have highlighted some of the key ones below.
Hero Honda Motors reported a strong 49% YoY growth in profit during the quarter ending March 2010. This was despite a slower sales growth of 20% YoY during the quarter. While the topline growth was on the back of a good demand and advance buying in anticipation of increase in excise duty in the budget, the surge in profits was because of lower taxes. For the year, sales and profits were higher by 28% YoY and 74% YoY respectively. An expansion in operating margins was the key factor behind the same. Going forward, the company expects to grow in line with industry and sell 5 m units (4.6 m in FY10). The company intends to spend nearly Rs 3 to 3.5 bn in FY11. This would be mainly towards capacity expansion and plant upgradation.
IT biggies, TCS and Wipro also announced their results this week. TCS reported a decent 8% YoY growth in revenues during FY10 on back of 17% YoY increase in volumes. Despite the headwinds of appreciating rupee, TCS managed to expand its operating profit margins by 3.2% YoY. As per the management, this was possible mainly through better cost management and improved utilization levels. It bottomline surged by 33% YoY during FY10 on back a strong operating performance coupled with lower interest expenses. On a sequential basis, the revenues and net profits grew by 1% QoQ and 10% QoQ during 4QFY10.
Wipro on other hand reported a revenues and profit growth of 6% YoY and 19% YoY respectively. During the quarter, the company's topline (on a sequential basis) remained flat, while its profits declined by 1% QoQ. This was on the back of a contraction in margins. The growth in profits during the year was on the back of a 2.2% YoY expansion in margins, leading to an 18% YoY increase in operating profits. While tax costs increased by about 54% YoY during the year, its impact was subdued by lower interest costs.
Moving on from IT to the food sector, Nestle India also announced its 1QCY10 (December ending company) results this week. The company posted a healthy 17% YoY sales growth with the domestic business growing by 16.7% YoY and exports growing by 20.4% YoY. The top line growth during the quarter was volume driven. However, Nestle's operating profits were under pressure due to rising raw material prices especially of milk, sugar and wheat. However, Nestle consciously decided against passing on food inflation to its customers and instead focused on expanding volumes. As a result of this strategy, the company's bottom line grew by only 2.3% YoY.
Moving on from corporate results to other news, wind energy major, Suzlon is reportedly looking at expanding its business activity rapidly in India in the coming years. At present, the company is the market leader with a share of about 50%. As per the company's management, India can generate nearly 45,000 MW. As such, it is aiming at capturing majority business in the coming future. The company is also looking at increasing its presence across the nation.
Metal stocks were under pressure this week on the back of reports of the government looking to put pressure on steel companies to limit price hikes. The government's intention behind this is to control inflation that has already gotten out of shape. The wholesale price index based inflation was almost into double digits in March (at around 9.9%). The government fears that high inflation will continue in the coming months on the back of rising commodity and fuel prices.
Speaking of rising inflation, the RBI took measures to contain the rising levels of inflation by revising the benchmark rates that govern liquidity in its annul monetary policy this week. The CRR (ratio of cash that banks need to keep with the RBI) has been hiked by 0.25%. At the same time the repo and reverse repo rates (rates at which banks borrow from the RBI and vice versa) have also had a similar increase. These are expected to ensure that there is no excess liquidity to fuel unreasonable demand. The CRR hike for example is expected to suck out liquidity to the tune of Rs 125 bn from the system.
Investors did not seem to fuss over the rate hikes during the week as the indices did close higher (on the day the policy was announced). With investors being clearly aware that the problems relating to higher inflation do persist in the Indian economy, such proactive measures by the RBI will only help the economy in the end. With the RBI expecting India to grow by about 8% during the current fiscal it would not want to take measures that would hamper growth or crowd out the government and private borrowing needs.