Down in the dumps due to PIIGS

Fri, 30 Apr RoundUp

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The past week was a negative for the world markets with only Japan closing the week with a marginal gain of 0.1%. China was the biggest loser for the week with a fall of 3.9% as investors sold stocks amidst concerns over lack of liquidity and a possible interest rise to cool property prices.

India closed the week with a loss of 1.1%. Amongst other markets, Europe was hit hard due to the continuing Greek crisis and concerns that the debt crisis will spread as S&P lowered Portugal’s debt rating to A-. Germany and UK ended the week each 1.8% lower while France ended the week 2.8% lower. In Asia, Singapore and Hong Kong ended the week lower by 1% and 2.2% respectively, while US and Brazil ended the week lower by 0.3% and 2.2% respectively.

Source: Yahoo Finance

Moving on to the sectoral indices in India - the week was a mixed one for the overall markets. Stocks from the realty and oil & gas space were the biggest losers for the week with the BSE-Realty and BSE-Oil & Gas indices closing the week with a loss of 3% and 1.7% respectively. The top performer of the week was the BSE-PSU index with a gain of 0.9%. Among the other indices, which closed the week in the green, BSE-Midcap, and BSE-Banking indices closed the week with a gain of 0.7% each while BSE-Consumer Durable and BSE-Power indices closed the week with a gain of 0.5% each. Among indices, which closed in the red, BSE-IT and BSE-Capital Goods indices closed the week with a loss of 0.4% and 0.6% respectively. BSE-Sensex also figured in the top five losers of the week with a loss of 0.8%

Source: BSE

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.

Car market leader, Maruti Suzuki released its 4QFY10 and FY10 results. The company's top line during the quarter grew by 31% YoY on the back of a 22% YoY increase in volumes. Operating profits jumped by 147% during the quarter as operating margins expanded by 6.2% on the back of lower costs as a percentage of sales. Net profit grew by 170% YoY during the quarter. The top line for the year grew by 29% YoY while the bottom line more than doubled during the year. The performance of the company was aided by several positives like low interest rate environment, low base effect, government incentives and buoyant economic environment. However, going forward the growth should be at the company’s long-term average.

Moving to telecom, Bharti announced its 4QFY10 and FY10. For the quarter net sales improved by 5% YoY while net profit dipped by 1% YoY. For the full year, the company's consolidated sales grew by 12% YoY. This growth was a result of a 38% YoY rise in sales from the passive infrastructure segment. However, sales from the company’s largest revenue contributor, mobile services segment, increased by only 7% YoY. Net profit for the year increased by 17% YoY because of interest income, partially offset by higher operating costs as a percentage of sales. The number of subscribers for the year stood at 128 m, an increase of 36% YoY

Coming to results from the FMCG space, consumer goods major Dabur announced its 4QFY10 and FY10 results. The company's consolidated net sales for 4QFY10 grew by 17% YoY on the back of strong performance by its domestic business and the amalgamation of the financials of Fem Care. The sales growth for the company was primarily volume led with key categories such as hair care, oral care, skin care, health supplements and digestives registering healthy growth. Net profit for 4QFY10 grew by a healthy 30% YoY. This growth comes on the back of higher operating income as raw material and other expenditure were lower as a percentage of sales. However, higher advertisement expenditure as a percentage of sales capped bottom line growth. Sales for the full year grew by 20% YoY while net profit improved by 29% YoY.

Moving from Ayurveda to Biopharma, pharma major Biocon also announced its FY10 results during the week. The company’s sales grew by a robust 50% YoY during the year. This performance was led by a strong performance by the biopharmaceuticals, AxiCorp and contract research businesses. Operating (EBITDA) margins for the company fell by 0.6% during the year as a result of higher raw material costs as a percentage of sales. However, the bottom line grew by 228%. This was a result of the absence of a forex loss incurred in FY09. On excluding this extraordinary item, the bottom line of Biocon grew by 22% YoY.

In other corporate news, ONGC has reported an ultimate oil and gas reserve accretion of 87 m tonnes for FY10. Ultimate reserve is a geological concept of oil and gas that signifies the quantity that theoretically is supposed to exist in a given field. It does not take into account technical, economic or time constraints. The accretion for the company is due to discoveries in Assam, Krishna Godavari onland, Kutch offshore and Mumbai offshore. While the company produced 25 m tonnes of crude oil and 23 bn cubic meters of gas in FY10, the concern is maintaining production levels from its ageing oil and gas fields in India. As a result, the key focus area for the company is acquiring oil and gas assets abroad.

As per a leading financial daily, Bangalore-based information technology (IT) services provider MindTree, has bagged the application development services (ADM) segment in the Unique Identification (UID) project, renamed as ‘Aadhaar’. The company is understood to have placed a final bid of Rs 200 m and won the bid against two other shortlisted companies, IBM and Accenture. The ADM project involves the complete application lifecycle i.e. from designing, developing, testing to maintaining and supporting the application and providing help desk service. The first set of UIDs is expected to be issued between August 2010 and February 2011. UID project is expected to be a Rs 150 to Rs 200 bn opportunity for IT companies as it sets to build an ecosystem around the project comprising biometrics, databases, smartcards, storage and system integration. While the revenue from this project is considered small for the company, MindTree will gain in terms of brand value as this project is considered prestigious.

Movers and shakers during the week

Company	23-Apr-10	30-Apr-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Indiabulls Fin. Ser.	129	154	19.9%	224 / 95
United Phosphorus	145	170	17.7%	186 / 112
Indian Bank	193	225	16.9%	229 / 97
Rel Natural Resources	63	70	11.4%	112 / 55
Lanco Infratech	58	64	9.9%	65 / 22
Top losers during the week (BSE-A Group)
Ultratech Cements	1,094	972	-11.2%	1,172 / 543
Container Corp	1,439	1,291	-10.3%	1,500 / 755
Sun Pharma	1,685	1,567	-7.0%	1,846 / 1,103
India Cements	135	126	-6.9%	180 / 100
Idea Cellular	66	61	-6.6%	92 / 48

Source: Equitymaster
The lukewarm response for IPOs has hit the government’s divestment plans. While the government had plans of coming out with a public issue every third week of FY11, the response so far for issues of state-run companies has made the government scale down its target to 8 companies. Due to this, the target of mopping Rs 400 bn from divestment seems unlikely to be met. The government has not fared well in its divestment plans till date. Even in FY10, while the government targeted to raise Rs 250 bn through stake sale, it was only able to manage Rs 236 bn. The heavy weights in which the government plans to offload its stake includes Coal India Ltd., Steel Authority of India Ltd, BSNL and MMTC. However, given the circumstances, this is another target the government looks like it is going to miss.

Coming to international economic news, annual inflation rose to 1.5% percent in April across the 16 countries that share the euro currency. This is when unemployment rate remains at a record high of 10% in March. Unemployment rates are in fact expected to climb further in the coming months albeit at a slower pace. This is expected to add downward pressure on wage growth limited inflation growth. However, the March unemployment rate suggests that the eurozone labour market has not turned the corner and the rebound is still some way away.

Conclusion: The S&P downgrade of Portugal’s debt has lowered investor confidence affecting the world markets. One should be cautious in the coming weeks as this crisis threatens to spread to other EU countries