Equity markets across the world delivered a divergent performance this week. Stock markets of the western world remained buoyant while those in Asia and emerging markets witnessed selling pressures. US stocks shrugged of concerns about tensions in Ukraine and ended higher for the week. The Dow was up 9% this week. Economic data from the world's largest economy was mixed as strong job growth data came in alongside data which showed that wages continued to remain flat and more people were leaving the workforce. The US Fed maintained its QE tapering program by reducing its monthly purchase of debt securities by another US$ 10 bn.
European markets had a good week despite growing tensions with Russia over Ukraine. The British FTSE, the German Dax, and the French CAC indices ended the week higher by 2%, 1.6% and 0.3% respectively. Back home in India, the general elections have completed seven out of the nine phases and anticipation is building up about the next government. This uncertainty coupled with profit booking dragged the markets down by 1.3% this week. This was the worst weekly performance by the Indian indices in the last three months.
Most of the sectoral indices ended in negative territory for the week with metal (down 5.7%) and capital goods (down 5.5%) being the biggest losers. Pharma (up 2.2%) and software (up 0.7%) were the only gainers for the week.
Now let us discuss some of the economic developments of the week gone by...
In some good news for the Indian economy, Foreign Direct Investment (FDI) into the country grew for the second consecutive month in February. It was up by 12.3% YoY at US$ 2 bn. While this might be a small comfort for the economy, it must be noted that for the full financial year so far (Apr-Feb period), FDI has dipped by 0.6% YoY. Services attracted the highest FDI (US$ 2.2 bn) followed by the automobile sector (US$ 1.3 bn). For an improvement in GDP growth it is imperative that FDI into India must pick up significantly.
In a huge relief to 3G service providers in the country, the telecom tribunal TDSAT overturned a government ban on offering 3G mobile services beyond their licensed zones through roaming pacts. The tribunal ruled that it was in the national interest to allow better utilisation of scarce radio frequency. The judgment has certainly brought relief to Bharti Airtel, Vodafone and Idea Cellular as they faced a penalty of Rs 12 bn for entering into pacts with each other to offer 3G services in regions where they did not win spectrum in the 2010 telecom auctions, via intra-circle roaming (ICR) agreements. The department of telecom (DoT) however has decided challenge this order in the Supreme Court.
According to the data released by the Ministry of Commerce and Industry, India's core sector growth has been disappointing in the month of March, 2014. It slowed to 2.5% from 7% in the corresponding month of last year. The slow growth was on account of decline in output of crude oil, natural gas and fertilizer. The eight core industries - fertilizers, cement, steel, electricity, crude oil, coal, petroleum refinery products and natural gas together contribute 38% to the Index of Industrial Production. For FY14, core sector growth slowed to 2.6 % from 6.5% in FY13. In January and February, the eight core sectors grew by 1.6 % and 4.5% respectively.
As per a leading financial daily, the government has cut the import tariff value on gold from $431 per 10 grams to $422 per 10 grams and on silver from $646 per 10 kg to $632 per kg. The import tariff value is the base price on which customs duty is calculated to prevent under-invoicing and is revised on a fortnightly basis. Gold being the second largest importable item after petroleum, the government had imposed restrictions on its import and raised the import duty to 10% to keep the high current account deficit in check. As result, the total gold and silver imports fell by 40% to $33.4 bn in FY14. However with improving current account deficit, the Ministry of Commerce and Industry is demanding an ease on gold import restrictions to boost gems and jewellery exports from the country. The gems and jewellery exports fell by 8.8% to $39.5 bn in FY14.
Now let us move on to some more developments in India Inc....
As per a leading financial daily, Tata Consultancy Services (TCS) has said that it expects its loss-making Brazilian unit to turn in the black by the end of FY14.The Brazil unit has been making losses for at least five years and registered a net loss of Rs 433 m in FY13. TCS had started operations in Brazil in 2002 and currently employs 1,300 staffers and operates two development centers. However contribution of sales from the region is less than 1% of consolidated sales. Indian IT companies have increased investments in Brazil to serve local customers and utilize the country's prowess as near shore delivery location. The IT market in Brazil is estimated to be worth $25 bn.
Leading state owned financier Rural Electrification Corporation (REC) is likely to raise Rs 300 bn via debentures in the current financial year. In the last fiscal too, the company had targeted to raise Rs 300 bn. But it managed to raise to Rs 270 bn till December. The funds raised are predominantly used for general business operations and to repay the existing debt on books. With the company refinancing a part of its debt by issuing debentures it appears that the earlier loans were taken at a higher interest rate. Refinancing at a lower interest rate now will help the company manage its borrowing cost better. It shall also improve profitability in the future.
According to a leading business daily, ITC plans to set up standalone exclusive outlets for the sub brands it sells through the flagship Wills Lifestyle stores. The sub brands include Wills Sports, work wear sub brand Wills Classic, and exclusive men and women wear stores. The company feels that the potential for such outlets is huge even in smaller towns, especially for casual wear. In addition, the company plans to make a foray into the e-commerce space. It has recently introduced the Wills Lifestyle e-store and plans to double its online revenue every year. The company is already selling through online sites such as Jabong, Myntra and Flipkart. ITC's lifestyle retailing business grew by 20% YoY in FY14.
Coal India fell short of its 462.5 (MTPA) production target in FY14. However, in FY15, it has been assigned a higher production target of 507 MTPA. This would be challenging to achieve given the company fell short of its FY14 target by about 4%. It should be noted that being a PSU it is assigned production targets by the government. But it is getting harder for the company to meet the same in light of increased difficulty in getting mining clearances. Thus, it would be interesting to see if FY15 targets are achieved or whether the company will fall short of it, as the case was in FY14.
Aurobindo Pharma is facing patent infringement and violation cases against its three generic drug applications in the US. Three companies in the US have filed the cases against Aurobindo for violation of patent against their drugs. These include the company's ANDA (abbreviated new drug application) for generic version of dexmedetomidine hydrochloride injection which is used as sedative and is facing patent allegation by Hospira for the drug Precedex. Two other companies have filed for violation of patents against Aurobindo for their drugs Angiomax (bivalirudin) and Livalo (Pitavastatin). While the company believes such cases are quite common in the industry, any adverse ruling can affect the company's revenues during the exclusivity period.
Let us now have a look at the results announced by companies
Axis bank announced its results for 4QFY14. The bank reported net interest margin (NIMs) at 3.89% in the quarter, supported by growth in low-cost current account and savings account (Casa) deposits. The growth in net interest income stood at 19%, same as in the December quarter. The bank was able to maintain its CASA ratio. The asset quality improved slightly in the quarter. The gross bad debt came marginally lower at 1.22%. The improvement was on account of higher recoveries and upgrades. The increase in stressed assets remained at the same level as the December quarter. As per the management, the quality environment in FY15 will be same as 2013-14 and stressed assets in the current fiscal year are expected at Rs 65 bn, slightly higher than FY14. The non interest income for the quarter grew over 10% versus 2% growth in the December quarter. This was mainly due to strong contribution of fees from retail and corporate banking. The loan growth was maintained at 17% and deposit growth was also higher at 11% as compared to the previous quarter. For the full year, the bank's net interest income (NII) rose 24 % YoY. Net profits for the full year were up 20% YoY.
Maruti Suzuki also announced its results. The company's sales volumes for the quarter were down by 5% YoY due to poor consumer sentiment and rising fuel prices. Net sales declined by 9% YoY, while net profits fell by 35% YoY due to weak sales and higher marketing expenses including discounts. The profits for the quarter were also adversely impacted due to provision of nearly Rs 1.4 bn for dealers to offset the additional cost on stocks after the reduction in excise duty. For full year, the consolidated revenue was flat while consolidated net profit was up by 16% YoY. For full year, the bottomline was boosted by the company's cost reduction and localization initiatives, along with a foreign exchange gain. The sales volume for FY14 stood at 11.6 lakh units in 2013-14, down 1.4% YoY. The company's board recommended a dividend of 240% at Rs 12 per share of face value Rs 5 each for FY14.
Idea Cellular has reported results for the quarter and year ending March 2014. The company has reported a growth of 16% YoY in the consolidated revenues. On a sequential basis, the revenue was up 6.5% QoQ. The growth was mainly driven by exponential data growth and an increase in voice minutes and subscriber base. The net profit during the quarter rose 91.4% YoY (up 26% QoQ). As per the management, the volume growth helped data revenue reach 10.1% of overall service revenue in the quarter, up by 3.5% from a year earlier. The voice minutes for the quarter rose 8.6% QoQ to 157.1 billion minutes. The company's market share (by revenues) increased to 16.1%, up by 1.2% from last year. The average revenue per user (ARPU) during the quarter increased to Rs.173 from Rs.169 in the preceding quarter. However, the average realization per MB (ARMB) slipped sharply. The mobile data volume for the quarter grew 31% QoQ. The company added 5.1 million new 3G users in FY14, taking its base to 10.2 million.
Hindustan Unilever (HUL) has announced its 4QFY results. The company has reported 10% year on year (YoY) growth in the topline for the quarter on the back of 9% growth in each of the Home & Personal Care (HPC) and Food businesses. The operating margin for the quarter has improved slightly aided by lower input costs and ad-spends as a proportion to sales. The net profit margin for the quarter (excluding the impact of extraordinary income) was down marginally as 42% jump in other income was offset by higher tax outgo. For full year (FY14), revenues have grown by 8.6% aided by 8.5% rise in HPC segment and 11.6% increase in Food segment. During the year, the controlled raw material costs resulted in a 0.5% expansion in the operating margin. In FY14, the net profit margin without exceptional income was up by 0.6%. The company has declared a final dividend of Rs 7.5 per share of face value of Re 1 each. For the full year FY14, the total dividend works out to be Rs 13 per share.
IDFC declared its results for the fourth quarter (4QFY14) and the financial year 2013-14. Consolidated income from operations declined 0.6% YoY in 4QFY14 but grew by 7.8% YoY in FY14, on the back of 5.7% YoY growth in advances. Disbursements fell by 7.9% YoY, while sanctions dropped by 1.1% YoY in FY14 on account of a persistent slowdown in infrastructure activity. Net interest margins (NIM) decreased marginally to 4.0% from 4.1% in FY13. Other income saw a whopping 83% YoY increase to Rs 180 mn during FY14 primarily on the back of higher income from asset management and income from principal gains. Bottom line declined by 50.9% YoY in 4QFY14 and by 1.8% in YoY FY14. The decline was on account of weak income growth and higher provisioning.
Bharti Airtel has declared results for the full year 2013-14 and for the quarter ending March 2014. The company reported 13.5% year on year (YoY) increase in total revenues during the quarter. The mobile subscriber base in India grew by 9.2% YoY while growth in the total subscriber base on the network (including South Asia and African operations) came at 9.15% YoY during the quarter. The operating margins improved by 1.8% YoY to 32.7% during the quarter. The net profits for the quarter were up by 89.1% YoY. For FY14, the revenues and net profits were up by 11.5% YoY and 21.8% YoY respectively. Total count of subscribers stood at around 205.5 m at the end of March 2014.
Going ahead, the tensions in Ukraine as well as conflicting economic data from the west is likely to keep global markets volatile. Back home, the fortunes of the Indian markets will be driven by the earnings season as well as the outcome of the general elections. However, investors should invest in stocks with strong fundamentals for the long term keeping aside these short term considerations.