Global markets continue to rally

Sat, 4 May RoundUp

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All the major global indices, barring the Japanese index, continued to have a positive outing over the week. A strong US jobs report by the Labor Department saw the unemployment rate being revised downwards to 7.5%, the lowest in four years. This helped allay fears of slowdown in the world's largest economy and bolstered the US markets which were up by 1.8%.

Positive cues from the US jobs data had a rub-off effect and helped in overcoming uncertainty following downgrade of economic forecasts by the European Union. The European Union had earlier said that it expected the 17-country Eurozone's economy to shrink by 0.4% this year. This is 0.1% higher than its February prediction. The stock markets in Germany and France posted the sharpest gains of 3.9% and 2.7%, respectively. The UK market was up by 1.5%.

The Indian markets closed the week on a positive note with the shares in the FMCG space leading the gains. The Indian stock markets were up by 1.5%. The Brazil market surged by 2.3% backed by rally in the stock of largest airplane manufacturer Embraer. Even the Chinese market was up by 1.3% over the week. The Japanese market was the only loser as strengthening yen dimmed hopes of boosting corporate profits.

The strong performance in the Indian stock markets was aided by strong buying in Wipro, Sterlite Industries, Mahindra & Mahindra & Infosys shares.

Source: Yahoo Finance

Majority of the sectoral indices ended in green with FMCG (up 7.5%) and IT (up 4.7%), Power (up 2%) and capital goods (up 2%) witnessing the maximum gains. banking (down 1.1%), PSU banks (down 0.4%) and auto (down 0.1%) indices were the only losers during the week. Gain in the FMCG space was led by the largest company in the space, Hindustan Unilever that surged by a record 23% after announcement by parent to hike stake in the company to 75%.

Source: BSE

Now let us discuss some of the economic developments of the week gone by. On 3rd May, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points for the third time since January2013. The Reserve Bank of India trimmed the repo rate to 7.25%, the lowest since May 2011, and kept the cash reserve ratio (CRR) unchanged at 4%. However, it warned that the risk of inflationary pressures persist despite a recent sharp decline in wholesale price index (WPI) inflation. It also said that a high current account deficit poses the biggest risk to the Indian economy and that there is little room to ease monetary policy further. The central bank expects the economy to grow at 5.7% in FY14. It also expects the projected headline WPI inflation to remain at 5.5% during the year.

India's factories lost momentum in April 2013 as output grew at its weakest pace in over four years. But a pick up in the export orders index suggests factories could step up production in coming months. The HSBC Manufacturing Purchasing Managers' Index (PMI) fell for the second straight month in April, dipping to 51.0 from 52.0 in March. The reading for April 2013 was the lowest since November 2011. The latest PMI showed inflation pressures eased further last month with both costs of raw material and prices charged rising at a slower pace than March.

Now let us move to some news from the corporate world. With the earning season in full swing, a number of companies have declared their quarterly results over the week.

Hindustan Unilever (HUL) posted an impressive financial performance for the quarter ended March 2013. The company registered a 12% YoY rise in revenues led by 13% growth in the domestic consumer business with 6% YpY growth in underlying volumes. Barring packaged foods, all the product segments reported double-digit growth. Beverages clocked the highest growth of 18% YoY driven by strong performance of the tea business. Soap & detergents and personal care segments recorded growth of up to 13% YoY each. Backed by easing raw material costs and controlled other expenditure, HUL was able to post a 0.5% YoY rise in operating margin to 15% during the quarter. Ad-spends as a proportion of sales rose by 1% YoY to 12.7%. Net profit for the quarter was up by 14.7% YoY aided by 51% YoY jump in other income. For the full year 2013, revenues increased by 17% YoY and earnings grew by a steep 41% YoY. The parent company Unilever Plc is planning to raise its stake in the Indian unit to 75% by acquiring up to 487 m shares equaling 22.52% of the total equity of HUL. For this it would pay around US$ 5.4 bn. This would be the largest equity offer ever in the country.

India's leading two-wheeler manufacturer Hero MotoCorp has announced its financial results for the quarter ended March 2013. During the quarter (4QFY13), the company reported sales of Rs 60,724.7 m, marginally higher by 1.8% year-on-year (YoY). Operating profits stood at Rs 8,497.8 m, lower by 8.2% YoY. While interest expenses increased by 4.8% YoY to Rs 30.7 m, depreciation charges declined by 5.3% YoY to Rs 2,655.3 m. At the bottomline level, net profits declined by 4.9% YoY to Rs 5,742.3 m. Net profit margins declined from 10.1% in 4QFY12 to 9.5% in 4QFY13. The slowdown in the auto sector and increasing competition impacted the company's profitability. It must be noted that the company has reported a decline in net profits for the third consecutive quarter.

Telecom major Bharti Airtel declared results for the quarter ended March 31, 2013. The company has reported 9.2% YoY growth in consolidated sales and 49.4% YoY decline in the net profits during the quarter. The mobile subscriber base in India grew by 4% YoY during the quarter and the total subscriber base including Asian and African operations grew by 8% YoY during the quarter. Operating expenditure was up by 11.7% YoY during the quarter resulting in operating profits rising by only 4.1% YoY. Operating profit margins shrank by 1.6% YoY from 33.3% in last quarter of FY12 to 31.7% in last quarter of FY13. Lower operating margins coupled with higher interest costs and depreciation resulted in net profits falling by 49.4% YoY during the quarter. Increase in tax outflow too impacted net profits adversely. The company has recommended a dividend of Rs 1 per share (dividend yield of 0.3%).

Movers and shakers during the week

Company	26-Apr-13	3-May-13	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Hind. Unilever	465	572	23.0%	597/407
Wipro	330	356	7.9%	418/302
Sterlite Ind.	90	97	7.8%	123/83
Mahindra & Mahindra	891	959	7.6%	975/622
Infosys	2,212	2,308	4.3%	3010/2163
Top losers during the week (BSE-A Group)
Bajaj Auto	1,893	1,812	-4.3%	2229/1423
GAIL	351	336	-4.3%	396/300
Tata Motors	296	285	-3.7%	337/213
SBI	2,290	2,217	-3.2%	2550/1805
Cipla	410	401	-2.2%	435/301

Data Source: Equitymaster
Public sector lender IDBI Bank has announced its financial results for the quarter ended March 2013. During 4QFY13, the bank reported interest income of Rs 63,968.9 m, higher by 5.2% YoY. Other income shot up by 45.8% YoY to Rs 11,468.9 m during the quarter. Operating expenses increased by 25.1% YoY to Rs 9,927.4 m. Operating profits before provisions and contingencies increased by 32.4% YoY to Rs 15,941.3 m. Provisions and Contingencies zoomed up by 206.7% YoY to Rs 8,691.2 m during the quarter on account of substantial increase in provisioning towards non-performing and restructured assets. As a result, net profits during the quarter declined by 28.1% YoY to Rs 5,544.5 m. Net interest margins dropped sharply from 12.7% in 4QFY12 to 8.7% in 4QFY13.

Among other corporate news, the Directorate General of Hydrocarbons (DGH) wants Reliance Industries Ltd (RIL) to give up 86% of the KG-D6 gas block area. This includes 8 gas discoveries reportedly valued at USD$ 5 bn. The order comes in the light of RIL exceeding the time limit allotted for development of the gas block. RIL had earlier offered to relinquish 4,223 sq km in the eastern offshore KG-D6 block but DGH has asked it to contractually give up 6,601 sq km of the total 7,645 sq km area in the block.

Coal India Ltd (CIL) made a positive start in FY14 by achieving its production and distribution targets for the month of April. According to the Coal Minister, the company's production was up by 5.7% YoY to 35.8 MT in April. Despite some state power utilities not taking further coal supplies due to availability of sufficient stocks, CIL has been able to achieve its dispatch target for the month. The company's coal offtake grew by 5.4% YOY to 39.8 MT. Supply of coal to power utility companies increased by 10.2% YOY to 29.6 MT in April.

The uptrend in the global stock markets continued in the week gone by as positive US jobs report mitigated slowdown fears. Even the Indian markets have performed well on robust financial performance being reported, particularly by FMCG companies. RBI has been cautious in its monetary easing stance in the light of continued inflationary pressures and high current account deficit. But these are temporary pressures likely to be resolved in the long term with the economic growth back on track again.