Blood on the streets

Sat, 8 May RoundUp

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The past week was a negative for the world markets as all key global indices closed in the red. Europe was the worst hit because of mounting concerns that Greek debt crisis would spread to Portugal and Spain. France was the biggest loser of the week globally while UK and Germany fell by 7.7% and 6.9% respectively. US markets closed with a fall of 5.7%.

In Asia, India closed the week with a decline of 4.5% while China fell by 1.2%. Singapore and Hong Kong markets fell by 5.2% and 5.6% respectively. The biggest loser in Asia was Japan with a fall of 6.3%. Brazil ended the week down 6.9%.

Source: Yahoo Finance

Moving on to the sectoral indices in India, the week was negative for the overall markets. Stocks from the metal and realty sectors were the biggest losers. The BSE-Metals and BSE-Realty indices closed the week with losses of 9.6% and 9.5% respectively. Amongst other indices, BSE-Healthcare fell the least during the week. BSE-Oil & Gas and BSE-FMCG indices fell by 1% and 2.1% respectively.

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.

Timepiece and jewellery major, Titan Industries announced its FY10 results during the week. The company's consolidated topline has grown by 22% YoY for the year. This performance comes on the back of a stellar performance by the jewellery segment. The jewellery segment, which contributes 70% to the company's sales, grew by almost 27% YoY. The other segments of the company, which are timepiece and others (comprising eyewear and precision engineering), grew by 13% and 11% respectively. The company's operating margin expanded by 0.6% to stand at 8.5% as a result of fall in staff costs, advertisement expenses and other expenditure as percentage of sales. However, the growth in operating income was capped due to higher raw material costs. Titan's net profits increased by 53% because of higher operating income, higher other income and lower tax expenses. We believe that Titan is in a sweet spot, capitalizing on its brand name, and riding on low penetration levels and rising aspirations of the Indian middle class.

Pharmaceutical major Dr. Reddy's also announced its 4QFY10 results. The company's sales fell by 19% YoY because of decline in sales of its generic business in the US and Europe. These two markets contributed about 53% of the company's generic sales in 4QFY10 as compared to 65% in 4QFY09. The reason for decline in the US markets was that the company did not have the exclusive right to sell the blockbuster drug 'Imitrex' as it had enjoyed during 4QFY09. Furthermore, the company suffered from a delay in product launches as well as the impact of certain batches of four products being recalled from the US market. In Europe, the company suffered as Betapharm faced pricing pressure. Dr. Reddy's operating margin fell by 7.8% as a result of the disappointing topline performance. Going forward, we believe that Dr. Reddy's focus on a stronger product flow in the US, custom manufacturing business and other core businesses will be the key long-term drivers

One of the biggest corporate courtroom battles 'almost' ended on Friday as the Supreme Court ruled in favor of Reliance Industries Limited (RIL). The court ruled that RIL can sell gas to Reliance Natural Resources Limited (RNRL) at government set prices, which are higher than the price set in the 2005 family accord. The court has also directed the two companies to renegotiate their contracts within 6 weeks. This resulted in the stock of RNRL crashing by 24% on Friday. In maybe noted that according to the 2005 accord, RIL would sell gas from the KG Basin to RNRL for US$ 2.34 mmBtu while the government had set the price of the gas to be sold at US$ 4.2 mmBtu in 2007. This gas-pricing dispute has led to this courtroom battle.

Movers and shakers during the week

Company	30-Apr-10	7-May-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
BPCL	518	550	6.2%	658 / 356
HPCL	316	335	6.1%	425 / 247
EVEREST KANTO CYLINDER	121	127	5.4%	238 / 111
ASHOK LEYLAND	60	63	5.3%	66 / 21
LUPIN LTD	1,708	1,797	5.2%	1,839 / 704
Top losers during the week (BSE-A Group)
REL NATURAL RESOURCE	70	53	-24.7%	112 / 57
ABAN OFFSHORE	1,197	1,010	-15.6%	1,680 / 430
RELIANCE POWER	163	140	-13.9%	210 / 128
STERLITE IND.	828	714	-13.8%	928 / 465
REL. INFRA	1,136	980	-13.8%	1,404 / 765

Source: Equitymaster
Coming to international news, EU leaders tried to convince the market that the Greek crises will not spread. They have indicated that Greek's financial crisis is a result of bad management, free spending and 'statistical cheating'. These factors do not apply to countries like Portugal and Spain. However, the markets have not taken any heed as was clear from the bloodbath across world markets. While the bailout package is expected to keep Greece away from immediate bankruptcy, its long-term prospects are unclear. The country's growth prospects remain weak and the population is unwilling to accept austerity measures. We believe that somewhere down the line, debt restructuring would be a possible option for Greece.