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Global Markets end on a mixed note
Sat, 21 May RoundUp

Global markets witnessed a mixed trend last week. The US markets ended flat on rising concerns that the Federal Reserve may hike interest rates as early as June. This follows the release of minutes of the Fed's latest meeting that stressed on the central bank's intent to raise interest rates soon provided the economy continues to recover. Even the Chinese markets ended weak on fears that the government may be taking a cautious stance on further stimulus in the backdrop of growing bad loans. As per the finance ministry, the government will earmark $4.23 billion to help local governments pay for capacity closures in the steel and coal sectors this year.

Among Asian markets, the Indian markets also closed the week in the negative zone. Investor sentiments were frayed by record losses posted by public sector banks and possible interest rate hike by the Fed. Even the tightening of P-note norms on money laundering further dampened sentiments. The markets were down by 0.7% for the week. However, other Asian markets ended in the positive territory with the Japanese market being the biggest weekly gainer at 2%. Barring Germany, all the other European markets managed to post gains in the week gone by. Meanwhile, crude oil continued to firm up as the Nigerian output fell to a 22-year low. However, the price remained below the $50 a barrel mark.

Key World Markets During the Week

In the Indian markets, stocks from all the sectors, barring realty, ended in the red. Stocks from capital goods, power and banking sector witnessed the maximum selling pressure.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

After three months of growth, automobile exports from India plunged 15.87% YoY to 2.44 lakh units in April. The fall has been on the back of continuous demand slump in major overseas markets of Africa and Latin America.

The worst hit were three-wheeler exports as their shipments declined by 61.8% YoY in April. Motorcycle exports were down 15.3% YoY during April while that of two-wheeler were down by 10.8% YoY. Commercial vehicles export also declined by 2.7% YoY during the month at 6,826 units.

However, passenger vehicle shipments rose by 6.6% during last month and stood at 53,651 units. Also, passenger car exports rose 2.3% YoY while utility vehicle shipments grew 30% YoY in April. One shall note that exports growth for automobile sector were subdued during most of the months in FY16 because of currency problems in certain markets of Africa and Asia.

Wholesale Price Inflation (WPI) turned positive after a gap of 17 months, rising 0.34% YoY in April. This was as against -0.85% recorded in March. On a seasonally adjusted basis, the headline Wholesale Price Index (WPI) rose 0.86% month-on-month. This was recorded as the biggest sequential jump in the last 32 months. The rise in the WPI in April was greatly due to higher food prices, strong global commodity prices and a slight improvement in domestic demand in select segments.

The above data has dashed hopes of a rate cut by the Reserve Bank of India (RBI) in its next monetary policy review meeting scheduled on June 7.

Movers and Shakers During the Week
Company 13-May-16 20-May-16 Change 52-wk High/Low
Top Gainers During the Week (BSE A Group)
Future Enterprises 19 24 25.8% 173/17
Housing Development Infra 83 94 13.0% 113/54
Piramal Enterprises 1,264 1,421 12.4% 1537/805
Pidilite Industries 606 653 7.8% 657/508
Aditya Birla Nuvo 960 1,003 4.5% 2634/685
Top Losers During the Week (BSE A Group)
Torrent Power Ltd 227 195 -14.3% 253/137
Bank of Baroda 155 136 -12.5% 216/109
Castrol India 424 374 -11.7% 513/360
Strides Sharsun Ltd 1,190 1,079 -9.3% 1412/848
Union Bank 116 106 -8.8% 222/104
Source: Equitymaster

Let's have a look at some quarterly results announced by companies this week

Punjab National Bank posted a dismal set of numbers for the March 2016 quarter as it slipped in loss on mounting bad loans. The bank posted a record loss of Rs 53.6 billion during the quarter as compared to a net profit of Rs 3 billion a year ago.

The gross non-performing asset (NPA) more than doubled to Rs 558.1 billion as compared to a year ago. As a % of total advances, gross NPAs shot up by 6.35% YoY to 12.9%. Therefore, the provisions increased by a steep 173.5% YoY eroding profits for the quarter. However, the worst is not over. The management has stated that there could be further deterioration in the asset quality.

Another public sector bank, Bank of Baroda, clocked a huge loss in March 2016 quarter. The bank reported a net loss of Rs 32.3 billion for the quarter as compared to a net profit of Rs 5.9 billion a year ago. The loss was on account of higher provisioning for bad loans.

The provisions have risen by around 280% YoY to Rs 68.5 billion during the quarter Further, the loss was restricted due to a tax write-back of Rs 10.5 billion in the quarter. If not for the write-back, the loss would have widened. As a percentage of total loans, gross non-performing assets (NPAs) stood at 9.99% at the end of the March quarter. On a year on year basis the gross NPAs have risen by a whopping 6.27%.

Lupin Ltd recorded a robust financial performance for the March 2016 quarter. Net sales for the quarter was up by 34% YoY. The growth was aided by growth in the US business which grew by 57% YoY during the quarter. The sales for domestic and Japan segments were up by 14.7% and 17% YoY respectively. EBITDA for the quarter was up by 72.7%, due to better product mix. The profits were up by 47.5%.

Lupin had made acquisition of Gavis in FY16. This company has good presence in the US market and a pipeline of niche drugs awaiting USFDA approval. Going forward, Gavis consolidation could be an important driver for the Lupin's growth in the US market.

Bharat Forge reported a poor performance for the quarter ended March 2016. The company's revenues declined by 17.6% YoY to Rs 10 billion during the quarter. The revenue was impacted by subdued demand of commercial vehicles (CV) from North America. Reportedly, the exports declined by 28.7% YoY. Further, the operating profits fell by 17.1% YoY to Rs 2.9 billion. However, operating margins improved by 0.2% YoY to 29.6% during the quarter. The margins expanded on the back of lower raw material costs and other expense.

The company's net profits declined by 19% to Rs 1.6 billion during the quarter. The management expects the demand to worsen in the first quarter of FY17 as compared to the fourth quarter of FY16 because of inventory destocking and continued weakness in the export market.

Now let us move on to some of the key corporate developments in the week gone by.

ITC is planning to foray into the dairy whitener segment. The company is also in the process of scaling up its manufacturing capacity and expects to set up six-eight integrated food processing plants in the next three years that will make a variety of products. So far, the company utilises a combination of contract manufacturing and company-owned manufacturing facilities.

The manufacturing facilities will come up in West Bengal, Assam, Karnataka, Tamil Nadu, Maharashtra and Punjab. The company has in the past stated that it desires to garner revenues of about Rs 1 trillion from new FMCG businesses by 2030, as it aims to be the leading player in the category. It has also stated its long-term plans to invest Rs 250 billion across verticals.

Indian Hotels plans to pursue an asset-light model in its expansion strategy to increase its footprint in India and overseas markets. The company has stated that its current focus markets are India, Gulf Cooperation Council (GCC) countries and South East Asia where it will aggressively look for management contracts. Some of the countries that the company is planning to enter in the next few years include Thailand, Vietnam, Cambodia, and Singapore. In India, the company plans to increase its footprint in gateway cities such as Mumbai, Delhi, Hyderabad and Bengaluru while exploring the North-Eastern part of the country. It plans to open 10 new hotels with over 900 rooms in total both in India and abroad in the next one year.

In a bid to reduce leverage and exit non-profitable properties, the management has stated that the company intends to sell the Taj hotel in Boston for the base price of US$ 125 million (about Rs 8.4 billion). Reportedly, the company had acquired Taj Boston hotel in 2006 from Millennium Partners for US$ 170 million. This restructuring process will help the company to improve its operating profitability. Further, the strategy will also help in cost rationalization.

Glenmark Pharmaceuticals has received final approval from the US health regulator US Food and Drug Administration (US FDA) to sell Rufinamide,tablets in 200 mg and 400 mg strengths used to treat seizures caused by Lennox-Gastaut syndrome.

Since Glenmark Pharmaceuticals was one of the first to submit a substantially complete Abbreviated New Drug Application for Rufinamide Tablets, 200 mg and 400 mg, with a paragraph IV certification, the company is eligible for 180 days of generic drug exclusivity.

Housing Development Finance Corporation (HDFC), the country's largest mortgage lender, would be raising Rs 15 billion by issuing debentures on a private placement basis. The proceeds of the issue would be utilized for financing or refinancing the housing finance business requirements of the corporation. The debt instruments - secured redeemable non-convertible debentures will carry a coupon rate of 8.45 per cent per annum.

Going ahead, the global markets are expected to remain volatile on uncertainty over rate hike by the US Fed. In the domestic markets, apart from volatile global cues, factors such as rising crude price, growing inflation and the bank NPA crisis are likely to impact sentiments. But instead of solely relying on the likely direction of broad macroeconomic events, investors should rather follow a bottom-up strategy while picking stocks for investment.

And here's an update from our friends at Daily Profit Hunter...

The index ended the week with a loss of 0.83% at 7,750. The index slipped outside the 100-point range of 7,800 to 7,900 in the latter half of the week. It had traded in this range over the last 10 days and seems like bears are gaining an edge. However, 7,700 is a major support level to watch out in the coming week. (link to DPH commentary)

Indian Stock Markets Slip into the Red

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