Economic recovery concerns return

Sat, 4 Jun RoundUp

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It was a mixed week for world markets with more red marks than green ones. China was the biggest gainer of the week (up 0.7%) on bargain picking ahead of another possible rate hike by the central bank. The US was the biggest loser, down 2.3% on disappointing jobs data. Falling employment rates has led investors to believe that the economic recovery in US is stalling. In Europe, France was the biggest loser (down 1.5%), closely followed by UK (down 1.4%). Germany ended the week down 0.8%.

In Asia, Japan closed the week down 0.3% while Hong Kong closed the week down 0.7%. Indian stock markets closed the week in the green, up 0.6%. This was on the back of inflow of foreign funds. The onset of monsoons on time coupled with the prediction that it would be normal has given some comfort to the market reeling under high inflation and rising interest rates. Singapore closed the week up 0.3%. Brazil ended the week with a marginal gain of 0.1%.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India, it was a positive week for most of the indices. Stocks from the consumer durables space saw strong buying interest. As a result, BSE-Consumer Durable index was the biggest gainer for the week, up 3.6%. On the other hand, performance of auto stocks was disappointing on the back of raw material pressure and concerns on rate hike and fuel price increase. As a result, BSE-Auto index was the biggest loser of the week, down 1.9%. Besides BSE-Auto, the other indices to close the week in the red were BSE-Oil & Gas index (down 0.8%) and BSE-Metals index (down 0.6%). Among the best performing indices of the week, BSE-FMCG was up by 2.8% while BSE-Pharma closed the week with a gain of 2.7%.

Source: BSE

Moving on to the key corporate developments during the week, - a handful of companies announced their results for the quarter ended March 2011. ONGC released its 4QFY11 and FY11 results. The company reported a 12% YoY growth in revenues for the year. However, for the quarter the growth was muted at 0.7% YoY. The bottom line declined by 26% YoY during the quarter. For the year, company registered 13% YoY growth in net profits. Subsidy pressure is visible on the bottom line of the company. It may be noted that subsidy has nearly doubled for the oil and gas major. During the year, the crude production was 24.42 m tonnes and gas production was 23.09 bn cubic metres. This implies a slight fall in crude output and flat growth in gas output. On consolidated basis, revenues grew by 16% YoY and net profits by 16% YoY. The discount to oil marketing companies was reported at Rs 121 bn for the quarter (up 143% YoY).

Indraprastha Gas Limited (IGL) also has announced its results for 4QFY11 and FY11. The topline registered a spectacular increase of 76% YoY during the quarter on account of better volumes and higher realizations. Despite an absolute rise of 45% YoY in the operating profits, the margins were dragged down by 6% YoY on account of higher gas costs. The bottom line registered a growth of 34.3% YoY for the quarter. However, the net profit margins declined by 4% because of increase in gas costs. The management has recommended a dividend of Rs 5 per share for FY11.

In other news from the energy sector, Gazprom Global LNG, a Russian oil and gas company has signed deals with GAIL (India) Ltd, Gujarat State Petroleum Corp. Ltd (GSPC) and Petronet LNG Ltd for long term supply of liquefied natural gas (LNG). As per the deal, Gazprom will supply 2.5 million tonnes per annum (mtpa) to each of Indian companies. The supply of gas is expected to start from 2016 for duration of 25 years. The prices are yet to be negotiated. As of now, the total demand in India is estimated at around 180 million standard cubic metre per day (mscmd) and is expected to increase to 326 mscmd by the 2015.

In news from the consumer goods space, Colgate released its FY11 results. The company's top line grew by 13% YoY on the back of strong volume growth. Volumes for the company grew by 12% YoY coming on the back of strong sales of 13% YoY in the toothpaste category. The category increased its volume market share to 53.1% in FY11 from 52.9% in FY10. Contribution from flagship brands like Colgate Dental Cream, Colgate Sensitive, Active Salt, Max Fresh and Colgate Total contributed to the increase in market share. Toothbrush category also saw strong sales with a volume growth of over 18% YoY, with market share standing at 40.3%. In the declining toothpowder market, the company market share stood at 46.4% YoY. New category of mouthwash grew sharply. Market share of Plax mouthwash increased from 7.5% in FY10 to 22% in FY11. Bottom line fell by 5% YoY during the year as a result of increase in interest cost and a sharp increase in effective tax rates. While interest costs increased by 119% YoY, effective tax rates increased from 12.7% in FY10 to 22.6% in FY11. Effective tax rates came in higher as the company exhausted its 100% tax exemption at its Baddi plant.

Among the larger corporate, Reliance Industries was in news last week. RIL is about to receive a payment of US$ 7.2 bn from British Petroleum for its stake sales in various gas blocks. RIL will receive this money for selling a 30% stake in its 23 oil and gas blocks including the KG D6 basin. Also, it will get performance payments of up to US$ 1.8 bn based on the success of future explorations. This will increase the cash on books out of which debt will be repaid. The funds will also be used for financing new ventures. As per management, the oil and gas company is likely to become debt free soon. It may be noted that the company had an outstanding debt of Rs 673.97 bn as on March 31, 2011 as against Rs 624.95 bn in the previous year. For the same period cash and cash equivalents amounted to Rs 423.93 bn. All these reflect a sound financial position of the company.

Movers and shakers during the week

Company	27-May-11	3-Jun-11	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
PUNJ LLOYD	54	63	17.9%	142 / 54
TECH MAHINDRA	587	686	16.8%	846 / 558
TATA TELESERV (MAH)	15	17	15.9%	26 / 15
RELIANCE COMM	81	93	15.7%	205 / 81
SHREE RENUKA SUGARS	56	64	13.8%	108 / 56
Top losers during the week (BSE-A Group)
SUN TV LTD	378	283	-25.0%	557 / 273
TATA MOTORS	1,185	1,025	-13.5%	1,381 / 734
BH.EARTH MOVERS	631	603	-4.5%	1,238 / 585
JAI CORP LTD	143	137	-4.1%	309 / 132
M&M	688	667	-3.0%	826 / 550

Source: Equitymaster
In other news, the center is set to announce significant hikes in minimum support price (MSP) of most of the kharif crops. The hikes are expected to be in the region of 15-17%. While the higher MSPs are expected to fuel inflation further, the higher compensation is meant to compensate farmers for the sharp jump in cultivation costs in the last 2 years. The Agriculture Ministry has proposed raising the MSP of common paddy from Rs 1,000 to Rs 1,160 a quintal for the crop to be marketed in the 2011-12 season from October, while mooting a similar Rs 160 jump for Grade 'A' varieties grown in Punjab and Haryana. These rates are inclusive of a bonus of Rs 80 a quintal. While an increase of Rs 160 works out to 16% hike, it should be noted that the effective procurement price were frozen last year. Furthermore, farmers have seen cost pressure due to increase in farm labor costs, higher fertilizer costs and the expected upward revision in diesel prices.