Hungary goes to the PIIGS

Sat, 5 Jun RoundUp

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The week ended in the negative for most of the world's indices. China (down 3.9%) was the worst performer on concerns that the Chinese economy was slowing down. US (down 2%) was the second worst performer of the week as the US markets tumbled on Friday on unemployment concerns. European markets continued to be beset by the sovereign debt crisis. While France was the worst performer (down 1.7%), UK (down 1.2%) followed close behind. Germany (down 0.1%) also closed the week in the red. Brazil also closed the week in the red down 0.4%.

Up by 1.5%, India's benchmark Index BSE-Sensex was amongst the top performers of this week on the back of good results by corporate India for the fiscal. Singapore (up 2.4%) was the top performer of the week. Japan (up 1.4%) and Hong Kong (up 0.1%) were among the world indices, which closed the week in the green.

Source: Yahoo Finance

Moving on to the sectoral indices in India, the week was largely positive for the Indian markets. Other than BSE-Metal (down 2.1%) and BSE-Realty (down 0.7%), all indices closed the week in the positive. BSE-Auto index was the top gainer for the week with an increase of 4.4%. Amongst the other top performers, BSE-FMCG index and BSE-PSU index gained 3.6% and 3.1% respectively. BSE-Pharma index gained 2.1% during the week while BSE-Midcap index was up by 2%. Amongst the laggards of the week, BSE-Metal index was up by 1.1% while BSE-Power and BSE-Consumer Durable indices were up by 0.5% each this week.

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.

ONGC declared its FY10 results. The standalone top line of the company fell by 4% YoY during the year. This was despite higher net realization per barrel of crude oil as volumes for the year fell. The subsidiary burden for the company also fell by Rs 166 bn to Rs 116 in FY10. While the gross realization per barrel of crude oil was US$ 72 during the year, the subsidy per barrel fell to US$ 16 from US$ 38 in FY09. The company's operating margin increased to 61% from 49% as MRPL products were discontinued. However, the company's bottom line increased by 4% YoY due to fall in other income and higher effective tax rate.

Hindalco released its FY10 results on Friday. The company's standalone top line increased by 7% YoY in spite of subdued commodity prices on the back of higher demand during the year. Operating margin of the company fell by 1.6% because of higher input price. During the year, the company's aluminum business suffered because of higher coal prices while the copper business suffered due to lower by-product credit in terms of sulphuric acid realization and lower fertilizer subsidy. Hindalco's bottom line fell by 14% YoY because of lower operating income and lower other income.

Moving on to other corporate news, Godrej has acquired its fourth company for 2010. Argencos, which is a hair care company, is the second Argentina based company added to Godrej's fold in the last 2 weeks. Argencos is a mid size hair care company. Its brand Roby enjoys market leadership in the hair styling space while 919 occupies the mid premium space. The sales of the company are over US$ 12 m per annum. With this acquisition, Godrej has positioned itself firmly in a fast growing hair care market in Latin America with an approximate market share of 50% in the hair styling category.

Moving to steel sector, steel giant SAIL has cut the prices of its products by Rs 1,000 to Rs 1,500 per tonne with immediate effect. In fact as per indications from the union steel secretary, steel prices may fall by Rs 1000 per tonne during the month. The reason behind this fall is the slowing up of global demand. Global prices of steel have been on the downturn because of the sovereign debt crisis in Europe. However, demand for steel in India declines before the monsoons as a result of slowdown in construction activity during this period. Hence, the fall in prices comes as no surprise. Private players like Tata Steel and JSW are also expected to follow suit and cut the prices of their products. On the other hand, the price of raw material like iron ore and coking coal have remained firm. This is likely to put pressure on the operating margins of steel companies.

Coming to auto, Maruti Suzuki declared strong volumes growth for the month of May 2010. The company sold 102,175 units, which were higher by about 28% YoY as compared to May 2009. Domestic volumes stood at 90,000, which was a 27% YoY growth over the corresponding period last year. Incidentally, this was the highest ever volumes sold in a month. Exports grew by 34% YoY. The company's A2 segment, which includes Alto, Wagon-R, Estilo, Swift, Ritz and A-Star and contributes almost 70% of domestic volumes, saw a growth of 17%.

In the current fiscal year overall sales stood at over 195,000 units, a growth of 29% YoY. This was on the back of a 25% YoY growth in domestic volumes and 58% YoY growth in exports. However, it should be noted that the higher the export numbers are coming off a low base.

Movers and shakers during the week

Company	28-May-10	4-Jun-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
HINDUSTAN COPPER	404	476	17.6%	657 / 211
RELIANCE COMM	147	168	14.0%	359 / 134
EDUCOMP SOLUTIONS	482	550	14.0%	1,017 / 450
IVRCL INFRA	156	177	13.6%	212 / 145
COLGATE	733	815	11.1%	825 / 486
Top losers during the week (BSE-A Group)
PUNJ LLOYD	137	119	-13.7%	299 / 119
REI AGRO LTD.	46	40	-12.7%	103 / 39
SUZLON	61	56	-8.6%	146 / 56
GUJ.NRE COKE	63	59	-6.6%	89 / 34
FORTIS HEALTHCARE	147	140	-4.9%	188 / 79

Source: Equitymaster
Coming to international news, US Labor Department released its jobs figures for May. The total jobs added for the month stood at 431,000 much lower than 513,000 that were expected. Most of these jobs are temporary hiring for the US census. This shows that the recovery is still very fragile. The new worry in Europe is that Hungarian official announced that the country was at a risk of a Greece style crisis. This has rekindled concerns in Europe and may affect world stock markets next week.