The past week was a largely negative one for the world markets as most of the major indices closed the in the red. Sentiment across the world was weak as China's second quarter growth fell. Furthermore, US consumer sentiment index fell for a third straight week in addition to weaker than expected results of Bank of America and Citigroup. The biggest loser of the week was China (down 1.9%). In Europe, only UK (up 0.5%) closed the weak in the positive while Germany (down 0.4%) and France (down 1.5%) closed in the red. The Indian markets closed the week up 0.7% while Singapore (up 1.4%) was the biggest gainer among key Asian indices.
Source: Yahoo Finance
Moving on to the performance in India, the week was largely mixed for Indian stocks. Stocks from the realty sector were the biggest gainers with BSE-Realty index up 6%. Amongst other big gainers of the week, BSE-Consumer Durables gained 3.9% while BSE-Banking followed close behind with a 3% gain. BSE-Capital Goods and BSE-Smallcaps were the other key gainers during the week, up 2.4% and 1.9% respectively. Oil & gas stocks were amongst the key losers for the second straight week with the BSE-Oil & Gas index falling by 1%. Amongst other losers for the week, the BSE-PSU index fell by 0.8% while the BSE-Auto and BSE-Pharma indices ended lower by 0.4% each. The BSE-IT index also closed the week in the red with a loss of 0.3%.
Moving on to key corporate developments during the week, a handful of large companies announced their
June 2010 quarter results this week. We have highlighted some of the key ones below.
Pharma major Pfizer India announced its 2QCY10 results during the week. The company's topline grew by 16% YoY on the back of its pharmaceuticals business. This business grew by 16% YoY during the quarter aided by strong performance of its key brands like 'Corex', 'Becosules' and 'Gelusil'. Amongst its other businesses, animal health grew by a muted 5% during the quarter while clinical operations grew by a robust 66% YoY. Operating margins however disappointed, falling by 0.9% as a result of higher staff costs and increase in other expenditure. On the other hand, the sharp fall in raw material costs helped check the decline in operating margins. Net profit for the quarter grew by 11% YoY aided by non-recurring items. Excluding these one-time items, the bottomline remained flat. Going forward, we expect the company's operating margins to remain under pressure as a result of higher raw material prices. However, the company's foray into branded generics is expected to help bolster sales.
Moving to IT, Infosys and TCS came out with their 1QFY11 results. The sales of Infosys grew by 4% QoQ during 1QFY11. Operating margins however fell by 1.8% as a result of higher staff costs. Lower operating profits and a decline in other income led to a 7% QoQ fall in net profits. The silver lining however was that the company expects to perform much better in FY11 as a whole. Infosys has raised its expected earnings growth in FY11 from 9-11% YoY to 16-18% YoY.
TCS reported a sales growth of 6% QoQ for the quarter. The operating margins however declined by 0.9% QoQ for the same reasons as Infosys' - higher staff costs. The company added a net of 3,270 employees during the quarter. The fall in operating profits coupled with a decline in other income and adverse currency movement resulted in net profits falling by 5% QoQ. However, higher offshoring revenues and disciplined pricing helped check the net profit decline.
Moving on to banking, Axis Bank outperformed its peers in terms of growth and margins during 1QFY11. The bank's net profits grew by 31% YoY. This was despite only a 14% YoY growth in interest income. The gain in profits was largely due to a fall in the bank's interest expenses, which were down 3% YoY during the quarter. The bank's capital adequacy ratio at the end of the quarter stood at 14.5%, lower than 15.8% as at the end of March 2010. Its net interest margins moved up to 3.8% in 1QFY11 from 3.3% in 1QFY10. Its net NPAs to advances stood at 0.35%, the same level as the previous quarter.
The BSE Oil & Gas index was the biggest loser amongst the key sectoral indices for the second week in a row. Stocks like HPCL, BPCL and IOC ended amongst the top losers. This came after the run up in these stocks post the
fuel price deregulations were announced. The reason for this has been profit booking as the market sentiment suggests that the government will not be able to deregulate the price of diesel anytime soon, given the high inflation scenario. This will hurt the state-owned oil companies as they sell more of diesel than petrol. It may be noted that the under-recoveries of diesel for the current financial year is Rs 115 bn, which has to be borne between all the state owned companies. While the general feeling is that the long term prospect for these stocks is good, the uncertainty surrounding them is making the street cautious. Until a concrete subsidy-sharing formula is put in place, we would continue to see these shares trade range bound.
In news from the economy, a finance ministry official has announced that the Indian economy would return to high growth trajectory by 2010-11 with the first quarter growth expected to be around 9%. Although the finance ministry is yet to announce this officially, it is confident that high industrial growth is likely to bolster the overall economy growth. IIP numbers for May show an annual growth of 11.5%. Within this capital goods and consumer durables are growing particularly fast. These reflect the optimistic mood of corporate and consumers. It may be noted that India's economy grew by 8.6% in the last quarter of FY10. However, the fly in the ointment is the high food inflation. Food price inflation stood at 12.8% for the week ending July 3 while overall inflation for June moved by 0.39% to 10.5% in June over May.