Earnings fail to enthuse investors

Sat, 21 Jul RoundUp

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The world stock markets had a volatile week. The gains witnessed in initial days of the week on account of good earnings from the US companies were offset on account of deepening European crisis. The news about Spain's borrowing costs having shot above 7 % means the country could soon find itself unable to afford to borrow money. This harmed investor sentiment. Germany announcing a slowdown in its economy in the second quarter and UK government stating that they had to borrow more money than expected in June also added to investor concerns towards the end of the week.

In India, the earnings season continued amidst reports of political uncertainties. Fears of a weak monsoon, global concerns and a weak macroeconomic environment domestically kept markets tepid throughout the week. The BSE-Sensex ended the week lower by 0.3%.

Amongst, the other world markets, there was a mixed performance. While Hong Kong was the top gainer (up by 2.9%), China and Japan down by 0.8% and 0.6% respectively led the list of losers.

Source: Yahoo Finance

The sectoral indices presented a mixed bag of performance with consumer durables and pharma stocks leading the list of gainers. However, realty and auto stocks witnessed maximum loss.

Source: BSE

Let us have a look at key economic developments during the week. Inflation number for June 2012 came in lower at 7.25% as compared to 7.55% recorded in May. However, this may still not give the Reserve Bank of India (RBI) enough reason to lower interest rates. Food inflation number at 10.8% in June continues to be a cause of concern. Monsoons too have been disappointing so far and this may hike up the food inflation further.

Moving on to sectoral news, the Centre for Monitoring Indian Economy (CMIE) expects automobile production to grow by 9.6% in FY13. This is a tad lower than its earlier estimate of around 11%. The reasons for this downward revision have been attributed to prevailing high interest rates and higher taxes. Slowdown in the economy too is causing customers to defer their purchases. As per CMIE report, production of commercial vehicles is expected to grow by about 9% during the fiscal as compared to about 20% last year. Passenger vehicles demand is expected to pick up towards the start of the festival season. The production for these is likely to go up by 10% this fiscal.

Several companies declared their quarterly results during the week. Axis Bank declared its results for the first quarter of financial year 2012-13 (1QFY13). The bank has reported a 26% YoY growth in net interest income and 22% YoY growth in net profits for the full year period. The growth in net profits was despite the rise in provisions and slower growth in fee income (9% YoY). Axis Bank continued to build an India wide presence. During the June quarter, the bank opened 59 more branches and 413 ATMs. The bank's capital adequacy ratio (CAR) on firmer footing at 13.0% at the end of June 2012, Tier 1 capital at 9.5%

Bajaj Auto declared results for the first quarter of FY12-13 as well. Net sales grew by a tepid 4% YoY during June quarter. The net profits were up by 1% YoY during the same period. The slow growth in sales was due to continued slowdown in the economy as well as fall in export volumes. Lower raw material costs as a percentage of sales resulted in operating margin expansion by 0.1% YoY. Higher tax expenses which were up by 24% YoY resulted in net profit rising by just 1% YoY.

In some other news form the corporate world, Coal India has plans to invest Rs 75 bn to develop railway tracks and other related infrastructure. The investments will be phased over the next 3-4 years. CIL will finance the cost of laying of tracks by the Railways to be owned by the latter. We may note here that Coal India has not been able to fully extract coal from its mines because of inadequate infrastructure facilities. Due to problems in coal evacuation, there is a gap of 45 million tonne (mt) between approved production and output. At present, these plans are for Chhattisgarh, Jharkhand and Orissa. However, as per the management, they may look at implementing this plan in other states too if the plan proves successful.

Movers and shakers during the week

Company	13-Jul-12	20-Jul-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Cadila Healthcare	779	883	13.3%	945/629
Tata Comm	244	260	6.6%	264/176
Bajaj Auto	1,497	1,591	6.2%	1839/1351
United Spirits	775	818	5.6%	1055/450
Titan Industries	217	228	5.2%	255/154
Top losers during the week (BSE-A Group)
Adani Enterprises	223	196	-12.1%	766/187
Sterling Biotech	9	8	-11.5%	91/5
Union Bank	212	192	-9.4%	311/156
Torrent Power	181	166	-8.7%	255/165
Suzlon Energy	19	18	-7.0%	56/17

Source:Equitymaster
The Government of India has approved stake sale of 10.82% in Steel Authority of India Limited (SAIL) The share sale process, proposed to be conducted through auction route or offer for sale, is expected to fetch over Rs 40 bn for the government. The divestment department will decide the timing of the issue which will depend on the market scenario. We may note here that the Indian government aims to raise Rs 300 bn by selling stakes in the public sector firms this fiscal but so far it has not been able to launch a single divestment programmed.

The Indian equity markets are looking forward to the coming week with hopes that the government would push reforms after presidential election results on Sunday. There are expectations of a hike in diesel prices that would reduce government's subsidy burden as well as possibility of allowing FDI in retail by the end of this month. Government's stand on key economic reforms and decision on implementing these would set the direction of the share markets in coming weeks.