A good week for global markets

Sat, 24 Jul RoundUp

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The past week was a good one for the global markets as the key indices ended the week on a positive note. While interest in Asian stocks increased on the back of higher commodity prices, the US markets also moved up as companies raised profit forecasts. India's benchmark index, the BSE-Sensex ended the week higher by 1% on the back of positive global sentiments coupled with good set of June quarter numbers from select heavyweights.

Ending higher by 6%, Brazil led the pack of gainers this week. It was followed by China and US which ended higher by 6% and 3% respectively. France, UK and Hong Kong followed suit with gains of about 3% each. Japan (up 0.2%) and Singapore (up 0.5%) were amongst the lowest gainers this week.

Source: Yahoo Finance

Moving on to the sectoral indices in India – Metal stocks led the gains this week with the BSE-Metal Index ending higher by 4% on the back of higher commodity prices. Stocks from the capital goods and the consumer durables spaces also had a good week with BSE-Capital Goods and the BSE-Consumer Durables indices ending higher by about 2% each. Stocks from the pharmaceutical and FMCG spaces recorded losses as the BSE-Healthcare and the BSE-FMCG indices ended lower by 2% and 0.3% respectively. Stocks from the smallcap space remain flat after rising higher by about 2% during the preceding week.

Source: BSE

Moving on to key corporate developments during the week, a handful of large companies announced their results for the quarter ended June 2010 this week. We have highlighted some of the key ones below.

Engineering major, BHEL announced its numbers for the quarter ended June 2010 yesterday. The company reported a revenue growth of 16% YoY. However, profits grew at a much quicker pace of 42% YoY. The key reason for the same was a strong operating performance, wherein operating profit grew by 63% YoY. During the quarter, the company's operating margins expanded by 3.8% YoY to 13%. Lower raw material costs were the key reason for the same. Material costs are lower on the back of the company using up the inventory of raw materials that was acquired when prices were still recovering from their lows. During the quarter, growth was led by the company's power segment (about 79% share in revenues) with sales growth by 18% YoY. Its other business segment - Industry, grew by 11% YoY. BHEL's order backlog stands at Rs 1,480 bn at the end of June 2010, higher by around 19% YoY.

Food to tobacco major, ITC also announced its result this week. The company reported a topline growth of 16% YoY. Growth was led by its FMCG (including cigarettes), hotels and agriculture businesses. The company's cigarette portfolio recorded a growth of 12% YoY during the quarter and contributed to about 43% of revenues as compared to 46% last year. The company operating profits increased by 18% YoY as operating margins increased by 0.8% to 33.8% on the back of lower other expenditure (as a percentage of sales). Net profit grew by 22% YoY during the quarter. This increase was a result of growth in operating income, low depreciation charge and lower effective tax rate.

In other news, a leading business daily has reported that the company is looking to invest a huge sum of US$ 4.9 bn (Rs 230 bn) over the next 7 to 10 years. Of this, the company plans to invest about Rs 90 in its hotels business, Rs 80 bn in its consumer goods business and about Rs 60 bn in its paper business.

HDFC Bank reported its results during the week as well. The bank reported an 8% YoY growth in interest income on the back of a 40% YoY growth in advances. The bank's net interest margins improved marginally due to lower cost of deposits. Operating expenses remained stable, with cost to income ratio at 48%. The bank's other income fell by 10% YoY due to lower treasury gains, although fee income grew by 15% YoY. Net NPA to advances improved marginally from 0.6% in 1QFY10 to 0.3% in 1QFY11. Provision coverage ratio stood at 77% at the end of 1QFY11 (70% in 1QFY10). Capital adequacy ratio (CAR) remained comfortable at 16.3%, with Tier I CAR at 12.4% in 1QFY11.

IT major, Wipro announced its results towards the end of the week. The company reported a growth of about 4% QoQ in revenues during the quarter. Growth was largely volume driven, with all its segments (except for IT products) reporting an increase in revenues. The company's IT services business, which contributes to nearly 76% of total revenues, reported a 5% QoQ increase. Wipro's operating profits increased at a faster pace (7.4% YoY) as compared to the revenues growth, on the back of a 0.8% QoQ expansion in margins (22.6% during the quarter). While Wipro's performance was quite decent during the quarter, one key concern for the company is the high attrition rate stood of 15.8%. at the end of the quarter, the company's employee strength stood at 112,925.

Moving on to other news from the IT space - There are concerns over TCS' £ 600 m pension administration contract, as UK's Conservative-Liberal Democrat coalition has imposed a £ 100 m cap on government IT contracts. This deal was signed with the previous labour administration, just a few weeks before the general elections. The company's management has indicated that it is in constant touch with its UK based customer, and as of now the project is on track.

Movers and shakers during the week

Company	16-Jul-10	23-Jul-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
CENTRAL BANK	142	158	10.9%	179 / 94
ALSTOM PROJECTS	637	705	10.7%	711 / 490
MMTC LTD	27,385	30,013	9.6%	40,000 / 27,300
JSW STEEL	1,101	1,195	8.5%	1,350 / 605
UCO BANK	84	91	8.2%	93 / 41
Top losers during the week (BSE-A Group)
DR. REDDY`S	1,479	1,365	-7.7%	1,515 / 751
IRB INFRA.	277	260	-6.1%	300 / 175
GTL LIMITED	460	432	-6.0%	489 / 294
RENUKA SUGARS	70	66	-5.4%	124 / 53
BALRAMPUR CHINI	83	80	-4.4%	167 / 67

Source: Equitymaster
The Telecom Regulatory Authority of India (TRAI) announced that India added nearly 18 m new subscribers during the month of June 2010. With this, the total subscriber base stands at 671.7 m. With this, the overall teledensity is believed to be at 56.8%. Adding nearly 3 m new subscribers, Bharti Airtel led the growth in the wireless category. RCOM was next with 2.8 m subscribers, while Vodafone added nearly 2.7 m subscribers. Idea Cellular and Aircel added 2.2 m and 1.6 m new users respectively. In other news, a leading business daily has reported that TRAI will be coming out with its revised recommendation on pricing excess 2G spectrum in the next few weeks. During the month of May this year, the TRAI had come out with a proposal of pricing 2G spectrum based on the recently concluded 3G prices. However, most of the telecom service providers, especially the incumbents, had opposed this move stating that all spectrum allocations have been made as per the policy.

During the week, there was news of the IMF estimating India to record a growth rate of 9.4% for 2010. This is relatively much higher as compared to the Finance Minister's estimate of 8.5%. On the other hand, the Asian Development Bank (ADB) expects India to grow at a slower pace of 8.2% during the year. The ADB, however, has raised the growth prospects of the Asian economies to 7.9% from 7.5%. Factors that have led the ADB to revise its estimates are better-than-expected results in the first quarter driven by buoyant exports. In addition, strong private demand as well as sustained stimulus policy effects also played their part. All said and done, healthy monsoons this year will be critical for the economic growth to reach above 8%.

With the result season charting its due course, India Inc will continue to draw interest from global investors looking for higher returns. Meanwhile the concerns over inflation are yet to be tamed.