Auto, realty drive today's gains

Tue, 27 Jul Closing

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Indian markets traded amidst strength today, a day filled with June quarter results of some large Indian companies. The markets were not negatively impacted by the RBI's interest rate hikes, and rather toed the line of corporate India, which outlined some mixed performances today. Stocks from the capital goods sector were the worst performers today, seemingly on the back of lacklustre results reported by the sector heavyweight L&T. Auto and realty stocks, which performed the worst yesterday, led the gainers' pack today.

The BSE Sensex and NSE Nifty closed with gains of around 55 points (0.3%) and 10 points (0.2%) respectively. Midcap cap stocks followed suit, as the BSE Midcap index closed up by around 0.3%. The BSE Smallcap index closed marginally weak.

As against what was anticipated, the RBI's monetary policy announcement did not have any negative impact on the markets today. While the RBI announced measures to tighten liquidity in the banking system, it decided to remain cautious in its approach. So while it endorses the IMF's projection of higher GDP growth this year, it chose to leave the projection to the rain gods. Overall, we do not see the latest rate hikes as having any meaningful impact on the economic recovery. And even as the RBI mentioned, the hikes aren't going to impact inflation much!

Engineering stocks closed weak, led by selling in Crompton Greaves and L&T. Pressure on L&T came about after a lacklustre 1QFY11 results announced by the company earlier today. Its standalone net sales grew by 6% YoY during the quarter, aided by a 29% YoY growth in the electrical and electronics business segment. The company's order book grew by about 50% YoY. Its order backlog at the end of June 2010 stood at Rs 1,078 bn. L&T's operating margins improved by 1.6% YoY on the back of lower raw materials costs as also lower sub-contracting charges. Net profits for the quarter came in higher by 15% YoY (excluding the one-time profit on account of stake sale in Ultratech Cement during 1QFY10). The profit growth is higher than the topline growth on account of the expansion in operating margins.

FMCG major Hindustan Unilever (HUL) also announced its 1QFY11 results today. The company has grown its net sales by 8% YoY. This has been on the back of growth in the company's personal products business. On the other hand, its soaps and detergents business, which contributes 47% of total sales, grew by a disappointing 2% YoY. HUL also disappointed on the overall margins front. Operating margins fell by 1.9% to stand at 14% for the quarter. This was due to a sharp increase of 34% in advertisement costs. The reason for this has been HUL's aggressive investment in its detergents business as a result of increase in competition. For the quarter, HUL's net profit fell by around 2% YoY. This was a direct result of weaker operating margins. From the performance, it is clear that HUL's higher spend to push volume growth is not translating into a corresponding increase in its profits. Anyways, the stock closed weak today. Other FMCG stocks like Godrej Consumer and Marico closed with gains.

Another heavyweight to announce its 1QFY11 results today was Titan Industries. To say the least, the performance is way beyond expectations. The company has grown its sales and net profits by 42% YoY and 77% YoY respectively. The sharp rise in profits has been brought on by a good sales growth combined with lower interest and depreciation charges. Sales during the quarter were driven by both the key segments of watches and jewellery. While the former grew by 22% YoY, sales for the latter were up almost 50% YoY during the quarter. Such a strong performance from Titan is a true indicator of the recovery in consumer spending. The company has in fact carried on the momentum that it saw during the previous quarter.