Eurozone hopes spur global markets

Sat, 28 Jul RoundUp

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The world stock markets witnessed a volatile week. The concerns regarding Euro crisis weighed heavy on the global stock markets in the first half of the week. However, the initial losses in the major European markets were reversed as European Central Bank (ECB) leader pledged to save the Euro. ECB's mandate to intervene where the borrowing costs are high has bolstered the sentiments of the global markets. Among the European markets, France and Germany ended the week higher by 2.7% and 0.9% respectively while UK was down by 0.4%.

The optimism in the global markets in the end of the week rubbed off on India as well. The Indian equity markets that had a lackluster run all through the week jumped to life on Friday on account of positive development in the Eurozone and taking cues from gains in the US markets. This was mainly due to major buying from Foreign institutional investors (FIIs). Amidst the earnings season, the BSE-Sensex ended the week lower by 1.9% on account of fears of a weak monsoon and domestic economic concerns.

The other Asian stock markets ended the week in red with Hong Kong (down 1.9%), China (down 1.8%) and Japan (down 1.2%) leading the list of losers.

Source: Yahoo Finance

Barring FMCG, all sectoral indices witnessed losses over the week with Capital Goods and Realty stocks leading the pack of losers.

Source: BSE

Let us have a look at key economic developments during the week.

Moving on to sectoral news, as per the Central Electric Authority (CEA), the proposal to pool locally produced and imported coal prices has been broadly agreed upon by the states. The development will ensure similar rates of the key raw material across the country. It is expected to speed up the efforts to import the fuel through Coal India to meet the growing domestic demand. Once the model is adopted, it will lead to a higher increase in the power tariffs for plants located in the coastal regions of East than the ones located in the West.

Continuing with the result season, companies like Container Corporation, HCL Technologies Ltd.. and Gujarat Gas have declared their numbers for quarter ended June 30, 2012.

Container Corporation announced results for first quarter of financial year 2012-13 (1QFY13). The company has reported a 9.3% year on year (YoY) increase in the topline. The growth in the topline was supported by a 2.7% YoY growth in the volumes. Segmentwise, EXIM segment reported volume growth of 6.2% YoY while Domestic segment reported a 11% decline in the volumes. The realizations in the EXIM and Domestic segment were up by 4.9% YoY and 15.4% YoY respectively. The operating profits during the quarter were up 2.9% YoY. Overall margins during the quarter stood at 25.8% as compared to 27.4% in 1QFY12. Segmentwise, margins for EXIM and Domestic segment stood at 25.6% and 12% respectively (versus 27.8% and 8.0% respectively in 1QFY12). The net profits have registered a growth of 4.7% YoY during the quarter. The net profit margins for the quarter stood at 23.6% as compared to 24.7% in 1QFY12.

Gujarat Gas has announced its results for the second quarter of calendar year 2012 (2QCY12).The company has reported a 32.8% YoY growth in the topline during the quarter. The gas sales volumes during the quarter were down by 5% on a quarter on quarter basis. However, average realizations were up by 12.8% QoQ .The operating profits during the quarter declined by 40.4% YoY. This was mainly due to an increase in the proportion of costlier imported gas and depreciation of rupee against the dollar. The bottomline registered 45.9% YoY decline during the quarter on account of a poor operating performance and a 42.5% YoY decline in 'Other income'. The net profit margins during the quarter stood at 6.7%, down from 16.1% in 2QCY11.

HCL Technologies has announced the fourth quarter results (4QFY12) of financial year 2011-2012. The company reported a 13.5% QoQ increase in the sales boosted by good growth in the core business and a steep decline in rupee against the dollar. The operating margins improved to 22% during the quarter as compared to 18.4% in 3QFY12. A strong performance at the operating level lower effective tax rates during the quarter led the net profits to surge by 41.8% QoQ during the quarter. The company has proposed a final dividend of Rs 4 per share.

In some other news form the corporate world, the Petroleum and Natural Gas Regulatory Board (PNGRB) has moved Supreme Court challenging Delhi High Court's order that ruled against the Board's regulatory Powers. Earlier in April 2012, PNGRB through its order had fixed IndraPrastha Gas Ltd's (IGL's) pipeline network transportation tariff at Rs 38.58 per million metric British thermal unit (mmBtu) as against Rs 104.05 per mmBtu proposed by the company. The company had managed to oppose PNGRB's directive to cut the tariffs by 63% by approaching Delhi High Court that ruled in company's favor. The Supreme Court decision in PNGRB's favor could potentially wipe out the IGL's net worth.

Movers and shakers during the week

Company	20-Jul-12	27-Jul-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Mahanagar Telephone Nigam Ltd.	25	29	15.7%	48/21
HCL Technologies	480	517	7.7%	524/360
Ambuja Cement	169	181	7.5%	182/120
Godrej Consumer	591	635	7.4%	627/370
Marico	183	196	7.4%	199/134
Top losers during the week (BSE-A Group)
Pantaloon	190	154	-18.9%	364/125
Lanco Infratech	15	12	-16.6%	25/9
Tulip Telecom	120	101	-15.6%	167/66
Reliance Power	104	88	-15.3%	139/69
Reliance Communications	64	54	-15.2%	110/56

Source: Equitymaster
Moving on to sectoral developments, the country's drug price regulator, regulator National Pharmaceutical Pricing Authority (NPPA) has turned down pharma companies' request for a rate increase for insulin. NPPA has done this to protect consumers' interest. It is worth mentioning here that domestic Pharma companies like Biocon, Wockhardt and Lupin have presence in the segment. The regulator has also cut the prices of Vitamin C-based medicines and multi-vitamins by 0.1%-37.8 %. The move is likely to affect leading drug makers like GlaxoSmithKline, Piramal and Pfizer. However, NPPA has allowed an increase in prices of Merck's Vitamin E-based drugs and a few antibiotics and antibacterial from Alkem and Alembic.

The coming week will be an interesting one as a mix of global and domestic factors are expected to set the direction of the Indian equity markets. The key global event to watch out for next week will be meeting of ECB and US Federal Reserve amid high expectations of credit easing and stimulatory monetary policy. Among the domestic events, the outcome of Reserve Bank of India (RBI) monetary policy review and the progress in monsoon will influence the markets.