Stock markets across the world witnessed a positive week as investors' sentiments improved on the back of companies reporting good earnings numbers coupled with rising forecasts. However, with the US economy reporting a slower growth rate as compared to the first quarter's 3.7%, confidence levels were mitigated to a certain extent. None the less, all key global markets reported weekly gains.
The top gainer this week was Hong Kong (up 3%). It was followed by Euro nations - France and Germany - which ended with weekly gains of about 2% each. US ended higher by about 2% as well. China and Singapore were the top underperformers this week, with gains of about 1% and 0.2% respectively. The Indian benchmark Index, the BSE-Sensex, ended higher by 1.5%. A key reason for the same was an increase in tax collections, indicating higher consumer spending in the future.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India - Barring oil & gas and healthcare stocks, gains were seen in stocks from across the board. Stocks from the consumer durables and IT spaces stole the show this week as the BSE-Consumer Durables and the BSE-IT indices ended higher by about 3% each. Realty and banking stocks followed suit as the BSE-Realty and BSE-Bankex indices ended higher by 2% each. This week, smallcap spaces were in favour as the BSE-Smallcap Index ended with weekly gains of 2.5%. On the other hand, the Midcap Index ended higher by 1.7%.
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.
FMCG major, GSK Consumers reported a revenue and profit growth of 14% and 30% YoY respectively during 2QCY10 (December ending company). While operating margins remained flat during the quarter, the boost to the bottomline came from higher other income and lower depreciation and tax charges. As for its performance during 1HCY10, revenues and net profits increased by 17% YoY and 21% YoY respectively.
GAIL also announced its numbers during the week. The company's sales and profits grew by 18% YoY and 35% YoY respectively. The sharp increase in the bottomline was despite a subsidy payout of Rs 4.5 bn. The strong performance was attributed to higher volume of natural gas transmission, higher production of liquefied natural gas and liquid hydrocarbons. The company has indicated that it plans to spend about Rs 400 bn over the next three years. About 60% of this amount will go towards doubling the company's pipeline capacities. The balance would be spent on petrochemical, city gas and energy exploration projects. GAIL will use a combination of debt and equity to fund its future projects.
The stock of Nestle ended lower by 7% during the week despite the company reporting a sales growth of 21% YoY and a profit growth of 20% YoY during the quarter. While revenues grew on the back of robust volume growth and selective price increases, the company saw some pressure at the operating level as its operating profits increased by 14% YoY only. Higher input costs and freight charges were key reasons for higher expenses. However, the company was able to maintain a profit growth in line with the revenue growth on the back of higher other income, lower depreciation charges and lower effective tax rate. While the company performance was decent, it seems that the stock was under pressure mainly on account of its higher valuations. At present the stock trades at about 38 times its trailing 12-month earnings.
Punj Lloyd was another stock that saw a sharp fall (down 6% during the week). This was on the back of the company announcing a poor set of numbers for the quarter ended June 2010. The company's consolidated revenues declined by 42% YoY. The management attributed this to client-related delays in execution in some of the projects. Operating profits for the quarter declined by 56% YoY as the company's operating margins slid to 7.7% from 10.3% last quarter. Higher employee costs and other expenditure (as a percentage of sales) were key reasons for higher expenses. At the net level, the company reported a loss. Apart from a poor operating performance, lower other income and higher depreciation & interest charges added to the woes at the profit level. At the end of the quarter, the company had an order backlog of Rs 256 bn, which stands at about 2.5 times its consolidated FY10 sales.
Moving on from corporate results to key corporate developments during the week - Being the first week of August 2010, auto manufacturers declared their sales figures for the month of July 2010. Two-wheeler major, Bajaj Auto's motorcycles sales grew at a strong pace of 66% on a YoY basis. Its exports went up by 56% YoY. Buoyancy was also on display in the three wheeler segment where growth at 60% YoY came in equally strong. TVS Motor reported a volume increase of 35% YoY, driven by a 42% YoY rise in motorcycle sales, whose share in the total volumes rose to 37.4% from 35.6% last year. Sales of scooters rose by a faster 25% YoY, and contributed to nearly 25% of total volumes. Export volumes, on the other hand, surged by 54% YoY. With this its share of exports increased to 12.3% of total volumes as compared to about 10.7% last year.
Tata Motors also reported its sales figures. Total sales (including exports) grew by 41% during the month. All the brands namely Nano, Indica and Indigo registered strong growth except for Fiat Auto. Sales for the Italian car brand declined 14.4% YoY to 2,690 units in the month of July. Passenger car leader, Maruti Suzuki posted strong sales growth for the month of July as well. Total volume sales for the company rose 29% in July, led by a domestic sales growth of 33%. Exports, on the other hand, grew by 2%.
In other news, the stock of Indian Hotels was in demand during the latter half of the week as the company unveiled its expansion plans. In its recently concluded AGM, the company's management stated that it is looking at new projects both in the domestic and overseas markets. These new projects would be coming up in regions such as the Middle East, North Africa, South America, Abu Dhabi, Egypt, Morocco, Mexico and the British Virgin Islands under various management contracts. However, it also added that it would be quite selective in its expansion plans as efforts to increase margins are also there. In fact, this would be one of the key reasons why the company is looking at increasing the tariff rates going forward. All said and done, these developments are definitely signs of improvement for the company and the hotel industry as a whole. A leading business daily has indicated that Indian Hotels would be hiking tariffs after a period of about two years. The company plans a little less than Rs 10 bn as capex going forward.
Moving on from company specific news to industry and economy related developments during the week - A leading business daily has reported that the upper house of the US Congress, the Senate has passed a Bill to raise the H1B visa fees. The H1B visa (work visa for US) fees have been more than doubled from US$ 2,000 to US$ 4,500. This would add to the woes of the Indian IT industry, as it derives nearly half of its revenues from its onsite work resources. As per NASSCOM, this will increase the annual visa cost for the Indian IT industry by US$ 200-250 m annually. This development definitely works against the industry as it would reduce the cost arbitrage that India offers to its clients in US. Since Indian IT companies derive a large chunk of the export revenues from the US, they cannot afford to miss the US markets which is sized at about US$ 30 bn. Apart from reducing their risk of exposure to one export region, this development would be another reason for the industry to search for more work in other foreign markets.