US troubles land world in red

Sat, 14 Aug RoundUp

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Stock markets across the world tumbled during the week to close in the red. This was largely due to weak economic reports from the US retail and consumer sectors. Larger than expected rise in jobless claims also added to the market woes. In fact, the stock markets have been weak since Tuesday when a report from the Federal Reserve gave its most bearish outlook in more than a year and said the US economic recovery is weakening.

The only market to close the week in the green was India, up 0.1%. The biggest loser was Japan (down 4%) closely followed by US (down 3.3%). In Europe, the UK market was down 1.1% while Germany and France were down 2.4% and 2.8% respectively. In Asia, Singapore was down 1.8% while China was down 1.9%. Brazil closed the week down 2.7%.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India – BSE-Realty index was the best performer of the week, up by 6.6%. Amongst the other top performers, BSE-Consumer Durables and BSE-Banking indices were up by 4.4% and 3.4% respectively. BSE-Auto and BSE-Midcap indices (up 2.9% and 1.4% respectively) were also amongst the top performers of the week. BSE-IT index (down 2.2%) was the top loser of the week followed by BSE-Pharma index (down 1.4%). BSE-Metal (down 0.9%) was also in the red, while BSE-FMCG and BSE-Power indices closed marginally in the red, down 0.2% and 0.1% respectively.

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.

India's largest commercial vehicle manufacturer Tata Motors came out with its 1QFY11 results during the week. The company's consolidated topline grew by 64% YoY on account of higher demand and better realization. Operating profits increased by 563% YoY. This was on the back of fall in raw material costs, staff costs and other expenditure (all as a percentage of sales). Consolidated net profit for the quarter stood at Rs 19.8 bn as against a loss of Rs 3.2 bn in the same quarter the previous year. This performance came on the back of higher operating income partly offset by lower other income and higher effective tax rate. On a standalone basis, the company also performed strongly, with the top line growing by 62.7% YoY. Operating profits also grew in line with sales. However, net profits fell by 23% YoY during the quarter. This was due to a onetime expense recorded during the quarter. Furthermore, the company booked a one-time other income to the tune of more than Rs 3 bn during the same quarter last year. When adjusting for these items, standalone net profit increased by a robust 96% YoY.

Overall economic growth, robust IIP and availability of liquidity led to robust domestic demand during the quarter, resulting in 49% YoY volume growth comprising both new products and the existing portfolio. The Jaguar Land Rover business continued to show strong profitability, with increase in volumes coupled with significantly favorable currency movements.

Moving to banking, SBI declared its 1QFY11 results. Interest income grew by 6% YoY during the quarter. This was aided by a strong growth of 21% YoY growth in advances. Low cost deposits growth supported net margin improvement from 2.3% in 1QFY10 to 3.2% in 1QFY11. This was because the bank managed to garner some large corporate salary accounts including that of the Indian Military and technology major IBM. Its cost to income ratio reduced from 57% in 1QFY10 to 44% in 1QFY11 due to write back of employee cost provisioning. However, gross non-performing assets (NPAs) increased by 0.3% to 3.1% while net NPAs remained at 1.7%. For the quarter capital adequacy ratio stood at 13.5%.

In news from telecom sector, Bharti Airtel (Bharti) came out with its 1QFY11 results. During the quarter net sales of the company increased by 17% YoY. This was on the back of 28% YoY growth in the passive infrastructure services. Strong sales from the mobile services segment also contributed to the top line. This segment saw a growth of 16% YoY on the back of expansion in customer base. The mobile subscriber base of the company grew 33% YoY to 137 m. However, average revenue per user (ARPU) declined by 22.7% YoY to Rs 215. This was a result of a fall in average revenue per minute (ARPM) partially offset by increase in minutes of usage (MoU). Operating profit grew by a subdued 2.7% YoY. This was due to higher network operating and selling and administration costs (as percentage of sales). However, net profit fell as a result of higher interest and depreciation costs. Furthermore, net profits were impacted by the acquisition cost related to African operations.

Moving to healthcare, Piramal Healthcare declared its 1QFY11 results during the week. Sales for the company grew by a disappointing 2.5% YoY during the quarter. Sales were affected due to uncertainty surrounding the company's domestic formulations business which was sold to Abbott Laboratories. However, the company's pathlabs and global critical care businesses contributed to the top line. Sales from the custom manufacturing business declined by 17% YoY during the quarter. This was due to foreign exchange volatility and lower demand. Global Critical Care business grew by a strong 49% YoY due to increased revenues from ‘Sevuflorane' in the US. Operating margins fell by 3.7%. This was due to a rise in all costs (as percentage of sales). Piramal's profits declined by 5% YoY during the quarter. This was due to lower operating profits partially offset by reduction in interest costs and effective tax rates.

In other corporate news, Marico has announced its second acquisition in South Africa. The company is buying Ingwe, an OTC health care brand. Ingwe product portfolio comprises of immune boosters and medi-pak range. This product profile is focus on the ethnic consumers in South Africa. Currently, Ingwe has a turnover of Rs 150 m. The management believes that Ingwe will help it build critical mass in South Africa and help strengthen its distribution reach. However, the deal details have not been disclosed as yet. It may be noted that Marico has been present in South Africa since October 2007 through the acquisition of Enaleni Pramaceuticals. While the size of this business is still small at Rs 638 m, it is fast growing, clocking a 34% YoY growth in FY10

Movers and shakers during the week

Company	6-Aug-10	13-Aug-10	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
TATA MOTORS	843	1,017	20.6%	1,032 / 430
TATA COMM.	277	330	19.4%	536 / 233
INDIABULLS REAL EST	170	194	14.3%	298 / 143
HPCL	438	485	10.8%	507 / 298
RELIGARE ENTERPRISES	413	455	10.2%	473 / 355
Top losers during the week (BSE-A Group)
MMTC LTD	1,649	1,396	-15.4%	2,000 / 1,365
STERLITE INDUS.	179	161	-10.0%	232 / 153
NAGARJUNA CONSTRUCTION	176	161	-8.5%	197 / 122
IVRCL INFRA	176	162	-8.2%	212 / 147
ABAN OFFSHORE	899	832	-7.5%	1,680 / 642

Source: Equitymaster
In other news, Reserve Bank of India (RBI) said that the capital expenditure in projects this year is likely to surpass last year's Rs 3.4 trillion. While actual investments during the current fiscal based on proposals made is likely to be Rs 2.6 trillion, further proposals made during the year are expected to be more than Rs 770 bn. The RBI has attributed this optimism to accelerating capital goods production, favorable demand conditions, increasing levels of capacity utilization in some sectors and rebound in earnings seen during the second half of 2009-10. Recent indications of an improvement in business sentiment on the back of improved outlook on demand conditions and given the continued thrust on infrastructure by the government leads us to believe that the capital expenditure this year could well be above last year's levels.

In international economic news, cost of living in the US climbed in July for the first time in four months, pointing to a stabilization that may ease concerns that a slowdown in growth will spur deflation. The consumer price index (CPI) increased by 0.3% ahead of expectations. This was on the back of rents increasing for a second month in a row. While US retail sales rebounded in July the concerns remains on inflation stuck at its lowest level since the 1960s. While sales climbed 0.4%, it was lower than forecasts. Moreover, the rise was strongly supported by vehicle and gasoline sales, suggesting momentum in other parts of the economy remains tame. After emerging from its longest slump since the Great Depression, the US economy has slowed in recent months, raising fears of a renewed downturn.