German support for ECB boosts markets

Fri, 17 Aug RoundUp

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Global stock markets witnessed a week of gains. Positive news flowed in the form of German backing for European Central Bank's intervention in the Euro zone's debt troubles. Voicing her support for the ECB's efforts, German Chancellor Angela Merkel stated that ECB President Mario Draghi's declaration last month about doing all that it takes to save the Euro, was in line with the approach of the European leaders. This resulted in stock markets world over registering considerable gains.

A lower inflation number declared in the first half of the week resulted in Indian stock markets registering gains. The markets finally ended the week higher by 0.8% led by worldwide optimism.

Amongst the other markets, most ended the week on a positive note led by Japan (up by 3%) However China witnessed fall of 2.5% followed by marginal losses in the stock markets of UK (0.2%) and Hong Kong (0.1%)

Source: Yahoo Finance *Data is for August 16, 2012

Moving on to the performance of sectoral indices in India , there was a mixed performance. While oil & gas and auto stocks were the top gainers of the week, metal and power stocks closed in the red.

Source: BSE

Now let us have a look at key developments during the week. FMCG companies are fighting rising cost pressures by reducing the weight of their products and holding on the prices of their products. For products whose grammage has been raised to conventional weights, prices have not been hiked accordingly. We may note here that FMCG companies are reeling under twin problems of higher input costs coupled with falling rupee which makes import of inputs even costlier.

Companies continued to declare their earnings for the quarter ended June 2012. Important ones to declare the results were Coal India, Oil and Natural Gas Corporation (ONGC) and Tata Steel among others.

Coal India declared numbers for the quarter ended June 2012. Net sales increased by 13.5% YoY in the first quarter of financial year 2012-13 (1QFY13). This was led by both higher sales as well as increased realizations form e-auctions. Coal India produced 102.4 m tonnes of coal in the quarter which implies an increase of 6.3% YoY. Total operating expenses were up by 20.8% YoY attributed mainly to the wage agreement that impacted the quarter by Rs 12 bn. The coal mining company reported net profit growth of 7.8% YoY.

ONGC declared its results for first quarter of financial year 2012-13 (1QFY13). The firm reported a 23.9% YoY growth in revenues led by higher crude prices and rupee depreciation against the dollar. However, subsidy costs that ONGC incurs to compensate oil refining companies for under recoveries restricted growth to some extent. The gross subsidies amounted to Rs 123.5 bn during the quarter. The net realizations for the quarter stood at US$ 46.6 per barrel, down from US$ 48.7 per barrel in 1QFY12. The net profits for the quarter registered a growth of 48.0% YoY.

Tata Steel announced results for the June quarter. Net sales on a consolidated basis were up by 2.5% YoY as compared to the same quarter last year. The operating profits were down by 23.6% YoY. A lower growth in topline and increased operating costs resulted in net profit falling drastically by 89% YoY. We may note here that the company had reported one-time gain of about Rs 40 bn in 1QFY12. Excluding these gains, net profits declined by about 55% YoY. The company's European operations have been majorly impacted. These account for two-thirds of its total capacity.

In some other news from the corporate world, Sun Pharmaceuticals Limited is planning to transfer its domestic formulation business to a wholly owned subsidiary Sun Resins and Polymers Private Limited. The management is doing this with an objective of improving its focus and allowing quicker responsive to competition. The domestic business accounts for one third of the overall business. This segment has been doing well in the recent past registering above average sales and profit growth.

Movers and shakers during the week

Company	10-Aug-12	17-Aug-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Tech Mahindra	762	846	11.0%	849/524
United Spirits	834	925	10.9%	988/450
MRPL	58	64	9.8%	75/50
Aban Offshore	394	423	7.3%	572/320
Shree Renuka Sugars	32	34	6.5%	67/23
Top losers during the week (BSE-A Group)
Koutons Retail	8	6	-27.6%	28/7
REI Agro Limited	12	11	-10.5%	27/8
Indiabulls Financial Services	211	190	-10.1%	257/117
GMR Infra	22	21	-8.1%	34/18
Sterling Biotech	7	6	-6.7%	89/5

Source: Equitymaster
Cigarette companies in India may face hard times ahead. An Australian court has upheld the Australian government's rule for uniform and plain packaging of cigarettes citing that cigarette packs must be less attractive and bear graphic health warnings. Earlier, the tobacco companies argued that the value of their trademarks will be destroyed if they are no longer able to display their logos on packs of cigarettes. Rejecting this challenge by cigarette makers, Australian court made it clear that December onwards cigarette packs would be uniform in design. The Australian government has urged other countries too to adopt strict rules regarding this. The European Union seems to be considering banning company logos on cigarette packs. It is feared that India too may follow suit and resultantly, cigarette manufacturers like ITC may suffer.

Inflation eased to almost a three-year low in July. The annual rate of inflation, based on monthly wholesale price index, stood at 6.87% for July, compared to 7.25% for the previous month and 9.36% during the corresponding month of the previous year. However, concerns about food inflation number still prevail as it continues to remain in double digits. Thus, any possibility of a probable rate cut seems unlikely in the near future, thereby implying no sight of relief for interest rate sensitive sectors like automobiles and real estate.