The past week was a mixed one for the global markets. Germany was the top gainer of the week while Brazil was the biggest loser. European markets performed well during the week as France and UK were up by 1.1% and 0.7% respectively. Asian markets ended mixed on the news that China unexpectedly raised interest rates and grew at the slowest pace in a year. India (up 0.2%) and China (up 0.1%) closed higher while Japan (down 0.8%), Singapore (down 1%) and Hong Kong (down 1%) closed the week in the red. US on the other hand was up by 0.6%.
Source: Yahoo Finance
Moving on to the performance of sectoral indices in India - Pharma stocks were the biggest gainers of the week with BSE-Pharma index gaining 2.8% over the week. BSE-Oil & Gas index followed close behind up 2.7%. BSE-Midcap index (up 1.4%), BSE-Capital Goods index (up 1.1%) and BSE-PSU index (up 1%) made up the top five performers of the week. Metal stocks on the other hand were the biggest losers of the week with the BSE-Metal index down 2.7%. BSE-Realty index and BSE-Consumer Durable Index were also down by 2.2% and 0.9% respectively. BSE-Auto (down 0.2%) and BSE-Power index made up the top five worst performers of the week.
Moving on to key corporate developments during the week - a handful of companies announced their results for the quarter ended September 2010. During the week several IT companies declared their quarterly results. IT major TCS was among them. The company’s top line grew by 13% QoQ. This came on the back of an 11% QoQ growth in volumes. The company saw good traction in sales across geographies. Operating margins grew by 0.6% mainly as a result of positive currency movements and improvement of rate efficiency. TCS added a net of 10,717 employees during the quarter. However, high attrition rate continues to be a challenge for the company. Attrition for the quarter stood at 14.1%, as compared to 13.1% recorded in 1QFY11. Net profits of the company grew by 14% QoQ. This is was driven by the revenue growth which offset the negative impact of lower other income as well as higher interest costs.
Another IT company which released its results during the week was Wipro. However, the company’s performance was not at par with TCS. While the company’s net sales grew by 8% QoQ, the company’s operating margins declined by 9% QoQ. This was the result of higher employee costs and unfavorable currency movement. As a result of these factors and higher interest and depreciation charges, Wipro’s bottom line declined by 3% QoQ. Wipro as with other IT companies is facing high attrition. During the quarter the attrition level increased to 19.4%, as compared to 15.8% in 1QFY11.
A few companies from the auto space also declared their results during the week. Amongst them Ashok Leyland announced a strong set of 2QFY11 numbers. The company’s top line grew by an impressive 72% YoY. This growth was entirely volume led and across all segments barring LCVs. Domestic M&HCVs volumes (both good and passenger cars) rose by 78% YoY, while export volumes in this segments increased by 43% YoY. On the other hand, LCV sales dropped by 38% YoY during the quarter. Operating profits margins improved by 0.8% YoY. This margin expansion came on the back of lower employee costs and other expenditure (as a percentage of sales). However the margin expansion was capped as a result of higher raw material and purchase expense. Net profits rise by 89% YoY during the quarter. This was a result of higher operating income partly offset by higher interest expense and higher effective tax rate.
TVS motors also released its 2QFY11 results during the week. The company’s top line grew by 42% YoY on the back of 32% growth in volumes. Total two-wheeler sales for the company stood at 517,000 units compared to 391,000 units during 2QFY10. The company also saw a 3 fold increase in three-wheeler sales. For the quarter the company sold 9,826 three wheelers as against 3,259 for the same period last year. Motorcycles sales grew by 35% YoY while sales of scooters grew by 45% YoY. Total export volumes increased by 69% YoY and stood at about 59,000 units. Operating margins of the company grew by 0.7% as a result of lower other expenses (as a percentage of sales). Net profit grew by 123% YoY. This strong growth came on the back of lower interest expense and a marginal rise in depreciation and amortisation charges. Bottom line growth could have been stronger but for higher tax outgo
In news from the banking sector, HDFC Bank announced its 1HFY11 results. Interest income grew by 14% YoY on the back of 38% YoY growth in advances. While the growth in advance was higher than sector growth, net interest margins remained stable at 4.2%. On the other hand, other income fell by 19% YoY as a result of lower treasury gains due to revaluation and sale of investments. Fee income however, was up 16% YoY. Net income increased by 33% as a result of higher net interest income. The capital adequacy ratio (CAR) stood at a comfortable at 17%, (Tier I CAR at 12.7%) at the end of 1HFY11. Net non-performing assets (NPA) to advances improved marginally from 0.5% in 1HFY10 to 0.3% in 1HFY11 as the bank’s assets quality improved in spite of the share loan growth.
In other industry news, after a couple of dull years, we are seeing a new consumer product being launched every other day so far this year. So far 140 new products have been launched between January and August 2010 as companies rolled out products customized for specific regions and consumer segments. HUL launched the largest number of products at 36 which include new products and variants. Dabur on the other hand launched 11 products including Fem gold bleach, Odomos oil, Odonil air fresheners and new variants of Pudin Hara, Hajmola digestives and Vatika shampoo. GSK Consumer Healthcare recently launched Asha, a milk food drink for rural consumers while Marico introduced oats. While most FMCG companies took price cuts last year to boost volume growth, they also went for product rationalization and focused on fewer brands, due to the economic slowdown. This hit consumer demand. However, with demand improving this year, companies have introduced new products which include premium products to shore up their margins.
In economic news, while India’s GDP growth is on track to accelerate in the current fiscal on the back of the monsoon boost, the expectation for growth in the next fiscal has moderated slightly. The concern being how the RBI will lift rates in the fiscal to counter price rises. Furthermore, global uncertainties are likely to have an impact on India's growth momentum. RBI expects WPI inflation to ease to 6 % by March 2011. The cut in forecasts for inflation at the end of the fiscal year reflect the view that a healthy monsoon will bring down food prices, which have a big influence on the headline index. Inflation is forecast at 8.3% at the end of FY11, before moderating to 5.7% in FY12.
The world markets were under heavy influence of China this week. Concerns that the world’s fastest growing economy is overheating and is likely to slowdown will have an effect on India as well. However, the domestic growth story for India remains intact.