It was a tumultuous week for the world stock markets. Except for China, the entire global pack closed the week in red. US stock markets were down 2% during the week as uncertainty surrounding the confidence vote in Greek parliament worried investors. However, encouraging domestic jobs data gave investors a reason to cheer. Further, with the Greek Prime Minister winning the crucial confidence vote one can expect some kind of relief rally in the next week.
Indian stock markets were down by 1.4% during the week. Increased risk aversion due to political uncertainties in the West continued to overweigh markets. Markets are keenly eyeing corporate earnings and crucial developments in the West. These cues would determine the course of action in next week's trade. Amongst the other world markets, France was down by 6.7% while Germany was down by 6% during the week. Even UK and Japan lost gains recorded in the earlier week and were down by 3.1% and 2.8% respectively.
Source: Yahoo Finance
Amongst the sectoral indices, Auto and Metals lost considerable ground and were down by 3.4% and 2.5% respectively. Both auto and metal stocks were down on concerns over earnings disappointment from select heavyweights. However, FMCG and Power stocks were relatively flat during the week.
Now, let us have a look at the key economic developments during the week. India's oil marketing companies have again raised petrol prices by about 3% in order to combat losses on sales of fuel due to higher crude oil prices globally and rupee depreciation. Oil prices were raised by Rs 1.8 per liter. This is the fourth price hike by retailers since January. Following the increase, petrol now costs Rs 68.64 per litre in Delhi, up from Rs 66.64 a litre earlier. The retail selling price in different cities will vary according to local sales tax. However, as the move has created a huge furore amongst allies the government is considering a partial roll back in prices.
In news from the power equipment sector, the Heavy industries ministry has announced that it will seek duty on Chinese and Korean imports to level the field for domestic vendors against cheaper imports. As per the ministry, this would be necessary for the domestic equipment manufacturers to raise the capacities. Indian companies that pay local manufacturing taxes have been demanding a 14% duty on imported equipments, especially on those from China as yuan is artificially pegged and puts local players at a disadvantage.
Now, let's take a look at key corporate developments during the week. Maruti Suzuki has reported its results for the second quarter of financial year 2011-2012 (2QFY12). The net profit for the company slipped down by 60% year on year (YoY) during the quarter. The topline also declined by 15.7% YoY on back of volume decline of 19.6% YoY. As per the management, the company has faced a production loss of 83,000 cars, a shortfall that translates to around US$ 500 m. Last week, the company had resolved the labour unrest at its plant in north India that started in June. The company reported an operating margin at 3% during the quarter versus 8.1% last year. Besides a drop in vehicle sales, the margins were hit by adverse foreign exchange rates. It is in advanced talks with Italian automaker Fiat to source diesel engines and expects the deal to be finalized in 2 months. The company's board has also approved a land purchase in western Gujarat state for expansion of manufacturing facilities in the coming times. As per the management, the company would invest nearly US$ 1.3 bn to set up a new plant in Gujarat.
Hindustan Petroleum (HPCL) also announced results for second quarter of financial year 2011-12 (2QFY12) during the week. The company has reported a growth of 21% YoY in net sales and a net loss of Rs 33.6 bn for the quarter versus a net profit of Rs 20.9 bn in the year ago period. The performance at the bottomline level has suffered due to higher under recoveries and adverse impact of rupee sliding against dollar as it imports a significant share of its crude oil requirement. The company reported average gross refining margins (GRMs) at US$ 1.52 per barrel versus US$ 3.21 per barrel last year. The crude throughput for the quarter came at 4.19 MMT (million metric tonnes) versus 3.04 MMT in 2QFY11. The company reported market sales (including exports) at 6.94 MMT for the quarter versus 6.03 MMT during the year ago period.
India's largest power producer National Thermal Power Corporation (NTPC) announced results for the quarter ended September 2011 during the week. The company reported a 14% YoY growth both in net sales and in net profits for the half year period. Operating margins declined to 20.7% from 21.7% in 1HFY11. This was largely on account of higher fuel costs. In addition to weaker operating margins, fall in other income dampened profit growth. The net profit margins, however, remained stable due to lower depreciation cost and interest outgo. The company had capacity of 34,854 mega watt (MW) at the end of September 2011 and is targeting capacity addition of 4,320 MW in FY12. While the company has coal linkages for 9 new projects with a total capacity of 10,920 MW and a gas supply agreement for 14.5 MMSCMD of gas, fuel supplies remain a hindrance to growth.
In news from the power sector, rising coal shortages has increased concerns for thermal power producers. The average coal stock position of electricity generating companies has reached a critical level and is just enough to meet the requirement for the next 7 days. Further, with tariffs being regulated in India, power companies cannot even afford to import coal as it is not feasible from a business perspective. However, some companies like NTPC are exploring options to enter into long term contracts with overseas companies in order to meet their coal requirements. The government has also directed Coal India to increase its supplies so as to meet the current supply issues. While this may sort out the concern temporarily we believe that India needs a long term solution to this grave problem.
Food inflation figures were released by the government during the week. At 12.2%, food inflation is at a nine month high currently. Strong demand from rural India and shift in dietary habits due to increased standard of living has resulted in higher prices. Removing the supply-chain bottlenecks can help reduce the food prices . But considering that this is a structural problem it would take time before it gets resolved. However, a good harvest in the coming season and steps to reduce wastage can provide some respite in the near term.