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India mkts least affected by global slump
Sat, 10 Nov RoundUp

The past week was a poor one for global stock markets as all the benchmark indices witnessed declines on a weekly basis. The negative sentiments surrounding the global markets were a lot to do with the fiscal cliff that is looming in the US. Concerns over Europe's debt problem also lingered. However, the rebounding economic data released in China gave some relief to investors towards the end of the week.

The Indian markets were the top performers amongst their global peers as the benchmark index - the BSE-Sensex - declined by 0.4% only. Hong Kong and Japan were amongst the top underperformers this week with declines of over 3% each. The US and China reported weekly declines of over 2%. Singapore and France dropped by about 1% each.

Source: Yahoo Finance

Coming to the performance of sectoral indices, stocks forming part of the realty sector led the pack of gainers. Stocks from the defensive sectors - FMCG and Healthcare - followed suit. capital goods and oil and gas sectors were amongst the top underperformers with their respective benchmark indices down by about 2.2% each.

Source: BSE

Earnings season for quarter ended September 2012 continued this week with a handful of large cap companies announcing their results.

Let us begin with the auto majors - Bajaj Auto reported a revenues decline of 4% YoY on the back of a 10% YoY decrease in volumes. Operating profits declined by 6% YoY as operating margins contracted by about 0.4% YoY to 18.4%. This was largely due to higher staff costs and other expenditure (as a percentage of sales). The company's profits increased by 2% YoY during 2QFY13. However, on excluding the extraordinary expense in 2QFY12, net profits fell by 10% YoY.

Commercial vehicle giants - Tata Motors and Ashok Leyland both announced their numbers as well. Tata Motors' consolidated net sales grew by over 19% YoY, while profits rose by 10.5% YoY. Growth at the consolidated level was driven by strong volumes from UK-based subsidiary Jaguar Land Rover (JLR). During the quarter, JLR's profits shot up by 77.3% YoY.

However, on a standalone basis, Tata Motors' performance was affected by the ongoing slowdown in the Indian automobile industry. Net sales declined by 3.8% YoY. However, its net profits zoomed up by over 8 times in 2QFY13 due to dividend income of about Rs 13.1 bn from JLR. In absence of the dividend income, the company would have reported a loss at the standalone level.

Ashok Leyland's revenues growth slowed down to 6% YoY during the quarter on the back of an overall slump in the volumes in the medium and commercial vehicle segment. Higher interest rates are one of the reasons for a low demand in the segment. The net profits for the quarter were down by 8% YoY. The decline was mainly on account of higher interest costs and depreciation expenses. Over the first half of this financial year, the company has gained 3% in the overall market share which now stands at 26%.

Moving on to the results of Crompton Greaves - the stock was one of the top underperformers amongst those forming part of the BSE-A group. While the company's consolidated revenue grew by about 8% YoY during the quarter, profits were lower by about 64% YoY. Operating profits dropped by about 40% YoY on the back of a sharp contraction in margins - this was largely due to higher staff costs and other expenses. The sharper decline in profits was on the back of an 86% YoY rise in interest costs. Weakness in the stock was also fueled by the company cutting its growth guidance for the financial year FY13 on account of a slowdown in its international business. Against an earlier target of 12% to 14%, the company has lowered its revenue growth guidance to 8% to 9% for FY13. It has also cautioned of additional cost pressures in the coming quarters on account of its business restructuring exercise.

Telecom major, Bharti Airtel also announced its results during the week gone by. The company's revenues increased by 17% YoY during 2QFY13. However, at the operating level, profits increase by 9% YoY only, as margins declined to 31.3% from 33.7% in 2QFY12. Lower operating margins coupled with higher depreciation charges led profits to decline by about 30% YoY during the quarter. Profits were also impacted negatively by the increase in tax outflow during the quarter.

Pharmaceuticals major, Ranbaxy's topline grew by 31% YoY during the quarter led by growth in both its domestic and international business, and currency depreciation. In dollar terms growth was at 8% to US$ 480 m from US$ 442 m. Domestic business (includes consumer health and Sri-Lanka) grew 13% on back of improvement in the chronic segment. US segment grew by 62%, on the back of Lipitor and Caduet generics getting added in the US base business and launch of Actos generics. Operating margins improved dramatically by 9.2% due to forex gain, improvement in the base business and Actos exclusivity. As per the management, base margins were stronger on back of Lipitor and Caduet getting added to the base business. Bottomline increased by 262% YoY during 3QCY12 due to forex gain in its derivative position in the current quarter against a loss in the 3QCY11.

Movers and shakers during the week
Company2-Nov-129-Nov-12Change52-wk High/Low
Top gainers during the week (BSE-A Group)
L&T Finance Holdings54 64 18.9%65.00 / 40.10
United Spirits1,184 1,360 14.8%1,424.30 / 450.00
Unitech24 26 10.0%35.50 / 17.45
IDBI Bank96 105 9.0%118.90 / 77.15
Mahindra & Mahindra Fin. Services884 962 8.8%981.90 / 590.10
Top losers during the week (BSE-A Group)
Ipca Laboratories465 427 -8.2%485.00 / 234.05
Crompton Greaves123 113 -8.0%161.50 / 102.40
Apollo Tyres86 80 -7.4%101.90 / 53.00
Jaiprakash Power Ventures40 37 -7.1%49.50 / 24.55
IDFC168 159 -5.5%168.00 / 90.25
Source: Equitymaster

The Society of Indian Automobile Manufacturers (SIAM) released consolidated numbers of vehicle sales for the month of October 2012 recently. As per the body, domestic car sales increased by over 23% YoY to 172,459 units in the month of October 2012 (140,105 units in October 2011). As reported by a leading business daily, car sales grew at their fastest pace in 22 months. Sales of motorcycles stood at 936,122 units, a figure higher by 6.7% YoY as compared to the same month last year. Total two-wheeler sales in the month of October 2012 stood at 1,285,015 units, up by 12.3% YoY. As per SIAM, while this data brought some cheer to the sentiments of the auto manufacturers, the month of November will be critical given that October's demand is fueled by the festive season demand. The growth of commercial vehicle sales remains a concern given that they were up by about 7.6% YoY during the month. These are mainly on account of lower purchase from industries such as mining, real estate and road infrastructure, as compared to earlier last year.

Coming to the economic news, Planning Commission Deputy Chairman Montek Singh Ahluwalia recently stated that the growth in Indian economy is expected to improve in 2HFY13 i.e. the second half of the current fiscal. He is of the view that the economy is turning around, and things are improving. He believes that in the next fiscal, a growth rate of 7% should not be a problem provided all the issues are fixed. As per the Central Statistical Organisation (CSO), during 1QFY13, the India's economy grew by about 5.5%. The figures for the second quarter would be released by end of this month. Mr. Ahluwalia is hoping to get foreign investments to get a boost given that the government has given 'lots of signs' to attract overseas investment. In addition, the government is also putting in place a mechanism to improve the clearances procedures for various projects including infrastructure projects.

Given that the US elections were a big event to look forward to during the week gone by; investors' focus is expected to go back to the ongoing result season during the next week.

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