Indian indices underperform global markets

Sat, 25 Apr RoundUp

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Barring the Indian stock market (down 3.5%) and Singapore stock market (down 0.3%), the major global markets closed on a positive note.  The US stock market closed all time high levels; the rally was largely driven by technology stocks. Better than expected earnings propelled the US market to higher levels. Most of the global markets closed higher, ensuing positive lead from Wall Street.

European markets pared gains on the last trading day of the week, on the back of dull end to the meeting on Greece's debt troubles. However, major European indices finished the week in green. As per the data released by HSBC on Thursday, China's manufacturing activity declined to one year low levels. On the back of this, China markets pulled back some gains , but still closed higher for the week gone by. Japan's markets advanced above the 20,000 mark, and hit 15-year high in the week gone by.  

The Indian markets were down by 3.5% during the week on growing concerns over fourth quarter earnings and other global factors. In the last one week alone the currency has depreciated by about 1.8%. One of the reasons attributed to the fall in the rupee is the sell-off in equity markets by foreign institutional investors (FIIs). It is worth mentioning here that from an all-time high closing level of 29,682, the BSE-Sensex has tanked about 8.5% till date. The selling by FIIs has resulted in a surge in demand for US dollars. The outflow of dollars has put the rupee under pressure.

Key world markets during the week

Source: Yahoo Finance

The week gone by witnessed sharp selling activity across the indices. Subsequently, majority of the sectoral indices have closed weak. Stocks from realty and IT sectors were the leading losers in the pack.

BSE indices during the week

Source: BSE

Now let us discuss some of the key economic and industry developments in the week gone by.

The Employee Provident Fund Organisation (EPFO) may invest up to Rs 900 bn in the stock markets. As per the recent changes in the fund's investment rules, the labour ministry has allowed up to 5-15% of the corpus to be invested in the equity markets. The EPFO corpus is around 6,000 bn. Currently the EPFO does not invest in the equity markets. New rules are applicable from 01 April 2015. However, the EPFO will most probably begin investing via Exchange Traded Funds (ETFs) rather than investing directly. The inflows from the EPFO could significantly reduce the Indian market's dependence on FIIs.

Movers and shakers during the week

Company	16-Apr-15	24-Apr-15	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Tata Steel	337	370	9.7%	579/311
Mahindra Finance	264	279	5.4%	345/232
Adani Enterprise	641	659	2.9%	729/397
Indraprastha Gas	419	430	2.8%	488/278
JSW steel	939	957	1.9%	1365/880
Top losers during the week (BSE-A Group)
CRISIL	2,346	1,895	-19.2%	2365/1220
Jet Airways	456	377	-17.4%	544/204
Bosch Ltd	26,226	21,960	-16.3%	27989/9999
GMR Infra	18	15	-13.8%	38/15
Wipro	601	523	-13.0%	677/475

Source: Equitymaster
Now let us move on to some of the key corporate developments of the week gone by.

As per an article in Reuters, India's largest public sector lender State Bank of India's plan of raising up to Rs 150 billion (US$ 2.4 billion) via sale of its shares is now likely to take place in June instead of April. The reason for this could be attributed to the recent fall in the stock price. Since February-end, the stock price has fallen by about 8.5%. The public sector lender received the approval of shareholders to raise funds in February 2015. The funds will be used to strengthen SBI's balance sheet amidst expectations of recovery in loan demand in India. It is worth noting that the share sale would happen via the "fast track" follow-on offering route. The government has asked the bank to decide the timing of the FPO during its quarterly results between May 23 and 25,2015.

According to a financial daily, Biocon Ltd is planning to list its subsidiary Syngene. Biocon holds approx 86% stake in Syngene. The company has filed draft red herring prospectus (DRDP) and expects Syngene to get listed around July 2015. Reportedly, Biocon will be offloading 10% stake of Syngene, since the company needs funds to support is ongoing research and development plans. Biocon has been planning to list Syngene for a while now. The shares of Biocon closed up by approx 1%.

According to leading financial times, the government has decided to exempt state-owned ONGC and Oil India from paying for LPG subsidies in the current fiscal. The announcement comes as a big boost to domestic oil and gas exploration. After diesel price was deregulated in October 2014, the subsidy sharing was limited to LPG and kerosene. The Finance Ministry will pay Rs 53.2 bn in fuel subsidy for the January-March 2015 quarter, effectively meeting all revenue retailer losses on selling domestic LPG and kerosene at government-controlled rates.

As per a leading financial daily, Japan's Daiichi Sankyo will be selling off stake in Sun Pharmaceuticals. Sun Pharma had recently completed the acquisition of Ranbaxy from Daichii Sankyo. As the part of the deal, Daichii had received 8.9% stake of Sun Pharma. However Daichii board has approved to sell off its stake and exit from Sun Pharma. Daichii has kickstarted the sale of shares too.

Now that the result season has begun, let us take a look at the interim performance of some of the companies

VST Industries announced its results for the quarter ended March 2015. The company registered a 16% YoY topline growth for the quarter. But higher input costs led to a 4.3% contraction in operating margin for the quarter. Net profits slumped by 21.6% YoY for the quarter on a 1.3% increase in operating profit and 73.5% fall other income earned. For FY15, the company's sales increased by 6% YoY but net profits were down marginally on account of lower other income. The company has declared a dividend of Rs 70 per share of face value of Rs 10 each for FY15, subject to shareholder's approval.

HCL Technologies, the fourth largest Information Technology services provider announced results for the third quarter and nine months ended March 2015. Currency headwinds, higher investments, foreign exchange losses and completion of a major client engagement in the retail segment weighed on the March quarter's performance. The company's sales grew by 2.7% QoQ in constant currency terms. However, the company's consolidated profit after tax declined by 12% QoQ. The company reported a foreign exchange loss of Rs 1.42 bn as against a forex gain of Rs 0.15 bn in the previous quarter, which also adversely impacted the net profit. The operating performance too was disappointing. The operating profit fell 10.5% QoQ.

Cairn India Ltd has reported results for the quarter ended March 2015. The company has reported a net loss of Rs 2.4 bn during the quarter on account of one-time impairment loss in Sri Lanka amounting to around Rs 5 bn, low oil prices and forex loss of Rs 1.7 bn. Also, the company has written off Rs 5.5 bn in exploration cost for failed wells in KG basin. The topline for the quarter declined by 47% YoY. For FY15, the company has reported a decline of 22% and 64% in the topline and bottomline respectively. This was mainly due to a 20 % lower rate of realization and 3 % lower volumes.

Yes Bank, the country's fifth-biggest private sector lender by assets, announced that its board has approved a plan to raise up to US$1 billion by selling stock in local or overseas markets to shore up its capital base. The bank posted a 28.1% YoY growth in profit after tax in the quarter ended March 31, 2015, at Rs 5.5 bn on higher interest income and healthy growth in advances and deposits. The bank's net interest income increased by 35.8% to Rs 9.7 bn during the quarter. On asset quality front, the bank's net non-performing assets increased to 0.41% of the total advances in fourth quarter of 2014-15, from 0.05% in the year ago period.On the macro front geopolitical events will continue to influence the stock markets. In India, corporate earnings have not been very encouraging so far.  Further, sell offs from FIIs have too impacted the markets more recently. Several stocks have witnessed sharp correction, however for investors it makes more sense to look for stocks with strong fundamentals rather than short term fluctuations.