A mixed week for global markets

Sat, 1 Aug RoundUp

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The performance of global markets this week was a mixed bag. The major event of the week was of course the US Fed meet which ended on expected lines with no change in policy. The fed also did not state explicitly if they would start raising interest rates in September. The US markets however, did not celebrate the news as economic data continues to remain mixed. There is confusion among economists about the strength of the US economic recovery. The Dow ended higher by 0.7% for the week.

European markets continued to remain volatile as concerns surrounding the viability of the Greece bailout deal weighed on sentiment. It is becoming increasingly clear that the deal may not work in its present form and the IMF has already refused to participate.

The biggest losers this week were the Chinese markets. The Chinese government’s desperate measures to support the stock markets are proving unviable. The impact was felt on a few other Asian markets as well. However, the Indian markets managed to overcome the negative global sentiments and closed flat for the week.

Key world markets during the week

Source: Yahoo Finance

Among the sectoral indices, the stocks from FMCG sector witnessed the highest demand. Real estate stocks were not far behind. However, energy stocks were under pressure and witnessed maximum selling. Smallcap and midcap stocks continued to remain in demand during the week gone by.

BSE indices during the week

Source: BSE

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

According to article in the economic times, the thermal power capacity utilization has reached a new low of 59% in June. The Plant Load Factor (PLF) in the year ago period stood at 66%. The experts have stated that it would make it difficult for commercial plants to service their debt at such low levels of PLF. The private sector companies who do not have any long term power purchase agreement will be the worst hit by such low PLF and would result in lower return on investment. A number of power plants have experienced cost overruns of 35-38% in the recent past.

The Steel Ministry had approved 83 R&D projects worth Rs 6.96 bn in 2014-15. This is to expand the steel industry's product portfolio, develop more value added products and help in maintaining long term sustainability. Out of 83 R&D projects, 47 projects have been completed, and 11 projects were stopped following mid-term review whereas 25 projects are in various stages of progress. Further, the government is encouraging the PSUs and private firms in the steel sector to work on R&D projects mostly on problems relating to utilization of low grade ore and high ash coal. It has recommended large steel firms to enhance R&D investments up to 1% of their total sales turnover. Besides, Steel Ministry is facilitating setting up of Steel Research and Technology Mission of India and is contributing 50% to the corpus.

Movers and shakers during the week

Company	24-Jul-15	31-Jul-15	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
Jet Airways	324	400	23.6%	544/204
Sun TV	280	337	20.3%	460/256
Bank of Baroda	155	177	14.3%	229/138
Emami Ltd	1,157	1,310	13.2%	1,340/528
Godrej Consumer	1,226	1,370	11.8%	1,398/830
Top losers during the week (BSE-A Group)
NMDC Ltd	114	102	-10.4%	188/101
JSW Energy	93	84	-9.5%	126/64
Jaiprakash Asso	11	10	-8.4%	63/9
Syndicate Bank	102	95	-7.0%	150/87
Tata Steel	265	247	-6.7%	569/245

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

The Maruti Suzuki DZire, the best selling entry sedan for the last three years in domestic markets, has hit the 1 m cumulative sales mark this month. With this, the Swift DZire has entered the 'elite million club' which comprise models such as Alto, Swift and Wagon R. DZire is also exported to various international locations which includes Africa, South America, Central America, Middle East ASEAN and SAARC countries. For the month of June 2015, Maruti Suzuki had registered a YoY rise of 1.8% in its global car sales while the domestic sales for the month rose by 1.6% YoY.

State Bank of India (SBI) has decided to enter into wealth management business. The bank is also tapping talents through lateral placements. For wealth management business, the bank will take extra care on customer services, critical for retaining individuals with huge wealth but little time. Meanwhile, SBI posted a rise of 65.52% in its net profit at Rs 1.34 bn for the quarter ended March 31, 2015 as compared to Rs 812 m for the same quarter in the previous year. Total income of the bank has increased by 11.55% at Rs 13.08 bn for quarter ended March 31, 2015 compared to Rs 11.72 bn for the quarter ended March 31, 2014.

Oil and Natural Gas Corporation (ONGC), the state-owned company, is planning to invest over USD 8.8 bn to bring to production the KG-basin oil and gas discoveries by 2018-19. The company is planning to develop the 11 oil and gas finds in the Northern Discovery Area (NDA) together with one gas find in G-4 block. The investment is for drilling 45 development wells, an array of sub-sea pipelines and a pipeline to carry gas to an offshore terminal.

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

Tech Mahindra reported its results for the quarter ending June 2015. The company reported a net profit of 6.76bn, up 7.2% y-o-y and up 43% sequentially. Foreign exchange gain worth 0.93bn boosted the bottom line. Revenue grew 22.9% y-o-y and the company's dollar revenue grew by just around 0.5% sequentially. The company's earnings before interest, tax, depreciation and amortisation (EBITDA) margin stood at 14.9 per cent in the quarter and contracted 32 basis points sequentially.

Pidilite Industries has reported it results for the first quarter ended June 30, 2015. On a standalone basis the company reported a 33.6% rise in its net profit and 6.8% increase in its total income on a YoY basis. On the consolidated basis, the company posted 33.8% rise in its net profit while the total income recorded a rise of 8.7% on a YoY basis.

ITC reported its results for the quarter ending June 2015. The company reported a 3.6% rise in the net profit to Rs 22bn. Revenue dropped 7.1% to Rs 86bn as agriculture business revenue fell 29.45% and the cigarette revenue fell 1.2%. However revenue from non-cigarette business grew by 12.2% during the quarter. Cigarette revenue which accounts for about 48% of the company's total revenue dipped to Rs 41bn, but its earnings before interest and tax rose 2.2% to Rs 27bn and margin spiked 220 basis points to 67%.

Exide Industries has reported its results for the first quarter ended June 30, 2015. For the quarter, the company has reported a 16.2% fall in its net profit on a YoY basis. The total income witnessed a YoY fall of 6% for the concerned quarter. The company manufactures the widest range of storage batteries in the world from 2.5 Ah to 20,400 Ah capacities. It has seven manufacturing plants strategically located across the country.

The markets have been reacting to multiple events recently. The domestic earnings season, the US Fed meeting, the Greece crisis, the fall in the Chinese markets as well as the ongoing Parliament session. The next event is the RBI policy on 04 August. However for investors it makes more sense to look for stocks with strong fundamentals for the long term and not to get swayed away by short term blips in the stock market.