Firm close for the indices

Indian equity markets had a volatile trading session today. The morning session saw the indices build on their gains before profit booking took over at higher levels. Buying once again resumed in the final hours leading the indices to close well above the dotted line. While the BSE-Sensex today closed higher by 98 points, the NSE-Nifty closed higher by 27 points. Both the BSE Mid Cap and the BSE Small Cap also notched gains of 1% each. Barring banking and FMCG stocks, gains were seen across sectors.

As regards global markets, most Asian indices closed in the green today while European indices have opened mixed. The rupee was trading at Rs 54.05 to the dollar at the time of writing.

Auto stocks closed firm today with the key gainers being Tube Investments, TVS Motors and Tata Motors. Tube Investments announced results for the fourth quarter and year ended March 2013. The company reported a 10% YoY fall in revenues during the quarter as sales from all its three divisions witnessed a fall. While revenues from the cycles and engineering segments fell by 9% YoY and 4% YoY during the quarter, the drop in revenues from metal formed products was even steeper at 20% YoY. Operating margins shrunk by 3.2% to 7.6% during the quarter leading to the 36% YoY fall in operating profits. This coupled with the rise in interest costs led to the 64% YoY decline in the bottomline for the quarter. For the full year, while total sales fell by 2% YoY, net profits declined by 42% YoY on account of a 1.9% drop in operating margins.

MNC pharma stocks closed mixed today. While GlaxoSmithKline Pharmaceuticals Limited (GSK Pharma) and Pfizer found favour, Sanofi India closed into the red. Sanofi India declared the results for the first quarter ended March 2013 (December ending company). The company clocked net sales growth of 12.5% YoY during 1QCY13 and 27% growth in the operating income. Operating margins declined by 0.8% YoY during the quarter to 26.8% due to increase in the cost of raw materials. Thus, operating profits grew modestly by just 4% YoY for quarter. Net profits grew by 11% YoY and this was higher than the growth in operating profits on account of substantial rise in other income. The company launched two new products during the quarter called Combiflam Plus and Allegra M. Going forward, besides the likely impact of the new pricing policy, Sanofi India will also have to contend with rise in amortization expenses on Goodwill. That said, the company has a strong parent whose product portfolio, Sanofi India can leverage on to launch new products into the country.

Indian share markets remain flat
01:30 pm

Indian share markets continued to move in a narrow range-bound manner in the post-noon trading session. All the sectoral indices are trading positive with IT, metal and consumer durables stocks being the major gainers.

BSE-Sensex is up 43 points and NSE-Nifty is trading up 9 points. While BSE Mid Cap is up 0.7%, BSE Small Cap index is trading up by 0.8%. The rupee is trading at 54.0 to the US dollar.

Cement stocks are trading mixed with J K Lakshmi Cement and Prism Cement being the major gainers and Ambuja Cement and Shree Cement being the major losers. As per a leading financial daily, Ultratech Cement has outlined a capital expenditure plan of Rs 20 bn at its Rajasthan plant. The company wants to scale up capacity at Aditya Cement Works in Rajasthan by 2.9 million tonnes per annum (mtpa) and also set up two grinding units. The additional capacity is expected to be commissioned by March 2015. Among its recent capacity expansion initiatives, the company has commissioned a 3.3 mtpa clinkerisation plant in Chattisgarh and a 1.6 mtpa grinding unit in Maharashtra. Additionally, the company increased its cement grinding capacity at Gujarat plant to 0.6 mtpa and set up a bulk terminal in Kerala and a wall care putty plant in Madhya Pradesh. Post commissioning of these projects, the company's cement capacity has risen to 53.9 mtpa and the clinker capacity has increased to 41.8 mtpa.

Majority of the private bank stocks are trading in the negative with Kotak Bank and HDFC Bank being the biggest losers. However South Indian Bank and J&K Bank are among the few stocks trading in the green. As part of its financial inclusion drive, Reserve Bank of India (RBI) has allowed banks to carry forward the number of branches opened in rural areas, in excess of the stipulated annual target, to the next fiscal year. As per existing norms, banks have to open 25% of their new branches in unbanked rural areas. The banks, that exceed the 25% annual target, will be allowed to carry forward the excess number of branches to the next two years over the three-year cycle which will be co-terminus with the financial inclusion plan.

Mid and small caps outperform
11:30 am

Indian equity markets traded in the green during the previous two hours of trade. Sectoral indices traded mixed with metal and IT stocks leading the pack of gainers, while FMCG and banking stocks emerged as top losers.

The BSE-Sensex is trading higher by 46 points and NSE-Nifty is trading up by 10 points. BSE Mid Cap and BSE Small Cap indices are trading up by 0.6% and 0.9% respectively. The rupee is trading at 53.89 to the US dollar.

Retailing stocks are trading mixed with Titan Industries and Future Retail being the top gainers while Provogue (I) Limited and Trent Limited are trading weak. Titan Industries recently declared results for the fourth quarter of financial year 2013. The company reported 14.5% YoY growth in sales during the last quarter and 14.4% YoY growth in sales during the full year 2013. Segmentwise, jewellery revenue grew by 16.3% YoY, others including precision engineering, eyewear and accessories by 40% YoY and watches by just 1.5% YoY during the quarter ended March 2013. Operating profits increased by 28.7% YoY during the quarter. Operating profit margins were up by 1.1% as compared to the same quarter last year. Rise in interest costs was slightly subdued in the quarter as compared to the rise in the full 12 month period. Net profits increased by 28.2% YoY and net profit margins expanded by 0.8% during the March quarter. Titan has declared a dividend of Rs 2.1 per share which implies a dividend yield of 0.8%.

Automobile stocks are trading strong led by Tata Motors and Mahindra & Mahindra. As per a leading daily, sales of Tata Motors' Nano have been falling amid economic slowdown. The automobile company managed to sell just 948 units in April this year as compared to 8,028 units sold in April last year. For the full year, Tata Motors witnessed a fall of 27.75% in Nano's sales in FY13 at 53,848 units compared to 74,527 units in 2011-12. Also, the exports amounted to just 166 units as against 3,462 units in the previous year. However, for Tata Motors, Nano is not the only model that is witnessing declining sales. The entire range of vehicles produced by the Tata group company is facing tough times in line with the peers in the automobile industry. We may note here that car sales were down 6.7% in 2012-13, which is the first fall in a decade's time.

Indian share markets open flat
09:30 am

All major Asian equity markets have opened the day on a firm note with stock markets in Malaysia (up 3.2%), Hong Kong (up 1%) and China (up 0.9%) leading the gains. The Indian share market indices have also opened the day on a flat note. Stocks in the information technology and metal space are leading the gains. However, banking stocks are trading in the red.

The Sensex today is up by around 6 points (0.03%), while the NSE-Nifty is down by around 9 point (0.2%). Mid and small cap stocks are trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.3% and 0.6% respectively. The rupee is trading at Rs 53.80 to the US dollar.

Cement stocks have opened the day on a firm note with JK Lakshmi Cement and Birla Corporation leading the gains. Holcim group companies Ambuja Cements and ACC have announced the financial results for the quarter ended March 2013. During the quarter, Ambuja Cements reported net sales of Rs 25,448 m, lower by 3.3% YoY over the corresponding quarter of the previous financial year. ACC, on the other hand, reported net sales of Rs 29,111 m, higher by 2.4% YoY. Both companies witnessed a decline in cement volume sales on account of sluggishness in the cement sector. While Ambuja Cements saw its operating profit margins decline from 28.4% in 1QCY12 to 21.3% in 1QCY13, ACC's operating margins declined from 21.1% in 1QCY12 to 15.2% in 1QCY13. Ambuja Cements and ACC reported a rise of 56.3% YoY and 181.7% YoY in net profits, respectively. But the rise was mainly attributable to certain exceptional losses in the previous year's corresponding quarter.

Textile stocks have opened the day on a mixed note with Pioneer Embroideries and Himatsingka Siede witnessing gains. However, the stocks of Arvind Ltd and Raymond Ltd are witnessing losses. Grasim Industries has announced its financial results for the quarter and year ended March 2013. During the quarter (4QFY13), the company's standalone sales stood at Rs 13,765 m, marginally lower by 1.1% YoY. While viscose staple fibre (VSF) sales volumes improved marginally, downward pressure on realisations led to decline in revenues. The company managed to maintain its operating profit margin at 15.6%, the same level seen in 4QFY12. While other income declined by 21.4% YoY, depreciation and interest expenses shot up by 22.2% YoY and 96.7% YoY respectively. The company reported exceptional gains of Rs 2,044 m on account of sale of long-term investments. This lifted the company's net profits to Rs 3,724 m, higher by 52.9% YoY. During the financial year 2012-13 (FY13), sales and net profits rose by 6.3% YoY and 4.2% YoY respectively.

Why recessions are tough to forecast?

Forecasting something as big as a recession is not the easiest task. With finance professionals finding it difficult to predict the same, it would have been nearly impossible for non-finance professionals to have done so. Despite knowing the fact that the analyst community missed the call on what was one of the biggest financial calamities in the last century, it would not be entirely wrong to say that people still wait for their predictions and forecasts. Be it broader parameters such as inflation or GDP growth or specific parameters such as earnings and stock prices.

Moneylife stated about a fortnight ago, 'the main problem is the future. No one can predict it.' And despite knowing that forecasters do not get their calls right time and again, people are still addicted to hear what they have to say. Given that the world has been moving along a steady pace over the long run (and not the recent past), a general consensus is that major companies would chug along, growing at decent and steady paces. This would eventually lead to steady growth in earnings, leading analysts to have an optimism bias for almost all companies!

As reported - 'One of the most interesting and consistent issues with analyst forecasts is optimism. Forecasts for earnings growth are always sunnier in January. Forecasts for the American market index, the S&P 500, at the beginning of the year predict rising profits. For the past 26 years, both European and American analysts have predicted increased earnings although they have fallen one-third of the time.'

Profit forecasts not only predict positive earnings, their annual forecasts start out higher than they end up. Over the two-and-a-half decade period, there were only three years (1988, 2005 and 2006) when forecasts ended up more positive, than at the end of the year.

Not only is the bias wrong, but often the accuracy is way off. European forecasts were off by 20% a third of the time. The US was a bit more accurate, but nothing to be proud of. American analysts were off by more than 10% half the time.'

Moneylife's article also discussed the vested interests that analysts and managements have in showing rosy pictures, or in not disclosing the truths. But that's a story for some other day.

While incidents such as recession, slowdowns, and bankruptcies may not be the easiest to predict, one would probably factor these in by lowering the long term growth rates. But, rarely would one find analysts lowering earnings.

There's only one thing that you can do...

For investors, it would only make sense to do their own homework and escape all the noise that goes around. There are no two ways on how to go about getting a basic understanding of companies and industries from various sectors, the segments the operate in, the reason for earning different margins from peers, whether high margins are sustainable, the health of the balance sheets, the long term growth rates, etc. These are just some of the many questions that investors must pursue. Company annual reports are good starting points.

Also, one could shield himself from the 'biased' forecasts and predictions by buying stocks - after having studied them thoroughly - at attractive valuations. This is where the concept of margin of safety steps in. Buying a good company at a bargain price would in all probability benefit investors, especially during times of uncertainty and difficulty.