Todays Market from Equitymaster

Markets end week 3% higher

Fri, 27 Jan 2012 10:30:00 GMT

The indices in the Indian stock markets opened the day on a positive note after the market holiday yesterday. They however came off their day's highs midsession but eventually managed to recover from this level and closed the day well in the green. Thus, while Sensex edged higher by around 157 points, (up 0.9%) gains on the Nifty came in at around 46 points. BSE Mid Cap and Small Cap indices also had a strong performance, edging higher by 0.7% and 1.3% respectively. Stocks from the Oil and gas and consumer durables space were trading well in the green. Realty and FMCG stocks were however trading weak. Markets ended a short trading week over 3% higher.

Gains were also seen across most major Asian indices, however China still remained closed. European stocks are trading on a mixed note currently. The rupee was placed at Rs 49.31 to the dollar at the time of writing, jumping to an 11 week high on higher fund inflows.

Leading Knowledge Process Outsourcer (KPO), eClerx's sales grew by 16.0% QoQ during the third quarter of the financial year 2011-12. This came on the back of rupee depreciation and a 7% QoQ growth in revenues in constant currency terms. As regard to geographies, this growth was largely aided by a good growth in sales from the US market. The North American business (70% of net sales) grew by 25% QoQ during the quarter. The business from European markets (24% of net sales) witnessed a tepid growth of 7.0% QoQ growth during the quarter on account of the debt crisis in the region. The company's operating margins expanded by 6.3% QoQ to 45.2% during the quarter as against the 38.9% seen during the previous quarter (2QFY12). These were largely on account of lower employee costs and lower other expenditure (as percentage of net sales). Despite the huge expansion in operating margins, net profit grew by only 12.9% Q0Q during the quarter. These were on account of hedging losses as well as lower other income. For 9MFY12 however, net income increased by a robust 39.2% YoY. The company added 8 new clients during nine month period. The stock closed 0.3% higher.

Public sector bank, Union Bank of India recently declared its results for the third quarter and the 9 month period ended December 2011. The bank's net interest income grew by 10.2% YoY in 3QFY12, on the back of 16.8% YoY growth in advances. Its NIMs (net interest margins) moved down marginally from 3.3% in 9mFY11 to 3.2% in 9mFY12 despite increased lending yields. Incidentally the bank was the first bank to cut its base rate by 10 bps to 10.65% p.a. in anticipation of monetary easing from the central bank. This came into effect from December 26th 2011. The bank's Net NPAs move up sharply from 1.21% in 9mFY11 to 1.88% in 9mFY12. However sequentially this saw an improvement from 2.04% levels seen in 1HFY12. Net profit fell by a whopping by 66% YoY in 3QFY12 on account of increased provisioning especially on restructured assets. Profits fell it fell by around 32% in 9mFY12. The bank's capital adequacy ratio stands at 11.72% at the end of 3QFY12 as per Basel II. It has asked the government for a Rs 2.7 bn capital infusion which is expected by the end of March 2012. This will take the government's stake up 1% to 58%. The stock closed higher by over 4%.

This article (Markets end week 3% higher) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.

Market indices remain bullish

Fri, 27 Jan 2012 08:00:00 GMT

Posted by Equitymaster

Despite paring some early gains in the last two trading hours, Indian stock markets continued to hover well above the dotted line. Majority of the sectoral indices are trading in the positive with consumer durables, Oil and gas and metal stocks leading the pack of gainers. Realty and banking stocks are the biggest losers.

The BSE-Sensex is trading up 88 points and NSE-Nifty is trading up 27 points. The BSE Mid cap and BSE Small cap indices are up by 0.5% and 1.09% respectively. The rupee is trading at 49.5 to the US dollar.

Most of the automobile stocks are trading in the green with Tata Motors (Telco) trading the strongest and Maruti Suzuki trading the weakest. As per a leading financial daily, depreciating rupee has come to the rescue of domestic car-makers struggling with falling local demand and high interest rates. Reportedly, companies such as Maruti Suzuki, Hyundai and Nissan have their order-books full for the next two months as favourable currency movements have increased the bargaining power of Indian car exporters. According to Maruti, boosted by weak rupee, its export models like A-Star, Alto, WagonR & Estilo are sold-out till March. The company plans to start exporting cars in completely knocked down (CKD) format. Hyundai has witnessed improved export demand for i10 and Santro hatchbacks as well as Accent sedan. The company has also started exporting Eon. Nissan has been exporting its compact car Micra from the Chennai plant.

Majority of the FMCG stocks are trading positive with Camlin and Godrej Consumer trading the strongest. According to a leading financial daily, consumer goods companies such as Hindustan Unilever (HUL), L'Oreal, Pepsico and Henkel are launching products in large stock keeping units (SKUs) to target the value-conscious consumer. HUL recently launched its popular RIN detergent in the 8-kg pack in the modern retail chains. L'Oreal, which launched its Garnier Fructis Shampoo in 700-ml packs, wants to launch its other shampoos in the same pack size. Jyothy Laboratories owned Henkel brand retails 2-litre Pril dishwash liquid and 30-coil Maxo mosquito repellant in modern trade. Similarly Pepsico has launched 2.5 litre beverage packs and 1 kg 'Lehar Namkeen' packs in modern retail. The emergence of the modern retail format has paved way for the success of large SKUs that are beneficial to both the consumer and the manufacturer. While consumers benefit from cost savings per unit of large family-packs, manufacturers derive higher sale volumes and increased brand loyalty.

This article (Market indices remain bullish) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.

Metal stocks lead the rally

Fri, 27 Jan 2012 06:00:00 GMT

Posted by Equitymaster

Indian stock markets traded in the positive during last two hours of trade on buying in index heavyweights. Barring FMCG and banking stocks, all sectoral indices traded in the green.

The BSE-Sensex is trading up by 126 points and NSE-Nifty is trading strong by 36 points. BSE Mid cap and BSE Small cap indices are trading strong by 1% and 1.5% respectively. The rupee is trading at 49.68 to the US dollar.

Mining stocks are trading strong led by Sesa Goa and Gujarat NRE Coke. As per a leading daily, Coal India is likely to announce the new set of coal prices soon. The coal company has been asked to revise the coal pricing mechanism and bring in into effect by January 31, 2012. Earlier Coal India was thinking of revising the pricing from March. It may be noted that the ministry has taken this step to prevent any major impact from the earlier pricing regime. Also, the acting chairman Mr N C Jha would retire from his services on January 31, 2012. As per him, since the change from Useful Heat Value (UHV) concept to Gross Calorific Value (GCV) happened during his regime, he would want to address the price issue before he retires.

Hotel stocks are trading strong led EIH Limited and Hotel Leela Venture. Indian Hotel Company Limited (IHCL) has announced results for the quarter ended December 2011. The company has reported a 7.4% YoY and 0.5% YoY growth in sales and net profits respectively. Growth remained more or less flat on account of weaker domestic demand and high interest costs that affected the hospitality sector in India. Operating profits for 3QFY12 also declined due to higher expenditure which grew by 11.6% YoY. Both operating and net profit margin declined by 2.7% and 0.7% respectively. For nine months ended December 2011, net sales grew by 9.3% YoY and net profits grew by 69.5% YoY.

This article (Metal stocks lead the rally) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.

Indian stock markets open firm

Fri, 27 Jan 2012 04:00:00 GMT

Posted by Equitymaster

Asian stock markets have opened the day on a firm note with stock markets in Japan (up 0.3%), South Korea (up 0.3%) and Singapore (up 0.2%) leading the gains. The Indian stock markets have also opened the day on a positive note as well. Stocks in the Information Technology and metal space are leading the gains.

The BSE-Sensex is trading higher by 121 points (0.7%), while the NSE-Nifty is up by around 34 points (0.7%). Mid cap and small cap stocks are also trading in the green with the BSE Mid cap and BSE Small cap indices up by 0.6% and 0.7% respectively. The rupee is trading at 49.77 to the US dollar.

Pharma stocks have opened the day on a mixed note with Sun Pharma and Dishman Pharma trading in the green. However, Ranbaxy Laboratories, Strides Arcolab and J B Chemicals are facing significant selling pressure. Lupin has announced its third quarter results for financial year 2011-12 (3QFY11). The company has reported a 20.4% YoY and 4.9% YoY growth in sales and net profits respectively. Sales growth of 20.4% YoY was largely driven by 30% YoY growth in the domestic formulation segments and higher realisation due to favourable rupee depreciation. The operating margins (EBITDA) increased by 0.8% to 20.5% due to lower raw material costs on account of higher realisations in the international markets. However, increase in employee cost suppressed the margin expansion to 0.8% only. Profit after tax grew at a tepid rate of 4.9% YoY largely on account of higher depreciation and higher tax rate of 22.6%.

Auto stocks have opened the day on a firm note with Tata Motors and Ashok Leyland leading the gains. Bajaj Auto has said that Renault-Nissan officials have already seen the four-wheeler named RE-60 by Bajaj. However the officials are yet to confirm if they have been interested to sell the first four-wheeler car by Bajaj. This was communicated by the Bajaj's Managing Director at the press conference for the launch of KTM Duke 200 bike. In May 2011, Renault had expressed interest in Bajaj's car project. However, it had also said that it would only be interested if the vehicle matches the quality of Renault. The project for Bajaj's four-wheeler was started back in 2007 with the motive to create an ultra low-cost four-wheeler. After this, it was planned that the car will be manufactured by Bajaj but sold under the name of Renault's brand.

This article (Indian stock markets open firm) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.

The right approach to deregulate diesel

Fri, 27 Jan 2012 03:00:00 GMT

Posted by Equitymaster

Reserve Bank of India (RBI) seems to be in aggressive damage control mode. After lowering the Cash Reserve Ratio (CRR) and ensuring extra liquidity to stimulate growth, RBI is looking at diesel deregulation to put country's financial health in order.

While not much can be done regarding food subsidies, the central bank intends to target the fuel subsidies to contain the trade deficit. It is important to note here that petrol prices have been deregulated for more than a year now. However, diesel, which is consumed almost four times more than petrol (diesel forms 43% of the fuel basket while petrol comprises just 10%) is still sold at fixed prices. This makes the sale prices of diesel way off from the international prices. As fiscal deficit seems to be overshooting the target set at 4.6% for FY12 (expected to widen to US $160 bn) on account of rising food and fuel subsidies, the RBI is tightening the noose on government to deregulate diesel prices.

While some may frown on the suggestion as it may lead to inflation, the failure to do so will increase fiscal debt leading to rise in the price levels. However, this is a major policy change that can jeopardize the political interests. Hence to expect the Government to implement it at one go is unrealistic. A more feasible approach will be to segment the diesel consumption market according to the end user.

For example, diesel can be subsidized for the farm sector but any such benefits to the private car segment should be cancelled. This will not only lay the right foundation, but also prevent the dieselization of the economy (on account of indiscriminate regulation of prices, the diesel consumption is witnessing growth of over 8%). Assuming no policy change, the petroleum subsidies by themselves are estimated to contribute to 0.8% increase in the fiscal deficit for current fiscal year. Thus the move to deregulate diesel prices will not just stabilize the fiscal balance; but also balance the markets in terms of rationalizing diesel demand.

This article (The right approach to deregulate diesel) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.