Closing Bell 31 July 2009

Closing Bell 31 July 2009

The inflow of the June quarter corporate results came to an end yesterday. Buoyed by the better than expected performance of corporate India, the markets ended the week on a strong note. The benchmark index, the BSE-Sensex gained by about 2% over the previous week ending at 15,670 points, which is its highest closing level in over a year. As for global markets, Asian markets once again led the pack of gainers with Singapore, Japan and Hong Kong closing higher by 5%, 4% and 3% respectively. They were followed by Germany and France, which ended higher by about 2% each. The Chinese, US and UK markets followed suit, but remained amongst the lowest gainers this week. These three markets ended the week higher by about 1% each.

Source: Yahoo Finance

Coming to the performance of sectoral indices during the week, FMCG stocks took the cake with the BSE-FMCG index gaining by 6% over the previous week. IT was followed by stocks forming part of the information technology and realty sectors, with the BSE-IT index ending higher by 5% and the BSE-Realty index ending higher by 3%. Midcap stocks also saw some strong traction this week, with the BSE-Midcap index ending higher by about 4% over the previous week. The BSE-Smallcap index, on the other hand recorded a week on week gain of about 3%. Stocks from the pharma, oil & gas and consumer durables bore the brunt of profit booking as their respective indices, the BSE-Healthcare, BSE-Oil & Gas and the BSE-Consumer Durables indices ended lower by about 1% to 2% each.

Source: BSE

Coming to corporate news, the past week saw several large companies announce their June quarter results. Bharat Forge was amongst the top gainers in the BSE-A Group during the week. This was in spite of the company reporting a 44% YoY decline in revenues and an 84% YoY drop in profits (excluding exchange loss). However, on a sequential basis, some improvement was seen as the company’s topline grew by 23% QoQ. The company’s management indicated that there is some recovery seen in the US and the European markets. While on a year to year basis, the performance was impacted due to the unprecedented downturn, the management expects the scenario to improve going forward on the back of improved auto sales.

FMCG behemoth, HUL also announced its results during the week. The company reported a sales growth of about 8% YoY, while its operating profits increased by 13% YoY. Revenue growth was largely contributed by its soaps & detergents and personal products businesses, whose sales grew by 9% YoY and 15% respectively. The increase in sales of the soaps & detergent business was largely on the back of a 2% YoY growth in volumes. This is an encouraging sign as the volume growth for this category had declined 4% YoY in the March 2009 quarter. The company however, witnessed down trading in some of its detergent brands. Personal products business and processed foods saw strong growth due to new launches and witnessed a volume led growth. However, in terms of profitability, the company’s bottomline declined by 1% YoY (not including extraordinary items). This was on the back of lower other income and higher tax expenses.

Two-wheeler major, Hero Honda reported a revenue growth of 34% YoY. This was on the back of a stellar 25% YoY increase in volume sales. The company managed to beat the industry growth rate of 12% YoY. It also reached a market share of 59% and crossed the 1 m volume mark during the quarter. The operating profits grew at an enviable rate of 87% YoY as lower raw material costs lead to nearly 5% expansion in operating margins. Stellar operating profits translated into an equally robust bottomline growth of 83% YoY. As per the company, sales are expected to witness a gain of 7.5% this year and cross 4 m units. A strong business model coupled with favourable industry scenario and market leadership makes Hero Honda a strong play in the 2-wheeler segment.

Tata Steel also announced its 1QFY10 results during the week. The company’s standalone topline declined by almost 9% YoY. This was largely on account of lower realisations. However, in terms of volumes, the company witnessed a robust growth of 22% YoY as compared to the corresponding quarter last year. However, at an operating level, the company performed poorly as operating profits declined by 42% YoY. This was led by higher operating costs. Tata Steel’s bottomline declined by 47% YoY, slightly higher than operating profits on the back of higher interest costs and depreciation charges during the quarter.

India’s largest bank, SBI announced its numbers during the week as well. The bank reported 12% YoY growth in interest income on the back of 27% YoY growth in advances. Credit growth was higher in the large corporate segment (up 37% YoY) as well as in the retail segment (up 30% YoY), which contribute around 12% and 14% of the total loan portfolio respectively. The bank's retail portfolio was also higher by an impressive 23% YoY, contributing significantly to incremental advances growth during the quarter. The share of CASA deposit reduced to 39% at the end of 1QFY10 from 42% in 1QFY09. Higher costs of deposits resulted in a decline in net interest margins by 0.3% YoY to 2.7%. Further, the bank's net NPA declined to 1.6%. Higher other income and huge decline in provisioning requirements led to net profit growth of 42% YoY during the period. The bank is adequately capitalised with a ratio of 14.1% at the end of quarter.

Inflation (as measured by the WPI) dropped to -1.54% for the week ending July 18. During the previous week, the figure stood at -1.17% and during the same week last year, the figure stood at 12.54%. Food prices continued their upward trend during the week, while prices of fuel products witnessed a decline on a week on week basis. India’s central bank, the RBI recently stated that the uncertain outlook for the monsoons is likely to perk up food-price inflation going forward.

The Reserve Bank of India reviewed its 2009-10 monetary policy during the week. The central bank indicated a wait and watch stance given that the Indian economy has still not shown clear signs of stability. In fact, the bank plans to maintain a soft interest rate regime until there are definite and robust signs of recovery and hence has left all key rates - repo, reverse repo, CRR - unchanged. The central bank has pegged India's GDP for FY10 at 6.5%, higher than the 5.7% expected in its earlier survey in March. It has also revised inflation target for the end of March 2010 to about 5%, higher than the 4% projection it made during its annual policy in April. This is keeping in view the global trend in commodity prices and domestic supply constraints, especially on the food grains front.