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Friday, August 05, 2011

Sensex slumps almost 5% on local, global growth worries


Worries about a likely slowdown in corporate earnings growth due to higher interest rates, fears of a possible US double-dip recession and worsening European sovereign-debt woes spooked the market with the barometer index BSE Sensex and the 50-unit S&P CNX Nifty hitting 13-1/2-month lows. A number of commercial banks have raised lending rates recently after the central bank raised its key lending rate by a steeper-than-expected 50 basis points at a policy review on 26 July 2011. The market fell in four out of the five trading sessions during the week ended Friday, 5 August 2011.



The BSE Sensex slumped 891.33 points or 4.9% to 17,305.87 in the week ended Friday, 5 August 2011, its lowest closing level since 11 June 2010. S&P CNX Nifty dropped 270.75 points or 4.93% to 5,211.25, its lowest closing level since 14 June 2010.

The BSE Mid-Cap index tumbled 4.72% and outperformed the Sensex. The BSE Small-Cap index tanked 5.91% and underperformed the Sensex.

The Sensex has tumbled 1,565.42 points or 8.29% in nine trading sessions from a recent high of 18,871.29 on 25 July 2011.

Trading for the week began on a positive note. A rally in world stocks triggered by US President Barack Obama's announcement over the weekend that he and Senate leaders had agreed on a "framework" debt deal to cut spending and raise the debt ceiling, helped Indian shares edge higher on Monday, 1 August 2011. The BSE Sensex jumped 117.13 points or 0.64% to 18,314.33, its highest closing level since 27 July 2011.

Weak global stocks dragged Indian shares to 5-1/2-week closing lows on Tuesday, 2 August 2011. The BSE Sensex lost 204.44 points or 1.12% to 18,109.89. Key benchmark indices settled near their lowest closing level in nearly 6 weeks on Wednesday, 3 August 2011 on concerns that higher interest rates will crimp corporate profit growth. The BSE Sensex lost 169.34 points or 0.94% to settle at 17,940.55, its lowest closing level since 23 June 2011.

Concerns about corporate earnings growth, high food inflation and data showing stepping up selling by foreign institutional investors spooked the market with the barometer index BSE Sensex and the 50-unit S&P CNX Nifty hitting 6-week lows on Thursday, 4 August 2011. The BSE Sensex shed 247.37 points or 1.38% to 17,693.18, its lowest closing level since 22 June 2011.

Fears of a possible US double-dip recession and worsening European sovereign-debt woes pushed Indian shares to 13-1/2-month lows on Friday, 5 August 2011. The BSE Sensex tumbled 387.31 points or 2.19% to 17,305.87.

From the 30 share Sensex pack, 28 stocks fell and only 2 rose in the week.

Sterlite Industries slumped 11.35% to Rs 141.75 and was the top loser from the Sensex pack. The stock hit 52 week low of Rs 138 on Friday, 5 August 2011.

State-run power equipment maker Bharat Heavy Electricals (Bhel) fell 6.66% to Rs 1716. The stock hit 52-week low of Rs 1704.30 on Friday, 5 August 2011. The scrip extended recent sharp losses triggered by disappointing Q1 results. The company's net profit rose 22.15% to Rs 815.51 crore on 9.97% increase in net sales to Rs 7125.68 crore in Q1 June 2011 over Q1 June 2010. The net profit was boosted by a steep 52.12% jump in non-operational income to Rs 248.65 crore in Q1 June 2011 over Q1 June 2010. The result was announced during trading hours on 26 July 2011.

The top line growth fell short of market expectations. Analysts were expecting a much stronger revenue growth in Q1 June 2011 from Bhel on expectations of a strong execution of the large order book of the power equipment major. The company's outstanding order book was Rs 159600 crore as on 30 June 2011.

Engineering & construction bellwether Larsen & Toubro declined 4.98%. The company's unit L&T Finance Holdings priced its recently concluded initial public offer (IPO) at Rs 52 a share, near the lower end of the Rs 51-59 price band. The issue closed on Friday, 29 July 2011. The IPO was subscribed 5.34 times. The IPO is an important part of Larsen & Toubro's plan to spin off some of its non-core businesses into self-sustaining units with independent access to capital markets.

Auto shares fell on comments from Finance Minister Pranab Mukherjee that that the government may look at charging higher diesel prices for luxury cars and commercial users to ensure they don't benefit from a policy designed to help the needy. Automakers are investing heavily in rolling out diesel-run vehicles to meet growing demand from consumers, who are increasingly shifting to such vehicles as diesel price is kept sharply lower than that of petrol. Oil Minister Jaipal Reddy on Thursday, 4 August 2011, said such a proposal is at an early stage and needs considerable discussion.

India's largest truck maker by sales Tata Motors slumped 6.11%. The latest data showed that total sales fell 6% to 63,761 units in July 2011 over July 2010. Tata Motors' domestic sales of Tata commercial and passenger vehicles fell 9% to 57,990 in July 2011 over July 2010. The company's commercial vehicle sales increased 14% to 40,798 units. LCV sales were 24,962 units, a growth of 22% over July last year. M&HCV sales stood at 15,836 units, a growth of 4% over July last year.

Tata Motors' domestic car and sport-utility vehicle sales plunged 38% to 17,192 units in July 2011 over July 2010.

Utility vehicles and tractors major Mahindra & Mahindra (M&M) dropped 8.81%. The company's total automobile sales jumped 41% to 39,633 units in July 2011 over July 2010. Domestic sales increased 42% to 37,323 units and exports rose 32.30% to 2310 units in July 2011 over July 2010. The Verito sedan registered a strong growth of 117% having clocked 1630 units in July 2011, as against 752 units in July 2010, maintaining its upward growth trend since Mahindra took over the brand.

The Passenger Vehicles segment (which includes utility vehicles and Verito) registered a growth of 35%, having sold 17312 units in July 2011, as against 12825 units during July 2010. The 4 wheeler commercial segment which includes the passenger and load categories has registered a phenomenal growth of 91%. Speaking on the monthly sales data, Rajesh Jejurikar, Chief Executive, Automotive Division, Mahindra & Mahindra said, "We are delighted with the 41% growth in our Automotive Business in July 2011 and the record for highest ever sales. All our brands have been doing very well and Verito continues its very strong demand momentum."

India's largest car maker by sales Maruti Suzuki India fell 1.22% on weak sales in July 2011. The company's total sales fell 25.3% to 73,500 units in July 2011 over July 2010. The company said sales was negatively impacted to the extent of about 17,000 units due to discontinuation of old Swift and due shifting of Swift Dzire from Manesar plant to Gurgaon plant. The company said new Swift being manufactured at the Manesar plant will be launched nationally in mid-August 2011.

Hero MotoCorp shed 0.18%. The company's total motorcycle sales rose 14.82% to 4.91 lakh units in July 2011 over July 2010. Anil Dua, Sr. Vice-President (Marketing & Sales), Hero MotoCorp said the good numbers of July 2011 have come about despite constraints on supply from the company's Haridwar plant due to 'Kawar' movement in the region during the month. The company had to keep the Haridwar plant closed for a few days in July 2011 due to this reason. Dua said the company is looking to ride the current buoyancy in sales into the festive season by launching the company's new identity, innovative products and engaging campaigns.

Hero MotoCorp came into being last week after the company received the necessary statutory approval from the Registrar of Companies (RoC) for the changeover to the new name. As a next step, Hero MotoCorp will unveil its new global brand identity in London on 9 August 2011. Wolff Olins, a part of the Omnicom group, had been engaged to work on the new brand identity, including the brand architecture, brand name, brand logo and brand positioning. The company has also roped in Law & Kenneth (L&K) as a creative partner to give shape to the communication for launching and establishing the new brand.

Bajaj Auto fell 4.41%. The company announced during market hours on Tuesday that its total sales rose 14% to 3.63 lakh units in July 2011 over July 2010. Motorcycle sales rose 14% to 3.18 lakh units and commercial vehicles sales rose 18% to 45,617 units. The company said it clocked record 3-wheeler sales in July 2011. The company's exports jumped 35% to 1.43 lakh units in July 2011 over July 2010.

Jindal Steel & Power (JSPL) lost 7.56% to Rs 542 on weak Q1 results. The stock hit a 52-week low of Rs 519.25 on Friday, 5 August 2011. Consolidated net profit after tax fell 2.5% to Rs 933.03 crore on 31.4% increase turnover to Rs 3944.10 crore in Q1 June 2011 over Q1 June 2010. The Q1 result was announced on Thursday, 28 July 2011.

DLF lost 8.94% on weak Q1 results. Consolidated net profit fell 12.81% to Rs 358 crore on 16% growth in revenue to Rs 2503 crore in Q1 June 2011 over Q1 June 2010. The company announced Q1 result after market hours on Tuesday.

DLF said divestment of non-core assets fetched the company Rs 165 crore in Q1 June 2011. DLF's consolidated EBIDTA rose 5% to Rs 1168 crore in Q1 June 2011 over Q1 June 2010. The realty major said it handed over 1.9 million square feet (msf) of area during the quarter versus 1.4 msf in the corresponding quarter. The company said sales of 2.2 msf of area was booked in Q1 June 2011, higher than 1.9 msf in Q1 June 2010. The company had 52 msf of projects area under construction at the end of the quarter.

Commenting on the results, Ashok Tyagi, Group Chief Financial Officer, DLF said, "We have witnessed a stable beginning for the fiscal despite the ongoing difficult environment. Given our successful launches of plotted developments, we continue our strategy of focusing on this product segment, which enables us to mitigate the current inflationary environment and at the same time accelerate our cash flows. The successive hikes in interest rates by the Reserve Bank of India shall have a moderating impact on demand. While debt levels have remained similar to the previous quarter, our momentum on the non-core asset/business divestments have gathered pace and these coupled with operational cash flows will help us in moderating our current debt levels".

"Our execution commitments for the year remain on track with substantial volumes upcoming for handover to customers. This will further reduce our construction commitments and reiterate our strong brand and track record with our valued customers," Tyagi added.

Housing Development Finance Corporation (HDFC) fell 3.18%. HDFC has revised its retail prime lending rate (RPLR) by 50 basis points (bps) on its loans with effect from 1 August 2011. HDFC said the hike in lending rates is in line with interest rates in the economy, which have hardened due to increase in the policy rates by 75 bps since June 2011

India's largest listed telecom operator by sales Bharti Airtel shed 5% after the company reported a surprise fall in first quarter net profit on sequential basis. Bharti's consolidated net profit as per International Financial Reporting Standards (IFRS) fell 13.2% to Rs 1215.20 crore on 4.18% growth in total revenue to Rs 16974.90 crore in Q1 June 2011 over Q4 March 2011.

Bharti Airtel said income before taxes fell 17.03% to Rs 1719 crore in Q1 June 2011 over Q1 June 2010, mainly on account of higher interest outgo of Rs 344 crore (due to the Africa acquisition and 3G investments in India), and 3G license fee amortization of Rs 159 crore. The effective tax rate for Q1 increased to 29.9%, mainly due to reduction in tax holiday benefits in India, Bharti said in a statement.

The consolidated operating free cash flow was at Rs 1357 crore in Q1 June 2011. Continued robust cash generation has resulted in improvement of the Net Debt Equity ratio to 1.20 in Q1 June 2011 compared with 1.38 on 30 June 2010.

In a post result statement Sunil Bharti Mittal, Chairman & Managing Director, Bharti Airtel said, "Bharti Airtel has started this fiscal year on a stable note. Revenue growth has been steady across all geographies, with Africa recording a healthy sequential growth of approximately 6%, and annual growth of 21%. In India, the company's efforts in the area of cost efficiencies have helped arrest the margin decline. The new customer facing organization in India will see more agile and responsive teams in action. This will also give a fillip to growth in value added services, broadband, digital TV and airtel money. Overall, 2011-12 promises to be an exciting year of transformation".

Index heavyweight Reliance Industries (RIL) lost 4.36% to Rs 791.65. The stock hit a 52-week low of Rs 778.55 on Friday, 5 August 2011. The prized KG-D6 fields of RIL produced 31% less than previously projected natural gas output in the April-June 2011 quarter, the Oil Ministry said recently. The average gas production during April-June 2011 from KG-DWN-98/3 (KG-D6) block was 48.60 million metric standard cubic meters per day (mmscmd), less than the approved Field Development Plan (FDP) rate of 70.39 mmscmd, the ministry said.

RIL's operating profit margin (OPM) declined sharply to 12.25% in Q1 June 2011 from 16.04% in Q1 June 2010 as weak performance from the oil & gas and petrochemicals businesses offset strong performance from the refining segment. RIL's net profit rose 16.69% to Rs 5661 crore on 39.1% increase in net sales to Rs 81018 crore in Q1 June 2011 over Q1 June 2010. The result was announced on 25 July 2011.

RIL's gross refining margin (GRM) surged to $10.3 a barrel from $7.3 a barrel in Q1 June 2010. Gas production from RIL's KG-D6 field off the east coast declined 18% to 156.2 BCF in Q1 June 2011 over Q1 June 2010. Production of gas condensate from the filed jumped 81.6% to 0.21 million barrels in Q1 June 2011 over Q1 June 2010. The company said gas sales have been prioritized as per government's directive with effect from 9 May 2011.

Software pivotals dropped on concerns the US might fall back into recession following a deal to raise the debt ceiling, which includes severe austerity measures despite recently weak economic data. European debt woes also weighed on IT shares. The US and Europe are the two biggest markets for the Indian IT firms. India's second largest software services exporter Infosys shed 6.37% and India's third largest software services exporter Wipro declined 5.63%. India's largest software services exporter TCS lost 6.85%

The latest data showed that the manufacturing sector in the US expanded at the weakest pace in two years, US consumer spending unexpectedly fell and the US services industries grew at the slowest pace since February 2010.

Cipla rose 0.18%. The company announced after market hours on Friday, 5 August 2011, that net profit fell 1.6% to Rs 253.34 crore on 9.2% rise in total sales to Rs 1573.81 crore in Q1 June 2011 over Q1 June 2010.

ONGC gained 2.77% and was the top gainer from the Sensex pack. Reportedly, the company plans to commence oil and gas production from the Krishna Godavri basin in a month and start pumping hydrocarbons from another block in the offshore region next May 2012.

India's second largest listed cellular services provider by sales Reliance Communications shed 9.31%.

Banking pivotals were under selling pressure on worries that higher lending rates will crimp loan growth. A number of commercial banks have raised lending rates recently after the central bank raised its key lending rate by a steeper-than-expected 50 basis points at a policy review on 26 July 2011. State Bank of India (down 4.66%), HDFC Bank (down 2.9%), and ICICI Bank (down 6.9%), declined.

The Reserve Bank of India (RBI) on Tuesday, 2 August 2011, tightened its rules on sales of derivative products, in a move aimed at preventing the mis-selling of these complex products to local firms. RBI said in a notification that no bank can be a "market maker" in a product that it can't price independently, even if it covers the risk from the deal with another bank immediately. A market maker is a financial middle-man, typically a bank, that helps the price discovery process and adds liquidity to the market by quoting both bid and ask prices for financial products.

The new rules prevent foreign banks from being market makers in a product if they can't price it locally. Banks must also now make sure that officials to whom they sell derivative products are backed by the board to execute such transactions, the RBI said. RBI didn't specify what derivatives are covered by the new rules.

Monsoon rains are likely to pick up over most parts of the country in the next four to five days, after sharply slowing for two consecutive weeks during the most important sowing period for summer crops. A news agency on Thursday, 4 August 2011, quoted an unnamed senior official with the state-run India Meteorological Department (IMD) as saying that the country's important rice-and oilseed-growing regions, the eastern and central parts, are likely to receive more rains in the near future after getting intermittent showers in the past few days.

Rains were 22% below normal in the week to 3 August 2011, recording marginal improvement from 23% below average showers in the previous week. Total rainfall since the beginning of the June-September monsoon season has been 6% below average. Rainfall has been normal or above in 73% of the country so far this season, while 27% of the country is facing a deficit. In some parts of eastern India such as Orissa, Bihar and Jharkhand, rainfall is below normal, but in the key rice-growing state of West Bengal rainfall is above normal. A rainfall deficit in the southern state of Andhra Pradesh, a top rice-producer, has largely been bridged.

In the northern grain bowl region of Punjab, the monsoon rain deficit is 26%. However, since most farmland in Punjab is irrigated, rice production may not be adversely affected in the state. But, low rainfall in the western regions is likely to adversely affect the output of groundnut, the second biggest summer-sown oilseed crop after soybean. In Gujarat, rainfall is 37% below average.