Crude Oil Update
Saturday, July 12, 2008
The indices just about managed to end in the green for the week. However, almost all the gains of the week were wiped out on Friday following a confluence of factors. These include Infosys failing to revise its guidance, a rise in inflation and disappointing IIP numbers. Crude, which had crashed during the week initially turned around on Friday to skyrocket to a new high around the US$146 levels.
Global cues may cause some swings at start. Thereafter, the performance of the indices will hinge more on the domestic news flow, especially the corporate results. Given the over reaction in the market on Friday, we see some improvement in the overall indices for the coming week. Another positive close, hopefully better, lays in store.
Infosys Technologies reported a net profit of Rs13.02bn in the quarter ended June 30, 2008 as against Rs12.49bn in the previous quarter. This translates into a sequential growth of 4.2%. This is better than expectations of a slight dip Quarter on Quarter (QoQ). The company's net sales increased to Rs48.54bn from Rs45.42bn in the January-March quarter. This represents a sequential growth of 6.8%. This is more or less in line with analysts' estimates, and better than the company's guidance of Rs45.7-45.8bn. The Earnings Per Share ( EPS) for the quarter is Rs22.71 versus Rs21.79 in the last quarter. The company had forecast EPS before exceptional items of Rs20.73. The net profit for the quarter ended June 30, 2008 and June 30, 2007 included a reversal of tax provisions amounting to Rs310mn and Rs510mn, respectively. Excluding this reversal, the EPS for the quarter ended June 30, 2008 and June 30, 2007 would have been Rs22.20 and Rs18.00. Infosys hiked its revenue and earnings per share (EPS) guidance for the fiscal year 2008-09 as per Indian GAAP, while leaving its annual outlook unchanged as per the US GAAP. The stock fell 7.2% on Friday, and 4.5% in the week.
Private equity firms have invested about US$2.8bn in 77 Indian companies during the quarter ended June, according to a study by Venture Intelligence, a research service focused on private equity and venture capital.
The amount invested during the quarter was higher than that during the same period last year, when 74 deals totaling US$1.9bn had taken place. But, this was significantly lower compared to the immediate previous quarter (which witnessed 115 deals worth US$3.6bn).
The latest numbers take the total investments by private equity firms in the first six months of 2008 to over US$6.3bn as against the US$5.4bn invested during the corresponding period in 2007, Venture Intelligence said.
The largest investment reported during Q2 CY08 was US$640mn raised by Aditya Birla Telecom (ABTL), a subsidiary of listed mobile telephone services provider Idea Cellular, from Providence Equity Partners.
"The steep fall in the public markets has resulted in a marked decline in the number of PIPE, Pre-IPO and Late Stage investments during the latest quarter," said Arun Natarajan, Founder & CEO of Venture Intelligence.
"There has been a significant drying up of investments in the BFSI and Engineering & Construction sectors compared to last year. While Power and Telecom companies continue to attract large ticket investments, the positive surprise this year has been the re-emergence of Healthcare and Life Sciences on the radar screens of PE investors," he added.
The April-June quarter also saw more than US$2bn being raised for PE investments in India, with a substantial portion accounted for by infrastructure-focused offerings from 3i and Axis Bank, Venture Intelligence said.
Things are getting out of control on the macro-economic front, even as the Congress-led Government at the Centre is busy preparing for the 'Trust Vote' in parliament over the controversial Indo-US nuclear deal. While inflation is slowly inching towards the 12% mark, the industrial activity in the country is getting hit badly by six-year high interest rates, soaring raw material costs and a slowdown in overall demand. Government data released on Friday showed that the country's industrial production tumbled in May, growing by just 3.8% as against 10.6% in the same month last year. The figure was way off the mark, as average forecast was for a 6-7% expansion. What's even worse is that April's growth was trimmed to 6.2% from 7%. In the first two months of the current fiscal year, industrial output growth more than halved to 5% from 10.9% in the corresponding period of last year.
Manufacturing sector growth slumped to 3.9% from 11.3% in May 2007. Electricity sector's expansion slowed to just 2% compared to 9.4% in the same month a year earlier. Mining, however turned in an improved performance with a growth of 5.2% as against 3.8% in May last year. Growth in Capital Goods plunged to 2.5% in May from 22.4% in the same month a year earlier. Consumer Goods sector managed to hold its own with an expansion of 7.2% versus 8.7% in May last year. Consumer Durables too did quite well, with a growth of 4.4% as against contraction of 0.7% in the year-ago period. Growth in Consumer Non-durables slid to 8.1% from 12.1% in the corresponding month last year.
India's economic growth is expected to fall below 8 percent amid likelihood of further tightening of monetary policy by RBI in the wake of inflation inching to 12 percent, said investment banker Goldman Sachs and global rating agency Moody's investor services.
While Moody's expects economic growth to slow down to just under 8 percent in 2008, Goldman Sachs sees it moderate to 7.8 percent this fiscal from 9 percent in FY 2008.
Moody's said even under 8 percent growth would be a cause of envy for most countries.
"India's GDP growth will moderate this year amid slowing exports and softening domestic demand. The retreat of the rupee in the March quarter helped enhance the appeal of Indian products in the global market, keeping export performance healthy," Moody's said.
Meanwhile, on the inflation levels in the country, it said that the wholesale prices jumped 11.9 per cent in the week ended June 28, showing no signs of cooling despite the reserve bank of India’s aggressive monetary tightening during the month.
"The higher interest rates and reserve requirements will take time to slow demand-driven inflation. However, if wholesale price growth the key inflation measure in India, continues to accelerate in the next couple of weeks, RBI looks set to further curb lending, which has been a major source of inflation," Moody's added.
ndustrial growth plunged to 3.8 per cent in May, as compared to 10.6 per cent a year-ago, due to poor showing of manufacturing and electricity sector.
Industrial output, as measured by Index of Industrial Production (IIP), grew by just 5 per cent in the first two months of this fiscal, against 10.9 per cent during the same period last year.
Rising interest cost led to drastic deceleration in manufacturing growth to 3.9 per cent in May, compared to 11.3 per cent in a year-ago period. Manufacturing has a weight of over 79 per cent in IIP.
However, the positive point is consumer durables growth rose to 4.4 per cent, against negative 0.7 per cent. Electricity generation also grew by two per cent from 9.4 per cent in May last year.
Only mining output grew by 5.2 per cent, against 3.8 per cent.
The deceleration in industrial output does not augur well for overall economic growth in the first two months.
RIL, Rel.Infra., RPL July 2008 futures at premium
Nifty July 2008 futures were at 4040, at a discount of 9 points as compared to spot closing of 4049. NSE's futures & options (F&O) segment turnover was Rs 50,149.82 crore, which was higher than Rs 35,645.89 crore on Thursday, 10 July 2008.
Reliance Industries (RIL) July 2008 futures were at premium at 2030 compared to the spot closing of 2016.10.
Reliance Infrastructure (Rel.Infra.) July 2008 futures were at a slight premium at 802.85 compared to the spot closing of 801.25.
Reliance Petroleum (RPL) July 2008 futures were at a slight premium at 168.20 compared to the spot closing of 167.70.
In the cash market, the S&P CNX Nifty lost 113.20 points or 2.72% at 4049.