Global jitters spook market

The market declined last week, trailing weakness in global shares caused by disappointment over a quick European rescue plan. Investors feared building fresh positions as data showing acceleration of food inflation early this month raised prospects of more rate hikes from the central bank to tame inflation, which remains uncomfortably high. Stock specific action was witnessed as most index heavyweights announced their June-September 2011 quarter results.

The BSE Sensex fell 297.05 points or 1.74% to settle at 16,785.64 in the week ended Friday, 21 October 2011. The 50 share S&P CNX Nifty fell 82.35 points or 1.60% to 5,049.95.



The BSE Mid-Cap index fell 1.26% and the BSE Small-Cap index fell 1.20%. Both these indices outperformed the Sensex.

Foreign institutional investors (FIIs) outflow in October 2011 totaled Rs 675.20 crore (till 19 October 2011). FII outflow in calendar 2011 totaled Rs 966.80 crore (till 19 October 2011).

Inflation, as measured by the wholesale price index (WPI), rose 9.72% in September 2011, compared with a 9.78% rise in August 2011, data released by the government on 14 October 2011, showed. WPI inflation for July 2011 was revised upwards to 9.36% from the provisional reading of 9.22%. Five out of nine economists polled by Capital Market before the latest WPI data expect a 25 basis points hike in repo rate from the Reserve Bank of India at its half-yearly review of the monetary policy on 25 October 2011. The rest four expect a status quo on rates.

Trading for the week began on a weak note. Key benchmark indices edged lower on Monday, 17 October 2011, as index heavyweight Reliance Industries (RIL) fell almost 4% on reports the firm will suspend oil and gas drilling operations for an unspecified time until an internal valuation of its exploration and production strategy. The BSE Sensex lost 57.60 points or 0.34% to 17,025.09. The S&P CNX Nifty was down 14.05 points or 0.27% to 5,118.25.

Key benchmark indices fell for the second straight day on Tuesday, 18 October 2011, to reach one-week closing lows as weakness in global shares caused by disappointment over a quick European rescue plan and poor quarterly result by IT majors TCS and HCL Tech hit sentiments adversely. The BSE Sensex lost 276.80 points or 1.63% to settle at 16,748.29. The S&P CNX Nifty shed 80.75 points or 1.58% to settle at 5,037.50.

Good Q2 results from Hero MotoCorp and HDFC Bank helped key benchmark indices clock smart gains on Wednesday, 19 October 2011. The BSE Sensex surged 337.05 points or 2.01% to settle at 17,085.34. The S&P CNX Nifty jumped 101.65 points or 2.02% to settle at 5,139.15.

Key benchmark indices edged lower in choppy trade on Thursday, 20 October 2011, as the latest data showing acceleration of food inflation early this month raised prospects of more rate hikes from the central bank to tame inflation, which remains uncomfortably high. The BSE Sensex shed 148.45 points or 0.87% to settle at 16,936.89. The S&P CNX Nifty lost 47.25 points or 0.92% to settle at 5,091.90.

Key benchmark indices edged lower for the second day in a row on Friday, 21 October 2011, as a reduction in order growth guidance for the current year from engineering & construction giant L&T hit sentiment adversely. The BSE Sensex was down 151.25 points or 0.89% to 16,785.64. The S&P CNX Nifty was down 41.95 points or 0.82% at 5,049.95.

Among the 30 Sensex shares, 22 declined and the remaining rose.

India's largest IT company by sales TCS was the top Sensex loser last week. The stock declined 7.60% to Rs 1048.25 after disappointing Q2 results, which the company announced after market hours on Monday, 17 October 2011. TCS chief financial officer and executive director S Mahalingam on Tuesday, 18 October 2011, said that TCS will cut costs and focus on high-margin services to maintain its profitability in the traditionally weak October-December quarter.

TCS' consolidated net profit fell 4.7% to Rs 2301 crore on 7.7% growth in revenue to Rs 11633 crore in Q2 September 2011 over Q1 June 2011. The company's operating profit rose 11.4% to Rs 3143 crore in Q2 September 2011 over Q1 June 2011. Commenting on the results TCS Chief Executive Officer and Managing Director N Chandrasekaran said, "Our domain-rich solutions and disciplined execution helped us capture business across major markets and deliver stellar growth in international revenues. We see strong momentum for our full services strategy from customers who are looking for agility and growth. We have created a nimble organization on the ground to stay close and stay relevant to our customers as there are ambiguities in the external environment in the short term".

Commenting on the results Mahalingam had said on Monday that TCS continues to make the necessary investments to support the future business growth in different markets as the company remains in expansion mode. "We are also working to optimize our cost structure and keeping a close watch on economic signals. Given the breadth of our global operations across 45 countries, the recent unprecedented volatility in the foreign currency markets is fresh cause for concern," Mahalingam had said on Monday.

India's largest IT company by sales Infosys fell 0.80% to Rs 2722.70. The company reported good Q2 results and upward revision in full year earnings guidance. Infosys' consolidated net profit as per International Financial Reporting Standards (IFRS) rose 10.68% to Rs 1906 crore on 8.2% growth in revenue to Rs 8099 crore in Q2 September 2011 over Q1 June 2011. The company announced the results on 12 October 2011.

Infosys has forecast 9.72% to 11.11% growth in non-annualized earnings per American Depositary Share at $0.79 to $0.80 in Q3 December 2011 over Q2 September 2011. It has forecast 3.2% to 5.3% growth in revenue at $1.802 to $1.84 billion in Q3 December 2011 over Q2 September 2011.

The company has for the second quarter in a row revised upwards its dollar earnings guidance for the year ending March 2012 (FY 2012). The company expects 15.3% to 16.8% growth in earnings per American Depositary Share at $3.02 to $3.06 in FY 2012 over the year ending March 2011 (FY 2011). However, the company has revised downwards dollar revenue growth guidance for FY 2012. The company expects 17.1% to 19.1% growth in revenue at $7.08 billion to $7.20 billion in FY 2012 over FY 2011.

India's largest engineering and construction firm by sales L&T tumbled 5.10% to Rs 1336 after the company cut its order growth guidance for the current fiscal year to 5%, from 15% earlier. Order flow is being hampered by investment slowdown, project deferrals and higher competition, Chief Financial Officer R Shankar Raman told reporters.

The company's profit after tax from ordinary activities rose 15% to Rs 798 crore on 20% growth in gross revenue at Rs 11375 crore in Q2 September 2011 over Q2 September 2010. The company announced the results during trading hours on Friday, 21 October 2011. The company said that order inflow of Rs 16096 crore in Q2 September 2011 took the company's order backlog at Rs 142185 crore as on 30 September 2011.

L&T said that the current slowdown in investment momentum witnessed in almost all sectors of the economy is constraining growth opportunities. Intensifying competition, high inflation, volatile financial markets and delayed policy intervention are posing considerable challenges to the decision makers, L&T said.

India's largest mortgage lender by market capitalisation HDFC fell 4.82% to Rs 634.25 after the National Housing Bank (NHB) banned the levy of pre-payment penalty on floating rate home loans.

HDFC's net profit rose 20.20% to Rs 970.70 crore on 40.36% increase in total income to Rs 4169.14 crore in Q2 September 2011 over Q2 September 2010. HDFC said it utilised Rs 254.68 crore from the additional reserve to meet the increased provision required consequent to changes in provisioning norms mainly on standard assets prescribed by NHB.

As at 30 September 2011, the loan book stood at Rs 126992 crore as against Rs 106287 crore in the corresponding period of the previous year. This is after considering the loans sold during the preceding 12 months amounting to Rs 4989 crore. The result was announced on Monday, 17 October 2011.

Index heavyweight Reliance Industries (RIL) fell 3.62% to Rs 835.40 on weak Q2 operating performance. RIL's net profit rose 15.84% to Rs 5703 crore on 34.73% rise in turnover to Rs 80790 crore in Q2 September 2011 over Q2 September 2010. Operating profit rose just 5% to Rs 9844 crore in Q2 September 2011 over Q2 September 2010. The core operating profit margin (OPM) declined sharply to 12.5% in Q2 September 2011 from 16.3% in Q2 September 2010. The result was announced on Saturday, 15 October 2011. The company's gross refining margin (GRM) stood at $10.1 a barrel in Q2 September 2011, sharply higher than $7.9 a barrel in Q2 September 2010. The GRM was at $ 10.3 a barrel in Q1 June 2011.

RIL said its Infotel Broadband Services unit is in the process of setting up a 4G broadband wireless network and finalizing arrangements with global players.

RIL recently concluded a $7.2 billion deal with BP PLC under which it sold a 30% stake in 21 oil-and-gas exploration blocks to the British explorer. RIL said it has received all the payments that were due from BP, with the final installment of Rs 14690 crore received on 3 October 2011. It said all the production-sharing contracts under the deal with BP have been revised and submitted to the government for approval. "The integration process is currently under way, and the joint teams are evolving strategies to operate across the gas value chain in India from exploration, development, distribution and marketing," RIL said.

Meanwhile, RIL has neither confirmed nor denied media reports of a likely suspension of oil and gas drilling operations. RIL said on Monday 17 October 2011 that RIL has always communicated any material event to the stock exchanges first before disseminating to the media. Media reports had suggested recently that RIL may suspend oil and gas drilling operations for an unspecified time until an internal valuation of its exploration and production strategy.

India's largest real estate developer by market capitalisation DLF declined 3.12% to Rs 225.05 after the Securities and Exchange Board of India (Sebi) said on Thursday, 20 October 2011, that it would investigate allegations against the real estate developer that it failed to disclose a police complaint against an associate firm in its share sale document in 2007. The allegations were from a complainant who alleged that Sudipti Estates, which he said was an associate of DLF, had duped him of about Rs 34 crore.

Jaiprakash Associates (down 5.69%), Hindalco Industries (down 5.44%), Bhel (down 4.08%), Sterlite Industries (down 3.32%), Tata Power Company (down 2.70%), Wipro (down 2.56%) and ICICI Bank (down 2.26%), edged lower from the Sensex pack.

India's largest car maker by sales Maruti Suzuki India was the top Sensex gainer last week. The stock rose 6.21% to Rs 1092.30. The company said on Friday, 21 October 2011 that a labour unrest at its Manesar plant has been resolved and the operations at the facility would start on Saturday, 22 October 2011. "The management and workers have signed the agreement in a spirit of cooperation and mutual respect, and look forward to work closely together for the benefit of all stakeholders of the company," Maruti said in a statement.

Hero MotoCorp rose 2.98% to Rs 2052.10. The company announced after market hours on Tuesday, 18 October 2011, that net profit rose 19.38% to Rs 603.62 crore on 28.06% growth in total net operating income to Rs 5829.32 crore in Q2 September 2011 over Q2 September 2010. The company's core operating profit margin or OPM surged to 15.76% in Q2 September 2011 from 13.35% in Q2 September 2010.

The company said the total net operating income of Rs 5829.32 crore in Q2 September 2011 was a record quarterly figure. Hero MotoCorp said that with the company registering record sales of over 3 million units for six months period April-September 2011, it is comfortably placed to surpass the initial guidance of 6 million units for the year ending March 2012 (FY 2012).

Pawan Munjal, managing director and chief executive officer of Hero MotoCorp, said, "This performance has come despite the rising food inflation and fuel costs. These two areas remain a concern for the industry, as it might adversely impact consumer spending in the coming months. However, we remain confident of carrying forward the buoyancy in our sales. We expect our retail volumes to peak during the festive month of October, and in anticipation of rising market demand for our products in the coming months, we have been augmenting capacity at our existing plants".

India's second largest bike maker by sales Bajaj Auto rose 0.64% to Rs 1640.55. The company's net profit increased 6.41% to Rs 725.80 crore on 20.70% increase in net sales to Rs 5046.48 crore in Q2 September 2011 over Q2 September 2010. The company incurred a mark-to-market (MTM) loss of Rs 95.41 crore on forward derivative contracts in the foreign exchange market. The company said this is a notional loss, which would reverse over the contract period. The company announced Q2 results during market hours on Thursday, 20 October 2011.

India's largest bank by branch network State Bank of India (SBI) rose 3.51% to Rs 1948.60 on hopes of capital infusion from the Government of India, its majority shareholder. From a recent low of Rs 1715.30 on 5 October 2011, the stock had risen 11.88% in nine trading sessions to Rs 1919.10 on Wednesday, 19 October 2011. The finance ministry has ruled out a rights issue for SBI in this financial year. However, it assured the lender that its capital requirements would be met by March 31, 2012. The finance ministry will have to opt for supplementary demand for grants to meet the capital needs of five-six public sector banks, including SBI, in the current financial year. This capital is pegged at Rs 10000 crore to Rs 20000 crore in this financial year, against Rs 6000 crore provided in the Union Budget 2011-2012.

India's second largest private sector bank by net profit HDFC Bank rose 2.56% to Rs 486.30. The bank announced during market hours on Wednesday, 19 October 2011, that its net profit rose 31.48% to Rs 1199.35 on 37.4% rise in total income to Rs 7929.38 crore in Q2 September 2011 over Q2 September 2010.

HDFC Bank's portfolio quality as of 30 September 2011 remained healthy, with gross non-performing assets (NPA) at 1% of gross advances and net non-performing assets at 0.2% of net advances (as against 1.2% gross NPAs and 0.3% net NPA ratios as on 30 September 2010). The bank's provisioning policies for specific loan loss provisions remained higher than the minimum regulatory requirements. The NPA provision coverage ratio (excluding write-offs, technical or otherwise) was at 81.3% as of 30 September 2011. Total restructured assets were 0.4% of the bank's gross advances as of 31 September 2011. Of these, restructured advances categorized as standard assets were 0.1% of the bank's gross advances.

HDFC Bank's CASA ratio stood at 47.3% as of 30 September 2011. The CASA (current and savings account) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits. A high CASA ratio indicates that a higher portion of the banks' deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

The bank's total capital adequacy ratio (CAR) as at 30 September 2011 as per Basel II guidelines was at 16.5%, as against regulatory minimum of 9%. Tier I CAR was at 11.4% as at 30 September 2011.

State-run coal miner Coal India rose 2.03% to Rs 328.85. The company's workers called off the proposed three-day strike after the firm hiked bonus by Rs 3,000 per employee. Coal India's management has assured workers of a Rs 20,000 bonus and an additional Rs 1,000 bonus for Diwali. The company's Chairman N C Jha was quoted by media as saying that the additional financial burden on the company after Monday's decision would be around Rs 144 crore.

India's largest pharmaceutical company by market capitalisation Sun Pharmaceutical Industries rose 1.51% to Rs 486.65. The company offered to buy all of the outstanding shares it does not already own in its Israeli unit Taro Pharmaceutical Industries for $24.50 each. Sun Pharma said its offer was 25.96% higher than the most recent closing price of Taro's common stock.

Sun Pharma acquired a controlling stake in Taro in September 2010 after completing an option agreement first entered into in 2007 with the controlling shareholders of Taro. Sun's subsidiaries have subsequently increased their economic interest in Taro to 66%. Taro has an established franchise in dermatology and topical products in the US, in addition to other generic products. Taro has sales and marketing operations in Israel and Canada.

Jindal Steel & Power rose 0.84% to Rs 529.55. The company's consolidated net profit before exceptional items rose 8% to Rs 965.97 crore on 43.5% growth in turnover to Rs 4423.20 crore in Q2 September 2011 over Q2 September 2010. Net profit after exceptional items declined 0.27% to Rs 891.80 crore in Q2 September 2011 over Q2 September 2010. The result was announced after trading hours on Tuesday. The company's power generation arm Jindal Power reported a net profit of Rs 409.84 crore on turnover of Rs 737.92 crore for Q2 September 2011