Inflation falls below 6%
Finally, there is some good news on inflation which should cheer up the Government and the Reserve Bank of India (RBI) ahead of the annual monetary and credit policy announcement on April 24. India's inflation, based on the Wholesale Price Index (WPI), tumbled to 5.74% in the week ended March 31 as against 6.39% in the previous week, the Commerce & Industry Ministry said on Friday. The final headline inflation reading for FY07, which is subject to a revision, is slightly above the RBI's annual target range of 5-5.5%. What's also heartening is that inflation was much below the average expectations of around 5.8%. The annual inflation rate was 3.98% during the corresponding week of the previous year. In the past few months, the Government has unleashed a slew of monetary tightening steps and slashed import duties on a number of essential products to reign in spiraling prices. The latest data should take some pressure of the policy makers though there are doubts whether the inflation will remain under 6% for long given the renewed upsurge in global commodity prices.
Infosys disappoints slightly
Infosys Technologies Ltd. has posted a consolidated net profit of Rs11.44bn for the fiscal fourth quarter ended March 31, 2007 as against Rs9.83bn in the quarter ended December 31, 2006. This translates into a sequential growth of 16.37%. Consolidated revenues for the fourth quarter are Rs37.72bn compared to Rs36.55bn in the previous quarter, reflecting a quarter on quarter growth of 3.2%. This was lower than the company's guidance of Rs37.9bn. Earnings Per Share (EPS) for the January-March quarter is at Rs20.30 versus Rs17.64 in the third quarter of the financial year 2006-07. Operating Profit Margin (OPM) slid by 100 points due to the impact of the rupee's appreciation versus the dollar and higher SG&A expenses.
For the year ended March 31, 2007, the IT major has reported a consolidated net profit of Rs38.56bn as against Rs24.58bn in the year ended March 31, 2006. Full-year consolidated revenues are at Rs138.93bn versus Rs95.21bn in the previous fiscal year. For the year 2006-07, EPS before exceptional item increased to Rs 69.11 from Rs 45.03 in the previous year; YoY growth was 53.5%. The net profit for the year ended March 31, 2007 included a reversal of tax provisions amounting to Rs1.24bn and Rs1.25bn, respectively. Excluding this reversal, the EPS for the quarter and year ended March 31, 2007 would have been Rs 18.10 and Rs 66.86.
The Board of Infosys has recommended a final dividend of Rs6.5 per share (130%) for FY07, totaling Rs3.71bn. Including the interim dividend of Rs 5 per share (100%) amounting to Rs2.78bn, the total dividend recommended for the year is Rs 11.50 per share (230%), amounting to Rs6.49bn. "Our revenues grew by around US$ 1bn this year," said Nandan M. Nilekani, CEO and Managing Director. "The global IT services industry continues to show strong growth with exciting opportunities, and Infosys is well positioned to take advantage of this."
MARKET MOOD
Bulls rise from ashes
Lights go out and I can't be saved
Tides that I tried to swim against
You've put me down upon my knees
Oh I beg, I beg and plead
Come out of things unsaid, shoot an apple of my head
Trouble that can't be named, tigers (bears) waiting to be tamed
In our last weekly newsletter we asked our readers to watch out for Friday the 13th. But, luckily the day has turned out to be fairly good one for the bulls despite Infosys reporting slightly disappointing Q4 results. The key indices continued their upward journey. Slowly, but slowly markets have risen from the dumps hit in February. Impressive industrial production data and lower inflation figures also aided the recovery.
Index heavyweights led from the front after being at the receiving end for the last 7-8 weeks. Also, mid-cap stocks participated in this week’s rally. Among the new listing ICRA hogged the limelight, as the stock gained Rs500 over the issue price of Rs330.
Capital Goods, Auto, IT, Metals and Banking stocks were the major gainers over the week. Cement stocks were again under a cloud after the first shipment arrived from Pakistan at a much lower prices.
Finally, the BSE Sensex advanced 4.1% or 528 points to close at 13384 and the NSE Nifty gained by over 4.4% or 165 points to close at 3917.
Metal stocks put in a stellar performance amid talk of a fresh price hike and expectations of better results. Tata Steel was in the limelight after the company announced a meet on April 17 to consider fund raising plans for the proposed US$12bn acquisition of UK-based Corus Group Plc. The BSE Metal index rose nearly by 8% during the week. Tata Steel rallied by over 10% to Rs511, JSW Steel jumped by over 11% to Rs553, SAIL surged over 9.5% to Rs125 and Essar Steel added 5% to Rs128.
Capital Goods stocks did well on the back of strong industrial output numbers. Siemens, ABB and BHEL were the star performers on the week. Siemens rose by over 7.5% to Rs1142, BHEL gained over 5% to Rs2479 and ABB advanced by over 4% to Rs3748.
IT shares outperformed the key indices, rising by over 5% after Infosys’ Q4 earnings and FY08 guidance met market expectations though it missed the topline guidance for Q4. Infosys advanced by over 4.5% to Rs2087, Satyam rose over 5.5% to Rs481, TCS climbed over 5% to Rs1262 and Wipro added 3% to Rs567.
Telecom stocks too joined the party on the back of strong monthly subscription numbers. Bharti Airtel added 1.7mn mobile users in March.
The scrip gained 4.7% to Rs781. MTNL was the top gainer. The scrip rose by over 7% to Rs158. Reliance Communication surged by over 6% to Rs421, VSNL advanced 4.8% to Rs421 and TTML added 3.8% to Rs21.
Value buying was seen in auto stocks after the recent hammering. The BSE Auto index gained 4.6% during the week. Tata Motors was up by over 5.5% to Rs26, M&M advanced 4.4% to Rs745, Maruti was up by 2% to Rs771 and Ashok Leyland added 5.7% to Rs37.
Results, inflation to drive sentiment
With the Infosys results out of the way and inflation softening, the market is poised for more gains. But bear in mind that the steep fall in inflation was largely due to a high base effect rather than the Government’s efforts. So, the pressure will continue on this front. The Government and the central bank will continue to be on guard and take steps accordingly. After Infosys its now going to be the turn of other IT giants like TCS and Wipro to deliver the goods next week. There will also be results from other non-IT firms. One should also give due consideration to the global issues like the US economic slowdown, oil prices, other commodity prices, etc. We will see spikes both ways as the market will remain choppy with a positive bias. FT, Indiabulls, TCS, HCL Tech, HDFC Bank, UTI Bank, Praj Industries, Aban Offshore, ACC, Biocon, MRF, Gujarat Ambuja, India Cements, Satyam, Wipro, Renuka Sugar and IDBI are among the major companies announcing their quarterly numbers next week.
Industrial production strong
The slew of monetary and fiscal tightening measures seem to have had little impact on the industrial activity in the country. This is something that the Government and the RBI would surely take note of. India's industrial production grew by 11% in February as against 8.8% in the same month last year, the Commerce & Industry Ministry said. This was slightly lower than January's upwardly revised growth rate of 11.4% (10.9%). Manufacturing output was up at 12.3% in February compared to 9.2% in the year-ago period, and a revised 12.1% annual growth rate in January. Mining output expanded by 6.3% in February versus 3.8% in the same month of last year. However, electricity was a drag, growing at just 3.3% as against 9.1% in February 2006. On a cumulative basis (April-February 2006-07), the Index of Industrial Production (IIP) expanded by 11.1% versus 8.1% in the year-ago period. As many as 15 out of the 17 industry groups showed a positive growth during the month compared to the corresponding month of the previous year. During the month, growth in Basic Goods, Capital Goods and Intermediate Goods was 10.4%, 18.2% and 13.7%, respectively. Consumer Durables and Consumer Non-durables recorded a growth of 1.6% and 9.7% respectively, with the overall growth in Consumer Goods being 7.6%.
Cabinet allows import of 1.5mn tons pulses
The Government continues its fire fighting efforts against rising prices. In a bid to boost local supplies and arrest spiraling prices, the Cabinet Committee on Economic Affairs (CCEA) decided to import of 1.5mn tons of pulses. NAFED, STC, MMTC and PEC will import 0.75mn tons of urad, tur, moong, masur and gram, and 0.75mn tons of yellow peas and other pulses. The announcement was made by Information & Broadcasting Minister Priya Ranjan Dasmunsi after the CCEA meeting in New Delhi. "This will hopefully stabilise prices of pulses," Dasmunsi said. The entire quantity is likely to be imported over 6-8 months, the I&B Minister said. The Government will subsidise losses incurred on import of pulses by the four public sector agencies up to a limit of 15%, Dasmunsi said. The Centre would consider further imports, if needed, he said. Meanwhile, Dasmunsi clarified that the CCEA did not take any decision on cutting edible oil import duty. Earlier, Rural Development Minister Raghuvansh Prasad had said that the Government had decided to cut the import duty on edible oils.
Car sales hit low gear
India's domestic passenger car sales grew by just 2.9% in March but for the year 2006-07 the automobile industry has set a new annual record, the Society of Indian Automobile Manufacturers (SIAM) said. Domestic passenger car sales stood at 114,195 units last month as against 110,978 units in the same month a year ago, data released today by the body of automakers showed. For the year ended March 31, 2007, car sales were up 22% at 1.076mn units, a new record. Maruti saw its March car sales rise by 7% at 55,623 units as against 51,951 units in the same month last year. Tata Motors posted a growth of 11.3% at 19,651 units compared to 17,655 units in the year-ago period. Industry analysts said the hardening of interest rates in the past few months could have hurt sales in March. Moreover, in March last year sales had surged on the back of a reduction in excise duty on compact cars. Meanwhile, motorcycle sales in March declined by 3.5%, as Bajaj Auto and TVS Motor sales declined, even as market leader Hero Honda managed to clock a growth of 6% from the same month last year, the SIAM data revealed.
GSM subscriber numbers impress again
The country's GSM-based mobile telephone operators added a record 6.1mn new subscribers in March, taking their total user base to 121.4mn, data released by the Cellular Operators' Association of India (COAI) shows. At the end of February, total GSM customers stood at 115.3mn. The March increase was the highest-ever monthly rise and was higher than the 4.9mn new user additions in February, the body representing the GSM service providers said in a statement released late on Wednesday. Bharti Airtel added 1.7mn customers in March, taking its total to 37.14mn. BSNL added 1.98mn new users, taking its user base to 27.43mn. Hutchison Essar added 1.1mn new customers, taking its total to 26.44mn. Idea Cellular added only 370,551 subscribers in March as against 568,051 mobile phone users added in February, boosting its user base to 14.01mn. MTNL added 167,992 mobile phone users to take its subscriber base at the end of March to 2.75mn.
TRAI urges infra sharing to reduce rollout cost
With the telecom sector set to grow exponentially, the Telecom Regulatory Authority of India (TRAI) asked wireless telecom operators to share passive, active and back haul infrastructure to cut the cost of expansion. License conditions should be amended to allow mobile phone service providers to use each other's equipment, including relay towers and antennas, the telecom regulator said in its proposals to the DoT. No sharing of spectrum at access network side is permitted, it said. The exponential growth in wireless telecom services calls for massive investment in infrastructure, TRAI said. The country would require about 3.3 lakh towers by 2010 against the present 1 lakh towers, TRAI said. Apart from huge investments needed, the time taken to roll out wireless services could be a major bottleneck in the achievement of 500mn subscribers by 2010, TRAI said. Even if the target is achieved it will only be about 50% of the tele-density with major gaps in the rural areas, it said.
Pak cement shipment hits Indian shore
Ten days after the Government scrapped the Countervailing Duty (CVD) and Special Additional Duty (SAD) on portland cement, the country received its first batch of imported cement from neighbouring Pakistan. Agency reports said a 200-ton consignment of cement has landed in Mumbai from Pakistan last weekend. The landed cost of the imported cement is US$70 per ton or Rs155 per 50 kg considering an exchange rate of Rs44 for one dollar. The bad news is that prices in Pakistan have climbed to US$75 per ton (Rs165 per 50 kg bag) after the dispatch of the first shipment and could go up further in anticipation of rising demand from India. But, what is debatable is what is the actual quantity of excess capacity in Pakistan, and how much can be exported to India. Also, what will happen if prices of cement keep rising in Pakistan.
Jet-Air Sahara deal takes off again
After 10 months of public spat over a failed deal last year, Jet Airways India Ltd. agreed to acquire Sahara Airlines for Rs19.5bn. Jet has already paid Rs5bn as part of the previous deal. It will pay Rs4bn before April 20 while the balance Rs5.5bn is payable in four interest free annual equal installments commencing on or before March 30, 2008. At the current interest rate, the Net Present Value (NPV) of the lumpsum price is in the vicinity of Rs12bn. But, despite the 40% discount that Naresh Goyal managed to get on a new deal, industry analysts still view this as an expensive transaction. Plus, Sahara Airlines doesn't really bring in any substantial benefits for Jet in terms of assets, as all its aircraft are leased. The only real gains for Jet are the landing slots and parking bays allotted to Sahara Airlines at key airports across the country. The industry is likely to benefit as Sahara Airlines had of late turned desperate and was giving huge discounts on tickets. It had also converted its planes into a single economy class configuration. The industry will also gain from consolidation as lesser players will mean less competition, better efficiency and reduced losses, though ticket fares may not fall much.
ICRA skyrockets on debut
Shares of ICRA Ltd., a local credit rating agency partly owned by Moody's Investors Service, surged on the first day of trading on Friday. The stock more than doubled in a broad market rally. ICRA opened at Rs525 on the Bombay Stock Exchange (BSE) as against the issue price of Rs330, translating into a premium of 59%. It touched a high of Rs880.10 and finished at Rs797.60 with traded volume of 12.43mn shares. The company entered capital market with an Initial Public Offering (IPO) of 2,581,100 shares of Rs 10 each, through a 100% book building process. The issue was subscribed 75 times.
Moody's has a 29% stake in ICRA. The balance stake is held by leading financial institutions and banks like SBI, LIC, IFCI etc. About 26% of ICRA was sold by current shareholders, and significant portion of it was from IFCI. The objects of the offer were to achieve the benefits of listing on the stock exchanges and provide liquidity to existing shareholders and employees. Book running lead managers to the issue are SBI Capital Markets & Kotak Mahindra Capital and registrar is Intime Spectrum Registry.
UTV unveils recast plans
UTV Software Communications Ltd. announced that it was breaking itself up into three separate units - Movie, Broadcasting and New Media. UTV Broadcasting Ltd., a wholly-owned subsidiary, will look after the broadcasting initiatives. It will include GenX Ltd. - the youth subsidiary which houses the Brand Bindass, and its related channels and businesses relating to the youth activity including Web, Gaming, Events, etc. V&S Broadcasting Ltd. will launch and run Variety, Entertainment and Speciality Channels. UTV UK Ltd., a 100% subsidiary, will house all of UTV's New Media initiatives including its animation (UTV Toons), Post Production and SFX (UTV Post) as well as the recent controlling investment in Ignition UK (Console Gaming) and India Games (Mobile and Online Gaming). UTV said it will transfer all film production business to a wholly owned subsidiary and seek a listing on any overseas stock exchange, possibly the AIM of the London Stock Exchange. The Ronnie Screwvala-promoted company will come out with an IPO or issue fresh shares in the overseas subsidiary to one or more private investors, not exceeding 25% of the shareholding.
GLOBAL NEWS
Global economy still going strong
The global economy looks all set for continued robust growth in 2007 and 2008 despite a downturn in the US, according to a new IMF forecast. Global economic growth is expected to moderate to 4.9% in 2007 and 2008, after hitting 5.4% in 2006, the IMF says in its latest World Economic Outlook. While the US economy has slowed more than was expected earlier, spillovers have been limited, growth around the world looks well sustained, and inflation risks have moderated, the IMF says. The risks to the growth outlook are less threatening than the September 2006 World Economic Outlook, but are still tilted to the downside, the IMF feels. Particular uncertainties include the potential for a sharper slowdown in the US; the risk of a retrenchment from risky assets; the risk that inflation pressures could revive as output gaps continue to close, particularly if oil prices spike and the low probability but high cost risk of a disorderly unwinding of large global imbalances.
BOJ, ECB leave key rates unchanged
As expected, the Bank of Japan (BOJ) left its benchmark interest rate unchanged for the second month running as the world's second-biggest economy is still grappling with years of declining prices or deflation. Weakness in the US, Japan's largest trading partner, could also have influenced the BOJ's move. Central Bank Governor Toshihiko Fukui and his policy colleagues voted unanimously to hold the key overnight lending rate at 0.5%, the lowest among major economies. The decision was widely expected by economists. The BOJ raised its key policy rate to 0.5% from 0.25% in February, saying that the Japanese economy was on track for a steady growth and that prices will rise at a modest pace. Analysts say the BOJ could put off a rate hike till it gathers enough clues about the health of the Japanese economy as well as that of the US economy, the world's largest. That may mean no increase in interest rate at least in the next few months.
No rate cuts yet as inflation still looming: Fed
Ben S. Bernanke and Co. are not quite as prepared to tart cutting rates as they still see inflation as a danger despite clear signs of a slowdown in the world's largest economy. In its last policy meeting, Federal Reserve policy makers maintained that further rate hikes may be necessary in the event of inflation picking up, even as they altered the statement to give themselves more flexibility. "Further policy firming might prove necessary to foster lower inflation," the Fed said in minutes of the Federal Open Market Committee's (FOMC) March 20-21 meeting released this week. "But in light of the increased uncertainty about the outlook for both growth and inflation, the committee also agreed that the statement should no longer cite only the possibility of further firming," the FOMC said. At the end of its meeting, the FOMC kept the benchmark fed funds rate unchanged at 5.25%, the sixth straight meeting with no change in rates.
No headway in WTO talks
The world's six major economies agreed to speed up the beleaguered WTO trade talks and sign a new multilateral trade agreement by the end of the year. Ministers from Brazil, EU, India, US, Australia and Japan, the so-called G6, met in New Delhi to try and arrive at some consensus in the crucial areas of agriculture and industrial goods and services. The Doha round of negotiations to reduce the barriers to trade has missed several deadlines owing to differences among the WTO members, mostly on farm subsidies, but also on market access for industrial goods and services. The WTO negotiations all but faltered last year over the continuing differences, particularly in agriculture. But, the Doha round of trade talks were relaunched at the end of January. The New Delhi meeting is the first time they have sat at the same table to negotiate since last July. The key is how far the US and the EU are prepared to go in cutting farm subsidies and how far developing nations like India and Brazil will allow access to their markets in agriculture and industrial products.