Saturday, April 30, 2016

THE WEEK THAT WAS

Market drops on weak global cues


Key benchmark indices dropped in the week ended Friday, 29 April 2016 on weak global cues. The barometer index, the S&P BSE Sensex, failed to hold onto the psychological 26,000 mark after regaining that mark the during the week. Key indices edged higher in three out of five trading sessions during the week. World stocks fell after the Bank of Japan left its main policies unchanged after the conclusion of a two-day monetary policy meeting, disappointing market expectations the central bank would take further extraordinary steps to stimulate Japan's economy.

In the week ended Friday, 29 April 2016, the 30-share S&P BSE Sensex fell 231.52 points or 0.9% to settle at 25,606.62. The losses for the Nifty 50 index were lower in percentage terms than those for the Sensex. The Nifty fell 49.50 points or 0.63% to settle at 7,849.80.

The BSE Mid-Cap index rose 24.28 points or 0.22% to settle at 11,042.92, outperforming the Sensex. The BSE Small-Cap index shed 58.25 points or 0.53% to settle at 11,020.59. The fall in this index was lower than Sensex's decline in percentage terms.

Trading for the week started on a weak note. Stocks of public sector banks, pharma and metal firms and index heavyweights Reliance Industries, HDFC and ITC led losses for key benchmark indices on Monday, 25 April 2016. The Sensex fell 159.21 points or 0.62% to settle at 25,678.93, its lowest closing level since 13 April 2016.

Key benchmark indices logged strong gains on Tuesday, 26 April 2016, reversing intraday losses, led by gains in banking stocks and index heavyweights HDFC, ITC and Infosys. The Sensex rose 328.37 points or 1.28% to settle at 26,007.30, its highest closing level since 1 January 2016.

A divergent trend for various index constituents resulted in small gains for the two key benchmark indices on Wednesday, 27 April 2016. The Sensex rose 56.82 points or 0.22% to settle at 26,064.12, its highest closing level since 1 January 2016.

A disappointment from the Japanese central bank, which held off from expanding monetary stimulus, pulled global stocks lower, with Indian stocks witnessing a sharp slide on Thursday, 28 April 2016. The Sensex slumped 461.02 points or 1.77% to settle at 25,603.10, its lowest closing level since 12 April 2016.

Key benchmark indices logged small gains in a volatile trading session on Friday, 29 April 2016. The Sensex rose 3.52 points or 0.01% to settle at 25,606.62, its highest closing level since 27 April 2016.

Among the 30-share Sensex pack, 22 stocks declined and the rest of them rose in the week ended Friday, 29 April 2016.

HDFC Bank (up 3.77%), Adani Ports and Special Economic Zone (up 3.36%) and Cipla (up 1.03%) edged higher from the Sensex pack.

State Bank of India (down 5.48%), HDFC (down 3.77%) and Hero MotoCorp (down 3.32%) edged lower from the Sensex pack.

Index heavyweight Reliance Industries (RIL) dropped 5.41%. RIL's consolidated net profit rose 15.93% to Rs 7398 crore on 10.95% fall in total income to Rs 62010 crore in Q4 March 2016 over Q4 March 2015. The result was announced after trading hours on Friday, 22 April 2016. Strong operating performance from refining and petrochemicals businesses coupled with favorable exchange rate movement was partially offset by lower contribution from oil and gas business. The decline in revenue was led by the 41.4% decline in benchmark oil price which averaged at $30.4 per barrel in Q4 March 2016 as compared to $51.9 per barrel in Q4 March 2015. Based on standalone performance, the gross refining margin (GRM) increased to $10.80 per barrel in Q4 March 2016 from $10.10 per barrel in Q4 March 2015.

RIL did not specify when exactly it would start commercial roll out of telecom services. RIL said that the commercial roll out is expected in coming months. Reliance Jio Infocomm (RJIL) launched full-scale service offerings for the RIL group employees, partners, vendors and associates on a trial basis on 28 December 2015. RIL's telecom business is being carried out through its subsidiary RJIL.

Maruti Suzuki India slipped 0.59%. The company reported 11.72% fall in net profit to Rs 1133.60 crore on 10.62% rise in total income to Rs 15426.90 crore in Q4 March 2016 over Q4 March 2015. The company's board of directors has recommended a final dividend of Rs 35 per share for the year ended 31 March 2016. The company's sales volumes rose 3.9% to 3.6 lakh vehicles in Q4 March 2016 over Q4 March 2015. Loss of 10,000 units due to Jat reservation agitation in Haryana, increased advertising expenses and lower other income impacted profits during Q4 March 2016. Maruti's other income dropped 62.11% to Rs 121.20 crore in Q4 March 2016 over Q4 March 2015. The result was announced during market hours on Tuesday, 26 April 2016.

IT stocks were mmixed. Infosys (down 0.25%) and Wipro (down 0.72%) fell. TCS gained 4.67%. The S&P BSE IT index slipped 0.14% during the week.

Global credit rating agency Moody's Investors Service said in a sector report that it expects the Indian IT services sector to maintain global market share gains despite headwinds. According to Moody's, economic stability in developed countries will fuel growth for the global IT services outsourcing industry, benefiting Indian IT services companies in particular. However, currency volatility will pressure growth estimates for the Indian IT services sector, according to Moody's. While revenue is predominantly denominated in US dollar and euro for the Indian IT services sector, the cost base remains primarily denominated in Indian currency, resulting in a potential mismatch.

Axis Bank fell 0.51%. The bank's net profit fell 1.2% to Rs 2154.28 crore on 9.75% rise in total income to Rs 13592.97 crore in Q4 March 2016 over Q4 March 2015. The Q4 March 2016 results were announced after trading hours on Tuesday, 26 April 2016. The bank's management in a conference call on Tuesday, 26 April 2016 said that it expects bad loans to rise and credit costs to be sharply higher in the current financial year. The bank's gross non-performing assets (NPAs) stood at Rs 6087.51 crore as on 31 March 2016 as against Rs 5724.05 crore as on 31 December 2015 and Rs 4110.19 crore as on 31 March 2015. The ratio of gross NPAs to gross advances stood at 1.67% as on 31 March 2016 as against 1.68% as on 31 December 2015 and 1.34% as on 31 March 2015. The ratio of net NPAs to net advances stood at 0.7% as on 31 March 2016 as against 0.75% as on 31 December 2015 and 0.44% as on 31 March 2015. The bank's provisions and contingencies jumped 64.59% to Rs 1168.33 crore in Q4 March 2016 over Q4 March 2015. Axis Bank created a contingency asset provision of Rs 300 crore in Q4 March 2016 taking the cumulative balance of contingency asset provisions to Rs 480 crore as on 31 March 2016. The cumulative value of net restructured advances as on 31 March 2016 stood at Rs 8072 crore, constituting 2.25% of net customer assets, compared to Rs 7745 crore, constituting 2.31% of net customer assets as on 31 December 2015.

Bharti Airtel rose 2.99%. The company's consolidated net profit rose 2.78% to Rs 1290.30 crore on 8.43% rise in total income to Rs 24983.10 crore in Q4 March 2016 over Q4 March 2015. The result as per the International Financial Reporting Standards (IFRS) was announced after market hours on Wednesday, 27 April 2016. Stable currencies in most of the geographies resulted in lower forex and derivative losses of Rs 190 crore in Q4 March 2016 compared to Rs 1081 crore in Q4 March 2015. Bharti Airtel's bottom line during the quarter was impacted due to higher exceptional expenses.

Meanwhile, Bharti Airtel before market hours on Friday, 29 April 2016 said that it will undertake buyback of shares only after the approval from Delhi High Court for the scheme of amalgamation of its wholly owned subsidiary with the company. Bharti Airtel said that the scheme of amalgamation of Augere Wireless Broadband India (Augere), a wholly owned subsidiary with the company is under consideration for approval by the Delhi High Court. Bharti Airtel's board of directors at its meeting held on 27 April 2016, approved the proposal to buyback the shares on a proportionate basis through a tender offer. The buyback shall be up to an aggregate amount not exceeding Rs 1434 crore at a price of Rs 400 per share translating into approximately 3.58 crore shares, representing 0.9% of the total paid up equity share capital of the company.

ICICI Bank dropped 6.09% to Rs 236.60 and was the top loser from the Sensex. ICICI Bank's net profit declined 75.97% to Rs 701.89 crore on 14.51% growth in total income to Rs 18590.86 crore in Q4 March 2016 over Q4 March 2015. The result was announced during market hours on Friday, 29 April 2016. The bank's gross non-performing advances (net of write-off) stood at Rs 26221.25 crore as on 31 March 2016 compared with Rs 21149.19 crore as on 31 December 2015 and Rs 15094.69 crore as on 31 March 2015. The ratio of gross non-performing advances to gross advances stood at 5.82% as on 31 March 2016 compared with 4.72% as on 31 December 2015 and 3.78% as on 31 March 2015. The ratio of net non-performing advances to net advances stood at 2.98% as on 31 March 2016 as against 2.28% as on 31 December 2015 and 1.61% as on 31 March 2015. ICICI Bank said that the increase in non-performing assets was primarily due to the continuing challenges in the operating and recovery environment and the Reserve Bank of India's (RBI) objective of early recognition of stress and provisioning for the banking sector. The RBI has directed India's banks to review certain loan accounts and their classification over a period of two quarters starting from Q3 December 2015. ICICI Bank said that it has now completed the exercise of review of classification of cases highlighted by RBI.

Drug maker Lupin rose 3.18%. The company announced on Thursday, 28 April 2016. that it has re-introduced Methergine (methylergonovine maleate) Oral Tablets 0.2mg in the US for the prevention and management of postpartum hemorrhage. Methergine is the only FDA-approved oral uterotonic and is a preferred oral agent in the management of PPH, according to guidelines issued by the American Congress of Obstetricians and Gynecologists (ACOG).

On the global front, the Bank of Japan unexpectedly held off from expanding monetary stimulus on Wednesday, 27 April 2016. The Bank of Japan (BOJ) voted to keep its current level of asset purchases unchanged and rates on hold while announcing a ¥300 billion ($2.69 billion) lending program to support banks in the region hit by this month's Kyushu earthquake. Speculation was rise that the Japanese the central bank would announce a further easing of the monetary policy to stimulate Japan's economy.

Meanwhile, the Federal Reserve left interest rates unchanged after the conclusion of a two-day monetary policy meeting on Wednesday, 27 April 2016. The Fed's signal that it was in no rush to raise rates relieved investors. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2% inflation, the Fed said in its monetary policy statement. The US central bank's mandate centers on maximizing employment and keeping inflation at a 2% target level, which is considered a healthy level of price increases.
Data on Monday, 25 April 2016 showed that German business sentiment deteriorated unexpectedly in April. The Ifo's business climate index slipped to 106.6 in April from 106.7 in March, bringing it further below levels seen at the end of last year. The Ifo's measure of the current business situation dropped to 113.2 in April from 113.8 in March, but its gauge of business expectations rose to 100.4 from 100 the previous month. The German economy is the Europe's biggest economy.

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