Sunday, May 08, 2016

THE WEEK THAT WAS

Market slips on negative global cues


The market declined last week, extending last week's retreat, as a sell-off in global stocks sapped the demand for riskier assets. Data showing slowdown in growth in manufacturing sector in April 2016 also weighed on the domestic bourses.

On the global front, Japanese stocks edged lower as the yen surged to 1-1/2-year high against the dollar. The stronger yen makes Japanese exports less competitive and cuts into the value of repatriated earnings. Yen firmed up after the Bank of Japan's (BOJ) decision to keep its policies unchanged. Speculation was rife that the Japanese central bank would announce a further easing of the monetary policy to stimulate Japan's economy. Chinese stocks witnessed selling pressure after the latest data showed deceleration in China's manufacturing activity in April 2016. The Chinese economy is the world's second biggest economy after the United States. Meanwhile, Chinese leaders have called for strengthening the supervision of stock market and protecting investor interests, according to reports.

US stocks witnessed selling after weak consumer spending data for March 2016 and after the monthly Chicago Business Barometer index for April showed slowdown in the manufacturing sector. Further, the ADP employment data showed that private payrolls across the US rose by 156,000 last month. The increase is the smallest since April 2013. The report is seen as a precursor to the top-tier nonfarm-payrolls data due on Friday, 6 May 2016.

Back home, in the week ended Friday, 6 May 2016, the 30-share S&P BSE Sensex fell 378.12 points or 1.48% to settle at 25,228.50. The Nifty 50 index fell 116.35 points or 1.48% to settle at 7,733.45.

The BSE Mid-Cap index fell 77.64 points or 0.70% to settle at 10,965.28. The BSE Small-Cap index fell 121.28 points or 1.10% to settle at 10,899.31. The decline in both these indices was lower than the Sensex's decline in percentage terms.

Trading for the week started on a weak note. Stocks of public sector banks and index heavyweights HDFC Bank, ITC and Infosys led losses for key benchmark indices on the first trading session of the week on Monday, 2 May 2016. The Sensex fell 169.65 points or 0.66% to settle at 25,436.97, its lowest closing level since 12 April 2016.

IT, banking sector stocks, shares of public sector companies and index heavyweights ITC and Reliance Industries led losses for key benchmark indices on Tuesday, 3 May 2016, triggered by weakness in global stocks. The Sensex fell 207.27 points or 0.81% to settle at 25,229.70, its lowest closing level since 12 April 2016.

Data showing slowdown in growth in the India's services sector and weakness in global stocks triggered modest losses for Indian stocks on Wednesday, 4 May 2016. The Sensex fell 127.97 points or 0.51% to settle at 25,101.73, its lowest closing level since 11 April 2016.

Capital goods stocks and index heavyweights HDFC and ITC led gains for key benchmark indices on Thursday, 5 May 2016. The Sensex rose 160.48 points or 0.64% to settle at 25,262.21, its highest closing level since 2 May 2016.

Amid a divergent trend for various index constituents, the Nifty 50 index ended near the flat line on Friday, 6 May 2016. The barometer index, the S&P BSE Sensex, registered small losses. The Sensex lost 33.71 points or 0.13% to settle at 25,228.50, its lowest closing level since 4 May 2016. The Nifty fell 2.05 points or 0.03% to settle at 7,733.45, its lowest closing level since 4 May 2016. The Sensex and the Nifty staged a recovery from an initial fall triggered by weakness in Asian stocks. Asian and European stocks edged lower as investors turned cautious before the release of the influential US monthly non-farm payroll data.

Among the 30 Sensex shares, 23 shares declined and the remaining shares rose.
Adani Ports and Special Economic Zone (APSEZ) lost 18.17% to Rs 194.95. It was the top loser in the Sensex pack last week. The stock slumped on reports that a foreign brokerage has reduced its price target on the stock, citing slowdown in the company's core port earnings growth. The foreign brokerage has reportedly retained its hold rating on the APSEZ stock. Shares of APSEZ had slumped 11.97% to settle at Rs 207.65 on Wednesday, 4 May 2016 on equity dilution worries after the company's board of directors decided to seek shareholders' approval to raise funds by way of issue of equity shares/convertible bonds up to Rs 10000 crore.

APSEZ's consolidated net profit rose 38.34% to Rs 914.06 crore on 18% increase in total income to Rs 2161.65 crore in Q4 March 2016 over Q4 March 2015. EBITDA (earnings before interest, taxes, depreciation and amortization) excluding other income rose 12% to Rs 1225 crore in Q4 March 2016 over Q4 March 2015. The result was announced after market hours on Tuesday, 3 May 2016.

Cargo across all ports handled by the company rose 5% to 152 million metric tonnes (MMT) in the year ended 31 March 2016 over the year ended 31 March 2015. The company has given guidance of 10% to 15% growth in cargo volumes for the year ending 31 March 2017 (FY 2017). It has given guidance of 10% to 15% growth in net profit for FY 2017.

ICICI Bank lost 7.80% to Rs 218.15 on reports that a foreign brokerage has cut its earnings estimates for the private sector bank by 15% to 16% for FY 2017 and FY 2018. The brokerage has reportedly maintained its neutral rating on the stock. Shares of ICICI Bank declined 1.47% to settle at Rs 236.60 during the previous trading session on Friday, 29 April 2016, after the bank reported increase in sticky loans. 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 trading hours on Friday, 29 April 2016.

ICICI Bank has created a collective contingency and related reserve of Rs 3600 crore in Q4 March 2016 over and above provisions made for non-performing and restructured loans. This contingency provision is towards exposure to stress assets in certain sectors, including iron and steel, mining, power, rigs and cement. The weak global economic environment, the sharp downturn in the commodity cycle and the gradual nature of the domestic economic recovery has adversely impacted the borrowers in these sectors. Given the weak operating and recovery environment, it may take some time for resolution of stress on borrowers in these sectors, according to ICICI Bank.

State Bank of India (SBI) fell 2.41% to Rs 184.40 after the bank announced reduction in lending rates by 5 basis points across tenures. State Bank of India (SBI)'s Marginal Cost of Funds based Lending Rate (MCLR) for overnight loans will be 8.90%. MCLR for one-month loans will be 9% and for three-month loans it will be 9.05%. The MCLR on 6-month loans will be 9.10% and for one-year loans the rate would be 9.15%, the bank said. MCLR for two-year loans would be at 9.25% and loans with three-year maturity would carry an MCLR of 9.30%, the bank said. All rupee loans sanctioned and credit limits renewed with effect from 1 April 2016 are priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which is the internal benchmark of the concerned bank. Actual lending rates are determined by adding the components of spread to the MCLR.

Tata Steel slumped 6.02% at Rs 329.45. Global metals group Liberty House Group on Tuesday, 3 May 2016, formally submitted a letter of intent to Tata Steel Europe containing its indicative bid for the entire issued share capital of Tata Steel UK. Liberty has put in the bid for all of Tata Steel's UK assets, excluding its Long Products division, which is in the process of being sold separately, and the Scottish Plate Assets that Liberty already acquired from Tata Steel. Tata Steel has put Tata Steel, UK on the block due to the deteriorating financial performance of the UK subsidiary.

The bid is based on Liberty's GREENSTEEL business model and would involve a transition from steelmaking in blast furnaces to recycling steel in electric arc furnaces over time while ensuring the company continues to meet key customers' quality requirements. Steelmaking would be ultimately powered by renewable energy sources. Liberty said in a statement that it believes that the UK steel industry can achieve long-term viability if based on an agile, sustainable, non-cyclical model which integrates liquid steel making from recycling with downstream production and the manufacture of advanced engineering products.

In order to take the bid forward Liberty has appointed an internal project team and a panel of leading external advisers to work on this acquisition, dubbed "Project GREENSTEEL Pluto".

Wipro fell 3.81% to Rs 532.60. The company after trading hours on Thursday, 5 May 2016, announced that it has successfully implemented its Software as a Service (SaaS) platform- Managed File Transfer as a Service (MFTaaS) on Amazon Web Services (AWS) for organizations, thereby helping them integrate digitally with their clients, partners and employees. Wipro anticipates that the MFTaaS platform can potentially reduce up to 30% in TCO (Total Cost of Ownership) for its clients vis-a-vis traditional deployments, the company said in a statement.

In a separate announcement, Wipro said that it has won a multi-year contract from Thames Water in the United Kingdom. Wipro will develop new IT systems and processes to help Thames Water improve customer experience and drive operational efficiencies. The announcement was after trading hours on Thursday, 5 May 2016.
Index heavyweight and software major Infosys fell 2.43% at Rs 1,181.45.

Tata Motors declined 2.48% at Rs 398.70 after the company revised downward the rate of growth in sales volume for April 2016 from the figures announced previously. The company announced that its total sales rose 8.9% to 39,418 units in April 2016 over April 2015. The company had earlier announced 9.9% growth in total sales in April 2016. The company announced the revised monthly sales volume data after market hours on Tuesday, 3 May 2016.

ITC dropped 2.34% to Rs 317.20 after shutting its cigarette factories from 4 May 2016 until it is in a position to comply with the interim requirements pending hearing in the Karnataka High Court on rules on pictorial warnings. ITC announced that the company had to shut its cigarette factories from 4 May 2016 until it is in a position to comply with the interim requirements pending hearing in the Karnataka High Court after Supreme Court on 4 May 2016 passed an order transferring to the Karnataka High Court all writ petitions pending in various courts challenging the rules prescribing 85% pictorial warnings on packages of tobacco products. The Supreme Court observed that all parties should endeavour to follow the rules. The company had in April resumed production after two weeks suspension due to government's strict packaging norms requiring heavy health warning. The government had ordered that from 1 April 2016, 85% of a cigarette pack's surface had to be covered in health warnings, but cigarette firms halted production saying the policy was not clear. The announcement was made after market hours on Thursday, 5 May 2016.

Bajaj Auto fell 1.96% to Rs 2,435.85 after total sales declined 2% to 3.30 lakh units in April 2016 over April 2015. The company announced the monthly sales volume data during market hours on Monday, 2 May 2016. Bajaj Auto's motorcycles sales rose 2% to 2.91 lakh units in April 2016 over April 2015. Sales of commercial vehicles dropped 24% to 38,211 units in April 2016 over April 2015. Exports declined 36% to 1.03 lakh units in April 2016 over April 2015. Bajaj Auto announces its Q4 March 2016 results on 25 May 2016.

Hero MotoCorp fell 1% to Rs 2,872.30. The company's net profit rose 70.85% to Rs 814.16 crore on 10.57% increase in total income to Rs 7614.61 crore in Q4 March 2016 over Q4 March 2015. The result was announced after trading hours on THursday, May 2016. Hero MotoCorp's earnings before interest, taxation, depreciation and amortization (EBITDA) margin edged higher to 15.65% in Q4 March 2016, from 12.34% in Q4 March 2015. The improved profit margins were the combined result of the highest-ever quarterly sales of 17.21 lakh units and several margin improvement initiatives taken during the period, the company said in a statement. The net profit rose 31.30% to Rs 3132.37 crore on 3.25% increase in total income to Rs 28990.42 crore in the year ended March 2016 over the year ended March 2015. On a consolidated basis, the net profit rose 30.83% to Rs 3093.78 crore on 3.47% increase in total income to Rs 29002.81 crore in the year ended March 2016 over the year ended March 2015. EBITDA margin stood at 15.55% in the year ended March 2016, higher than 12.84% in the year ended March 2015. On 2 May 2016, Hero MotoCorp reported 14.89% increase in total sales to 6.12 lakh units in April 2016 over April 2015.
Maruti Suzuki India rose 0.65% to Rs 3,819.50 after after the company reported 13.3% growth in its total sales at 1.26 lakh units in April 2016 over April 2015. The company announced the monthly sales volume data during market hours on Monday, 2 May 2016. Domestic sales rose 16.2% to 1.17 lakh units in April 2016 over April 2015. Exports declined 13.7% to 9,524 units in April 2016 over April 2015. The company announced the monthly sales volume data during market hours on Monday, 2 May 2016.

Housing finance lender HDFC was top gainer in the Sensex pack last week. The stock gained 7.24% to Rs 1,167.60 after the company announced that it intends to raise Rs 1135 crore through private placement of senior secured redeemable non-convertible debentures. The company made the announcement after trading hours on Wednesday, 4 May 2016. HDFC said that the debentures has issue price of Rs 1 crore each and carry coupon rate of 8.34% per annum with a tenor of 2 years and 10 months. The issue opens and closes on the same day on 6 May 2016. The object of the issue is to augment the long-term resources of the company. The proceeds of the present issue would be utilized for financing/refinancing the housing finance requirements of the company. The redemption date of the issue os 6 March 2019. The gains in the stock was also supported by announcement of strong Q4 result by the company in the recent past. HDFC's net profit rose 40% to Rs 2607.05 crore on 23.7% growth in total income to Rs 9225.72 crore in Q4 March 2016 over Q4 March 2015. The result was announced during market hours on Monday, 2 May 2016. The stock has risen 4.77% to its current ruling price of Rs 1,138.90, from its close of Rs 1,087 on 28 April 2016.

State-run NTPC rose 0.90% to Rs 140.05 after the company announced that it has raised Rs 1000 crore through private placement of secured non-convertible debentures. The announcement was made after trading hours on Thursday, 5 May 2016. NTPC said that debentures carry a coupon of 8.05% per annum with a 10 year door-to-door maturity. The proceeds of the issue will be utilized to finance capital expenditure/refinancing the debt requirement in on-going projects including recoupment of expenditure already incurred.

On the economic front, the outcome of a monthly survey showed that growth in India's manufacturing sector eased last month amid broadly stagnant inflows of new work. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) fell to 50.5 in April 2016 from 52.4 in March 2016. Indian manufacturers saw incoming new orders broadly stagnate in April, following three consecutive months of growth. New export orders expanded at the slowest pace since last October. Input cost inflation accelerated to the fastest since May 2015. Part of the additional cost burden was passed on to clients as selling prices rose further.
Data released by the government after market hours on Monday, 2 May 2016, showed that the core sector registered a strong growth of 6.4% in March 2016 over March 2015. The eight core industries comprising of coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity have nearly 38% weightage in the index of industrial production (IIP). The core sector registered a growth of 2.7% in the year ended 31 March 2016 over the year ended 31 March 2015.

The outcome of a monthly survey showed that growth in India's services sector eased last month due to a slower expansion in new business inflows. The seasonally adjusted Nikkei Services Business Activity Index dropped to 53.7 in April 2016 from 54.3 in March 2016. April data highlighted a general lack of pressure on the capacity of Indian service providers, as unfinished business declined. Services firms' sentiment weakened slightly in April, with the degree of optimism being modest by historical standards.

Meanwhile, Minister of State for finance Jayant Sinha said in a written reply to a question in Lok Sabha on 29 April 2016 that the government is committed to implement General Anti Avoidance Rule (GAAR) in the country from 1 April 2017. He further said that the government will constitute a panel as mandated by the law and also provide for the guidelines on practical aspects relating to implementation of GAAR in due course.

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