Sunday, June 05, 2016

THE WEEK THAT WAS

Market gains on positive economic data


The market edged higher last week after data showing acceleration in growth in India's gross domestic product in Q4 March 2016, a sharp pick up in growth in core sector in April 2016 and fiscal deficit meeting the target for fiscal year 2015-2016 boosted investors' sentiment. A strong rebound for shares during the latter part of the week materialized after media reports said India Meteorological Department (IMD) expects the onset of the monsoon at the Kerala coast in the next 4-5 days. Later, India's weather office India Meteorological Department (IMD) in its second stage forecast on Thursday, 2 June 2016, stuck to its preliminary forecast of above normal rains for the 2016 southwest monsoon season (June to September). Quantitatively, monsoon season rainfall for the country as a whole is likely to be 106% of the long period average (LPA) with a model error of plus/minus 4%. In its first stage forecast issued on 12 April 2016, the IMD had forecast rainfall to be 106% of the LPA with a model error of plus/minus 5%.

The barometer index, the S&P BSE Sensex, rose 189.43 points or 0.71% to settle at 26,843.03. The Nifty 50 index rose 64.15 points or 0.79% to settle at 8,220.80. The BSE Mid-Cap index rose 0.42%. The BSE Small-Cap index rose 0.34%. Both these indices underperformed the Sensex.

Growth in India's gross domestic product accelerated to 7.9% in Q4 March 2016 compared with a revised reading of a growth of 7.2% in Q3 December 2015. For the fiscal year 2015-16, GDP grew 7.6%, which was higher than 7.2% growth recorded in 2014-15. The government released the GDP data after market hours on Tuesday, 31 May 2016. Another data released by the government after market hours on Tuesday, 31 May 2016, showed the output of eight core infrastructure industries carrying 38% of the weight in the Index of Industrial Production (IIP) increased at 18-months high pace of 8.5% in April 2016.

The finance ministry said that as per the provisional accounts for 2015-16, the fiscal deficit in 2015-16 stands at 3.9% of GDP, meeting the target set by the government. This is a significant improvement over the fiscal deficit of 4.1% in 2014-15 and 4.7% in 2013-14. Revenue deficit has also shown significant improvement due to a sharp increase in capital expenditure of the central government. Revenue deficit improved to 2.5% of GDP in 2015-16 from 2.9% in 2014-15. There was also an increase in the Plan Expenditure in 2015-16 despite substantial increase in share of tax devolution to the States.

Meanwhile, the outcome of a monthly survey showed slight expansion in growth in India's manufacturing sector in May 2016. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) edged higher to 50.7 in May from 50.5 in April. The rate of growth in output as well as new orders was well below trend. New export orders fell for the first time in 32 months. Sub-sector data highlighted intermediate goods as the best performing category in May. Investment goods firms, in contrast, saw further declines in new work and production.

Meanwhile, the outcome of monthly survey showed that the rate of growth in India's services sector eased last month as new business inflows expanded at the slowest rate since July 2015. The Nikkei India Services Purchasing Managers' Index (PMI) fell to 51 in May 2016 from 53.7 in April 2016. Output rose in three of the six tracked categories, namely Transport & Storage, Post & Telecommunication and Financial Intermediation. Although some service providers took on additional staff in May 2016, the overall pace of job creation was fractional. Input costs rose again, leading to a further increase in prices charged by service providers. Although service providers remained optimistic that output will expand in the year ahead, the level of confidence was the lowest recorded since February 2016.

Trading for the week began on a positive note. Amid a divergent trend among various index constituents, the two key benchmark indices registered small gains on Monday, 30 May 2016. The Sensex rose 72 points or 0.27% to settle at 26,725.60, its highest closing level since 29 October 2015.

Losses of index heavyweights ITC, Infosys, Reliance Industries outweighed gains for stocks of public sector banks and index heavyweight HDFC with the two key benchmark indices registering small losses on Tuesday, 31 May 2016. The Sensex fell 57.64 points or 0.22% to settle at 26,667.96, its lowest closing level since 27 May 2016.
Amid a divergent trend among various index constituents, the two key benchmark indices registered small gains on Wednesday, 1 June 2016. The Sensex rose 45.97 points or 0.17% to settle at 26,713.93, its highest closing level since 30 May 2016.

Recovery during the latter part of the trading session helped the two key benchmark indices clock modest gains on Thursday, 2 June 2016. The Sensex rose 129.21 points or 0.48% to settle at 26,843.14, its highest closing level since 28 October 2015.

A divergent trend was witnessed between the two key benchmark indices with the barometer index, the S&P BSE Sensex, registering small losses and the Nifty 50 index registering minuscule gains on Friday, 3 June 2016. The Sensex lost 0.11 points to settle at 26,843.03. The Sensex settled below the psychologically important 27,000 level. It had briefly surpassed that level in early trade.

Tata Motors was the top Sensex gainer last week. The stock rose 12.49% at Rs 453.90 after consolidated net profit jumped 201.6% to Rs 5177.06 crore on 18.97% growth in total income to Rs 80933.04 crore in Q4 March 2016 over Q4 March 2015. The result was announced after market hours on Monday, 30 May 2016. Tata Motors said that the revenue growth in Q4 March 2016 reflects strong sales in all the regions for Jaguar Land Rover business namely in UK, Europe, North America, China and other overseas markets. The revenue also rose on account of continued robust volume growth in medium & heavy commercial vehicles (M&HCV) segment and start of volume growth in the light commercial vehicles (LCV) segment in standalone business.

Tata Motors said that consolidated profit before tax (before exceptional item) jumped 103.17% to Rs 5957 crore in Q4 March 2016 over Q4 March 2015 due to stronger operating performance in both standalone as well as Jaguar Land Rover business and lower net finance expenses partly offset by higher depreciation and amortization expenses, adverse revaluation of Euro payables and one time reserves and charges of Rs 1580 crore (£166 million) for the industry-wide recall in the United States of potentially faulty airbags supplied by Takata, doubtful debts and previously capitalized investment in the Jaguar Land Rover business.

Further, exceptional items for Q4 March 2016 includes further insurance and other recoveries of Rs 555 crore on account of the vehicles damaged at Tianjin Port explosion in Jaguar Land Rover business.

Meanwhile, Tata Motors' total commercial and passenger vehicles sales rose 1% to 40,071 units in May 2016 over May 2015. Domestic sales of Tata commercial and passenger vehicles rose 2% to 35,643 units in May 2016 over May 2015. Exports declined 5% to 4,428 units in May 2016 over May 2015. The company announced the monthly sales volume data after market hours on Wednesday, 1 June 2016.

Mahindra & Mahindra (M&M) rose 1.37% to Rs 1,353.45. M&M after market hours on Thursday, 2 June 2016, announced the launch of new electric sedan eVerito. The eVerito would be available in key cities like New Delhi, Mumbai, Bangalore, Pune, Kolkata, Chandigarh, Hyderabad, Jaipur and Nagpur with immediate effect. It will be priced at Rs 9.50 lakh (ex showroom Delhi, for D2 variant, post state subsidy and FAME incentive). The direct drive single speed transmission eVerito can be charged at home. It can be charged in 1 hour and 45 minutes through fast charging technology. On a full charge, the Mahindra eVerito can travel for up to 110 kms (based on vehicle loading) and can achieve a top speed of 86 kmph. Its running cost is Rs 1.15/km assuming cost of electricity at Rs 7 per unit. The eVerito also features Boost Mode and Telematics which include real time and immediate assistance wherever the vehicle may be.

Maruti Suzuki India (MSIL) rose 1.90% to Rs 4220.10. The company on Thursday, 2 June 2016, announced that it has advanced the regular bi-annual maintenance closure of its plants, earlier scheduled from 27 June to 2 July 2016 to 6 June to 11 June 2016. This will enable the closure period to be utilized for arranging supply of components, both from Subros as well as from other sources, and result in higher production volumes after the closure, MSIL said. Manufacture of cars, to the extent of component availability, is continuing at the Gurgaon plant from the second half of 1 June 2016, MSIL said. The announcement was made at the fag end of market hours on Thursday, 2 June 2016.

Hero MotoCorp (HMCL) rose 4.78% to Rs 3,146.80 after the company announced monthly sales volume data. HMCL's total two-wheelers sales rose 2.32% to 5.83 lakh units in May 2016 over May 2015. Market demand was expectedly subdued in May 2016, due to the heavy retail offlake that happened in April on account of the marriage season and regional festivals in different parts of the country during that month, the company said in a statement. A good monsoon after two consecutive years of sub-normal rains could lead to a change in sentiments in the rural markets, which may lead to a positive turn-around in the industry in the second half of this fiscal, HMCL said.

In the month of May, HMCL forayed into the world of motorcycle rally racing, through a strategic alliance with Speedbrain GmbH, the German off-road racing specialist. The newly formed 'Hero MotoSports Team Rally' made its debut at the Merzouga Rally, a Dakar series race that recently concluded in Morocco.

Bajaj Auto rose 2.63% to Rs 2,635. Bajaj Auto's total sales rose 1% to 3.47 lakh units in May 2016 over May 2015. Motorcycles sales rose 2% to 3.07 lakh units in May 2016 over May 2015. Sales of commercial vehicles declined 7% to 40,311 units in May 2016 over May 2015. Exports fell 10% to 1.43 lakh units in May 2016 over May 2015. The company announced the monthly sales volume data before market hours on Thursday, 2 June 2016.

Shares of state-run coal mining giant Coal India rose 9.81% at Rs 308.95. The company announced that it has achieved 95% of targeted production at 42.58 million tonnes in May 2016. Coal India and its subsidiaries on provisional basis achieved 89% of targeted offtake at 45.53 million tonnes in May 2016. The announcement was made after market hours on Wednesday, 1 June 2016.

Axis Bank rose 5.79% at Rs 542.80 after the private sector bank said it has signed tripartite share subscription agreement and shareholders agreement with A.Treds and mjunction services (Mjunction). A.Treds is a subsidiary company of Axis Bank. Mjunction is a joint venture between Tata Steel and Steel Authority of India. As per the agreement, Axis Bank has been allotted 1.65 crore shares of A.Treds for Rs 16.50 crore and Mjunction was allotted 82.50 lakh shares of A.Treds for Rs 8.25 crore. Axis Bank now holds 67% stake and Mjunction holds 33% stake in A.Treds.

A.Treds is licensed by the Reserve Bank of India to engage in the business of trade receivables discounting systems (TReDS). Mjunction is the largest B2B e-commerce company in India. It is also the largest e-marketplace for steel in the world.

Separately, Axis Bank announced after market hours on Wednesday, 1 June 2016, that it has raised $500 million as senior fixed rate green bonds under the MTN programme. The notes have been priced at 160 basis points over the 5-year US Treasury Note, at a price of 99.479% to yield 2.988%. The notes will be denominated in US dollars and will bear fixed interest of 2.875% per annum, with interest payable semi-annually in arrears. The notes will be listed on the Singapore Stock Exchange and the London Stock Exchange.

State Bank of India rose 0.49% to Rs 196.50. The bank's Chairman Arundhati Bhattacharya said in a post-result conference call held on Friday, 27 May 2016, that bank proposes to contain fresh slippages ratio within 2.7% of advances in the year ending 31 March 2017 (FY 2017). The SBI stock surged 6.42% to settle at Rs 195.55 during the previous trading session on Friday, 27 May 2016, shrugging off weak financial performance for Q4 March 2016. SBI has identified about Rs 31000 crore of loans as under special watchlist for FY 2017, which is just 2.1% of overall loan book. Of these watch list accounts, about 70% of loans have more chances of slipping to NPA category. About Rs 11655 crore of watchlist accounts come from restructured advance book, while the sectors contributing to the watch list accounts are power (Rs 4748 crore), iron and steel (Rs 4299 crore), engineering (Rs 3574 crore), oil and gas (Rs 3396 crore), construction (Rs 2608 crore), chemicals (Rs 2326 crore) etc. SBI aims to achieve credit growth of 12-14% in the current financial year, to be driven by retail credit and good quality corporate book.

SBI's net profit fell 66.23% to Rs 1263.81 crore on 10.10% increase in total income to Rs 53526.97 crore in Q4 March 2016 over Q4 March 2015. The result hit the market during trading hours on Friday, 27 May 2016.

The NTPC stock shrugged off weak financial performance for Q4 March 2016. The stock rose 5.58% at Rs 147.70. The company's net profit fell 7.73% to Rs 2716.41 crore on 6.19% decline in net total income from operations to Rs 18112.62 crore in Q4 March 2016 over Q4 March 2015. The result hit the market at the fag end of the trading session.

NTPC said that the group's installed capacity increased to 46,653 megawatts (MW) as on 31 March 2016 from 44,398 MW as on 31 March 2015. Its consolidated commercial capacity increased to 45,103 MW as on 31 March 2016 from 43,143 MW as on 31 March 2015. The plant load factor (PLF) of coal-based generation units was reported at 81.30% in Q4 March 2016, lower than 82.68% in Q4 March 2015. The PLF of gas based generation units was reported at 17.83% in the quarter ended 31 March 2016, which was lower than 26.68% in the quarter ended 31 March 2015.

The company's plant availability factor (PAF) for coal-based units was reported at 95.24% in the quarter ended 31 March 2016, lower than 97.18% in the quarter ended 31 March 2015. PAF for gas-based units was reported at 98.20% in the quarter ended 31 March 2016, higher than 96.46% in the quarter ended 31 March 2015.

Tata Steel gained 2.93% to Rs 338.65 after Tata Steel UK announced the completion of the sale of its Long Products Europe business to Greybull Capital LLP. The announcement was made after market hours on Tuesday, 31 May 2016. Tata Steel said that during the last twelve months, the Long Products Europe business has implemented a transformation plan including a portfolio restructuring of assets, underpinned by committed support from employees and their trade unions. This has focused the business on higher-value markets supported by a more competitive cost base. The Long Products Europe business, which in the UK includes the Scunthorpe steelworks, two mills in Teesside, an engineering workshop in Workington, a design consultancy in York, and associated distribution facilities, as well as a rail mill in northern France, will trade under the name of British Steel. All together the business employs 4,800 people – 4,400 in the UK and 400 in France. The sale follows an accelerated process of negotiations between Tata Steel UK and Greybull Capital. Bimlendra Jha, Executive Chairman of the Long Products Europe business and CEO of Tata Steel UK said that Tata Steel hopes that under Greybull ownership, the business will continue the momentum of the improvement program that has been initiated in the last 12 months.

Sun Pharmaceutical Industries was the top Sensex loser last week. The stock lost 10.57% to Rs 738.25. The company's consolidated net profit rose 92.71% to Rs 1713.69 crore on 16.82% growth in total income to Rs 7599.21 crore in Q4 March 2016 over Q4 March 2015. Sun Pharma's Managing Director Dilip Shanghvi said that FY 2016 has been a year of consolidation for Sun Pharma. While the company has accrued targeted synergies from the Ranbaxy acquistion, it has also made commensurate investments in building the specialty business in the US, Shanghvi said. These strategic investments will help Sun Pharma drive the sustainable growth of its business, he added. Sun Pharma's board of directors scheduled a meeting on 23 June 2016 to evaluate a proposal for buyback of equity shares of the company. The company announced Q4 March 2016 results after market hours on Monday, 30 May 2016.

Bharat Heavy Electricals lost 8% to Rs 1,17.95. The company's net profit fell 59.52% to Rs 359.58 crore on 18.36% decline in total income to Rs 10418.64 crore in Q4 March 2016 over Q4 March 2015. The company's order backlog stood at about Rs 1.10 lakh crore as on 31 March 2016. The company removed orders amounting Rs 3783 crore from the order book in Q4 March 2016. It removed orders amounting Rs 7429 crore from the order book in the year ended 31 March 2016, which are not likely to commence. As part of the semi-annual reconstitution of S&P BSE Indices, the Bombay Stock Exchange (BSE) in a circular dated 20 May 2016, announced that Power Grid Corporation of India (PGCIL) will replace Bhel from the 30-share Sensex with effect from 20 June 2016. The result was announced after trading hours on Friday, 27 May 2016.

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