Regulations
Maharashtra bans Maggi

Food and Civil Suplies Minister Girish Bapat announced the ban after reports of six Maggi samples were received from a Pune testing lab

 

The Maharashtra government late on Friday banned Nestle's Maggi noodles in the state.
 
Food and Civil Suplies Minister Girish Bapat announced the ban after reports of six Maggi samples were received from a Pune testing lab.
 
According to these reports, the lead content in the samples was found to be far in excess of 2.5 parts per million (ppm).
 
The lab report found the lead content to be 4.66 ppm, 2.59 ppm and 2.55 ppm.
 
The minister has directed shopkeepers to immediately return unsold stocks of Maggi noodles and barred them from sales with liability of penal action.
 
The order comes hours after the FDA commissioner announced that Maggi noodles were found safe with nine samples testing negative.

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Nifty, Sensex, Bank Nifty weak – Weekly closing report

Nifty continues to remain weak. A close above 8,200 is needed for the downmove to end temporarily

 

The S&P BSE Sensex closed the week that ended on 5th June at 26,768 (down 1,060 points or 3.81%), while the NSE’s CNX Nifty closed at 8,115 (down 319 points or 3.78%). We had mentioned that Nifty may struggle to head higher and for it to keep rallying, it has to stay above the 8,400 level. Although the week began with the index closing above this level, it could not sustain and from Tuesday, it gave up gains.
 
On Monday, ahead of the Reserve Bank of India (RBI) second bi-monthly monetary policy review, the 50-stock benchmark witnessed a highly volatile session. Nifty closed at 8,433 (down 0.25 points). The seasonally adjusted HSBC India Purchasing Managers' Index (PMI) hit a four-month high of 52.6 in May 2015, from 51.3 in April 2015, Markit Economics said. Jet fuel price was hiked by a steep 7.5% and rates of non-subsidised cooking gas (LPG) by Rs10.50 per cylinder. Price of aviation turbine fuel (ATF) in Delhi was raised by Rs3,744.08 per kilolitre (kl), or 7.54%, to Rs53,353.92.
 
On Tuesday, Nifty booked its highest loss since 12 May 2015. Nifty closed at 8,236 (down 197 points or 2.34%). The much awaited RBI monetary policy was in line with the anticipation. RBI cut its benchmark lending rate viz. the repo rate by 25 basis points to 7.25%. The market sentiment was affected by the Met Department downgrading this year's monsoon forecast to 88% of the long-term average from April forecast of 93% of the long-term average. Global news continued to be weak. German unemployment fell in May to the lowest level in 24 years as the recovery in Europe's biggest economy continues, data showed.
 
Next day, Nifty closed at 8,135 (down 101 points or 1.23%). India's services sector fell back into contraction in May 2015, after experiencing growth for six successive months, the outcome of a survey from Markit Economics showed. The seasonally adjusted HSBC India Services Business Activity Index declined to 49.6 in May 2015, from 52.4 in April 2015. Market was moved lower by negative news like Nestle product, Maggi (noodles), which was put to test for containing lead levels exceeding the prescribed limit and for the use of the taste-enhancer monosodium glutamate without proper declaration.
 
Maharashtra government has decided to ban the sale of loose cigarettes and it has also banned chewing tobacco in public places.
 
On Thursday, the 50-stock index closed at 8,131 (down 4 points or 0.05%). Global food prices in May fell to their lowest since September 2009 said United Nations' food agency. The Food and Agriculture Organization's (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 166.8 points in May, down 2.4 points or 1.4% from April, and down 46 points or 22.4% from a year earlier.
 
On Friday, the series of minor losses continued. Although the 50-stock Nifty managed touching higher levels, it closed marginally on the lower side. Nifty closed at 8,115 (down 15 points or 0.20%). The India Meteorological Department (IMD) announced that the southwest monsoon has set in over Kerala 5 June 2015, four days later than the normal onset date of 1 June.
 
Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors for this week were:
 

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No Achche Din for Large-and mega-caps in March quarter
Of the 398 large-and mage-cap companies, 119 (or 30%) reported a year-on-year decline in sales and 185 (or 46%) reported a fall in net profit for the March 2015 quarter
 
As many as 398 out of 401 large-and mega-cap companies (market-cap above Rs2,000 crore), on Moneylife’s list of 1,294 stocks, have declared their March 2015 quarter results. Of this, just 206 reported a year-on-year growth in net profit. The consolidated net profit of the 398 companies declined by 2% to Rs1.15 lakh crore in March 2015 from Rs1.17 lakh crore same period a year ago.
 
Over the past 12 months ended 4 June 2015, aggregate market-cap of the large-and mega-cap companies grew by 12%. Unfortunately, the corporate earnings have not supported this price growth. Not surprisingly, the aggregate valuations defined by price-to-earnings increased by 14% to 23.43 as on 4 June 2015 from 20.49, a year ago.
 
What is worrying is the sharp slowdown in revenues. Total sales of the large-and mega-caps declined by 8% to Rs11.24 lakh crore in March 2015 from Rs12.21 lakh crore same period last year. Valuations in terms of market-cap to sales (MC/Sales) of the 398 companies put together, increased to 2.02 on 4 June 2015 from 1.77 last year. 
 
Companies such as Infosys, HCL Technologies, Maruti Suzuki, Bharti Infratel, Lupin and Asian Paints have reported a 25% or more increase in valuation by the metric MC/Sales. Out of the 275 companies that have grown their market-cap over the past year, 248 companies are commanding a higher valuation.
 
Over the past four quarters, large-and mega-cap stocks reported an average sales growth of just 2%. Operating profit grew by an average of 5%, while net profit grew by an average of just 4%. It would be interesting to see if investors continue to pay a higher price for very mediocre financial performance.
 
While revenue has declined, profitability of the 398 companies was marginally higher compared to last year. Operating profit margin was 17% in March 2015 compared to 16% in March 2014. Net profit margin too, increased marginally to 10.25% in March 2015 from 9.58% in March 2014. 
 
Just 171 companies (or 43%) reported a y-o-y sales growth of 10% or more in the March 2015 quarter. Around 216 companies have consistently reported a sales growth in each of the past four quarters. Just 81 companies reported a steady sales growth of 10% or more in each quarter of the past year. Some of the big names on this list include TCS, Bharti Airtel, Symphony, Page Industries, Maruti Suzuki, Idea Cellular and Eicher Motors. 
 

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COMMENTS

Chandragupta Acharya

2 years ago

Economic theory suggests that corporate profitability rises during periods of high inflation, as revenues rise faster than costs. The opposite happens during periods of falling prices, as costs are more “sticky” and fixed costs cannot be reduced in the short term. Probably this is what we are seeing now, and it is not necessarily a bad thing. The deflationary benefits will come up with a lag in two areas – lower product prices and higher savings rate.

Suketu Shah

2 years ago

Very good time to buy stocks having solid fundamentals now.

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