Stocks
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.

Has $6 bn Rajasthan petro project hit a political roadblock?
Politics seems to have hit a Rs.37,230 crore ($6 billion) 9 mmtpa (million metric tonnes per annum) petrochemical complex in Rajasthan that was estimated to generate some 100,000 direct and indirect jobs, with former chief minister Ashok Gehlot of the Congress accusing his successor, Vasundhara Raje of the BJP, of "unnecessarily" stalling the project.
 
"It seems that the chief minister has some vested interest; that is why she is not keen on setting up the refinery (in Barmer)," Gehlot told IANS in an exclusive interview.
 
"The refinery-cum-petrochemical complex is a big project that would not only give economic benefits to the state but will also provide employment to thousands of youth. By delaying its construction, the state government is crushing the interests of the state," Gehlot added.
 
The complex was to be established by HPCL-Rajasthan Refinery Ltd. (HRRL) - a joint venture company of HPCL and the Rajasthan government.
 
"We had given consultancy work to SBI Caps for the project. However, the present government has asked a private company to review the project. After giving crores of rupees to this company, the state government is trying to come out with a fabricated report to mislead by saying that the previous regime's proposal was not favourable for the state," Gehlot said.
 
Noting that HPCL is a central government enterprise with Navratna status, Gehlot said: Still, the state government is misleading the people by repeatedly saying that the share agreed to by the Congress government will lead to losses since the land, water and oil belong to the state."
 
"The fact is that the state government will fully recover the amount for land and water from the project. The state government will get a one-time return of Rs.200 crore in lieu of the land to be given for the project," he added.
 
Gehlot's government had entered into a Memorandum of Understanding (MoU) with HPCL for establishing the complex in Barmer district at an estimated cost of over RS 37,230 crores in March 2013. A JV agreement was signed in July 2013 between HPCL and the state government.
 
The proposed refinery was to be a subsidiary of HPCL, whose equity share was to be 74 percent, while 26 percent was to be held by the state government.
 
As per the terms and conditions, every year, an interest-free loan of Rs 3,736 crore was to be provided by the state government to the JV for 15 years from the time commercial production commenced at the refinery. This has now become a sticky point, said sources in the know of developments relating to the project.
 
Gehlot also castigated the Raje government on the law and order situation. "Since this government came into power, dacoities, murders and thefts have increased," he said.
 
He also flayed the BJP government on farmers' deaths.
 
"It is unfortunate that farmers are committing suicide every day. In a state like Rajasthan, where farmers' did not take such extreme step even in the worst of times like drought, at least 50 farmers have been compelled to take their own lives."
 
"I do not want to politicise the issue, but I feel there is a complete inaction on the part of the government both at the centre and in the state," Gehlot said.

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