The quarter ending September has been full of exciting developments for both the economy as well as corporate India. The BSE Sensex has crossed 20,000 and the markets are eagerly waiting to see the Q2 numbers before taking fresh direction. Here is what analysts are expecting
The second quarter of FY11 has turned out to be one of the best quarters for Indian markets with the Bombay Stock Exchange (BSE) Sensex breaking away from a tight range and reaching new highs. Between 1st July to 30th September, the Sensex rose 15% to 20,069 points.
However, during the quarter, markets were driven mostly by foreign institutional investors (FIIs) and not by domestic buyers. In Q2, FIIs infused almost $12 billion into equity markets, taking their total inflows to $14 billion for the first half that ended 30th September. At the same time, domestic institutional investors turned sellers. During Q2, domestic investor sales were at around Rs23,800 crore or $5 billion.
With all companies set to announce their second quarter profit & loss numbers, here is a sectoral preview.
According to analysts, metals, financials, petrochemicals, engineering and retail sectors would come out with good numbers. Sectors like cement, telecom and real estate are most likely to be underperformers. Fast moving consumer goods (FMCG), capital goods and information technology (IT) sectors are likely to perform in line with the Sensex growth.
Although India Inc is expected to come out with strong sales figures, the net profit growth would not match top-lines due to decline in operating margins. "For 2QFY, while we have estimated net sales of Sensex companies to increase by about 20% year-on-year (y-o-y), net profit is expected to post 13.5% growth. A part of the same would be because of about 54 basis points (bps) dip in operating margins (OPMs). Overall, OPMs are expected to be around 25.6%, while net profit margins (NPMs) would decline to 14.4% for the quarter," said one brokerage in a note.
Here is a sector wise preview of Q2 earnings:
Automobile companies are expected to post a robust 28% to 33% y-o-y top-line growth led by sustained volume momentum across product segments. Despite the strong sales numbers, auto companies are reeling under high raw material cost pressures, which is expected to affect overall OPMs and thus would result in lower net profitability. During the quarter to end-September, the Moneylife Auto Index rose 8% to 958.7 points from 889.21 points as on
IDFC Securities Ltd in a report said, "In case of Maruti Suzuki India Ltd, impact of adverse currency (euro/yen) movement on margins is likely to be mitigated by higher volumes, increased prices as well as commissioning of the gas-based furnace at Manesar."
"Commercial vehicle majors like Tata Motors and Ashok Leyland are likely to post improved operational performance quarter-on-quarter (q-o-q) led by higher volumes and prices hikes affected during the quarter. Led by a robust top-line growth and improved margins, we expect automobile companies within our coverage space to post 16% q-o-q (up 6% y-o-y) growth in earnings," the brokerage added.
There are some factors to watch out for in the auto sector like commodity prices, especially metal prices, which have been a major concern for all companies. Similarly, interest rates, rainfall, higher demand and increased competition are some factors that would affect the auto sector's bottom-line.
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Source: IDFC Securities
According to Reserve Bank of India (RBI) data, in Q2, bank's credit off-take remained muted with an increase of 19.4% y-o-y. During the quarter, banks had raised fixed deposit (FD) rates to balance the disparity between credit and deposit growth. However, deposit growth is still lagging credit growth by at least five percentage points. During the quarter to end-September, the Moneylife Bank Index rose 33% to 1185.7 points from 888.7 points.
In a research note, BRICS Securities Ltd said, "While Q1FY11 was a tough quarter for fee income growth, we expect to see meaningful pickup in the current quarter for banks with sizeable exposure to capital market business, like Kotak Mahindra Bank, Axis Bank and ICICI Bank."
"We expect the cumulative bottom line of private sector banks under our coverage to report a strong growth of approximately 23% y-o-y and that of the public sector banks under our coverage to record a growth of around 27% y-o-y. For the quarter ended 30 September 2010, among the public sector banks under our coverage, we expect Bank of India, Bank of Baroda and IDBI Bank to report relatively better numbers and among the private players, we expect HDFC Bank and Axis Bank to report a strong bottom line growth," said Sharekhan Ltd in a report.
There are some factors to watch out for in the banking space, like impact of increase in lending and deposit rates as well as base rates on net interest margins, formation of non-performing assets (NPAs) and core fee income growth.
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Source: Sharekhan Ltd
In 2QFY11, all-India despatches decelerated further, growing by a meagre 3.7% y-o-y as compared to the 7% y-o-y growth recorded in 1QFY11. Despite the slowdown in demand, cement prices were hiked twice in the southern region in September 2010. Cement manufacturers carried out the price hikes to minimise their losses, as cement prices in the southern region, especially Andhra Pradesh, had fallen close to the cost of production. During the quarter to end-September, the Moneylife Cement Index rose 16% to 715.1 points.
"Revenues of cement companies are expected to decrease by 12.5% in Q2FY11, led by weak volumes as well as lower realisations. EBITDA of our cement universe is likely to fall by 40% y-o-y, led mainly by an 8%-12% y-o-y drop in realisations. We reiterate our 'Underweight' stance on the sector due to oversupply concerns in the domestic market," said IDFC Securities.
Motilal Oswal Securities Ltd, in a research note said, "The Q2FY11 capacity utilisation of about 71% is estimated to be bottom-of-the-cycle utilisation and expected to improve gradually. We estimate the return of pricing power to the industry in the second half of FY12."
At present about 56% of capacity in cement production is controlled by the top five groups against around 48% in the previous down-cycle in FY10. "A higher level of consolidation can provide a positive surprise in pricing discipline," Motilal Oswal added.
In the cement sector, there are some concerns like intervention by the government on the price hike and the quasi-cartel formed by some cement players. On the other hand, pick up in infrastructure spending by the government could be positive for the sector.
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Source: IDFC Securities
(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).
New Delhi: UK-based Cairn Energy Plc will tomorrow seek shareholder nod for the sale of majority stake in its Indian arm to London-listed Vedanta Resources for up to $8.48 billion, a development that would close options for state-owned Oil and Natural Gas Corporation (ONGC) to make a counter offer, reports PTI.
Cairn has called a general meeting of the shareholders in Edinburgh on 7th October, 2010, at 1400 hours (local time), industry sources said.
Once the shareholders approve the deal, ONGC will run out of last opportunity to make a counter offer or exercise its pre-emption right.
Sources said ONGC had so far made no approach to Cairn Energy management.
ONGC could have made a counter-offer or exercised its pre-emption rights in certain properties of Cairn India only before shareholders of Cairn Energy approve of the sale.
Then, upon acceptance of its offer by the management of Cairn Energy, ONGC would have gone to the Securities and Exchange Board of India (SEBI) for stopping Vedanta's open offer for Cairn India shares that is to begin on 11th October.
It had previously missed the market regulator SEBI's deadline for making a rival offer.
Sources said the sale is conditional upon shareholders of Cairn Energy Plc and Vedanta Resources passing a resolution to approve the transaction on or before 30th October and Vedanta Group completing an Indian open offer to minority shareholders of Cairn India.
Also, the deal is conditional upon required government consents.
The sale agreement will lapse if these conditions are not satisfied or waived on or before 15 April 2011.
Sources said SEBI is yet to approve Vedanta's open offer and any shareholder nod that Cairn Energy may secure tomorrow would be conditional to completion of the open offer.
Vedanta Group is buying 40%-51% stake of Cairn India, which owns the nation's largest onland oil field and has also made an open offer to buy another 20% from the company's minority shareholders.
As per SEBI's regulations, a rival offer had to come within 21 days of the open offer being made, i.e. by 7th September but ONGC choose not to make any offer, they said.
ONGC by virtue of its 30% to 40% interest in Cairn India's three producing assets — the giant Rajasthan oil fields, Ravva oil and gas field in KG basin and CB/OS-2 in Gujarat offshore — had claimed pre-emption rights.
Mimicking Australian mining firm BHP Billiton's strategy of diversifying into oil, billionaire Anil Agarwal-run Vedanta is buying Cairn Energy's 40% to 51% stake in Cairn India and has made an open offer for a further 20%.
The market opened firm on positive announcements from various central banks. Investors took the opportunity to book profits after the indices touched their fresh 33-month highs in early trade. Choppy trade led the indices lower in post-noon trade but a decent recovery ensured a closing well above the day's lows.
The Indian market opened strong this morning on positive cues from across the globe. The key barometers touched new 33-month highs - the Sensex scaling 20,670 and the Nifty touching 6,223 - soon after the opening bell. The BSE Consumer Durables (CD), BSE Auto, BSE Public Sector Undertaking (PSU) and BSE Power indexes touched their 52-week highs in the morning session. Profit booking led to a gradual fall with the market touching its intraday low in post noon trade. They staged a decent recovery on bargain hunting by investors, making sure that the market ended well above the day's lows.
The Sensex added 135.37 points (0.66%) to close at 20,543. The index touched a high of 20,670 and a low of 20,447 during the session. The Nifty settled at 6,186, up 40.65 points (0.66%). The benchmark swung between a high-low of 6,223 and 6,148, respectively.
The market breadth was in favour of the gainers today. The Sensex ended with 20 advancing stocks while 10 ended in the red. The Nifty had 33 gainers and 17 declining stocks. The broader indices outperformed the key benchmarks for another day; the BSE Mid-cap index surged 1.10% and the BSE Small-cap index advanced 0.75%.
The top Sensex gainers were Jaiprakash Associates (up 6.69%), Sterlite Industries (up 3.95%), Hindalco Industries (up 3.62%), Reliance Industries (RIL) (up 2.09%) and Jindal Steel (up 1.88%). The laggards on the index were Mahindra & Mahindra (M&M) (down 0.77%), Hindustan Unilever (HUL) (down 0.72%) and State Bank of India (SBI) (down 0.54%).
The sectoral gainers were led by BSE Realty (up 2.75%), BSE Metal (up 2.25%), BSE Oil & Gas (up 1.09%), BSE Capital Goods (CG) (up 0.95%) and BSE Public Sector Undertaking (PSU) (up 0.84%). BSE Fast Moving Consumer Goods (FMCG) was the lone loser in the sectoral space, down 0.35%.
Hiring by India Inc surged by 22% in September this year, driven by improved confidence in the economy, according to a report by job portal Naukri.com.
According to the monthly Naukri Job Speak Index, hiring level rose to 943 in September this year, from 773 in the same period last year.
Markets in Asia ended mostly higher on positive announcements by various central banks. Earlier assertions by the US Federal Reserve of taking new initiatives to spur the world's largest economy also rekindled investors' interest in riskier assets.
The Hang Seng gained 1.07%, KLSE Composite rose 0.31%, Nikkei 225 jumped 1.81%, Straits Times advanced 0.88%, Seoul Composite was up 1.33% and Taiwan Weighted was up 1.02%. On the other hand, the Jakarta Composite closed 0.18% lower, bucking the trend.
Investors looking to park funds in commercial real estate are likely to increasing turn their attention to emerging economies in the Middle East, South East Asia and Asia-Pacific.
"Commercial real estate is completely and perfectly correlated one-to-one to the broader economy. The macro economic climate and the health of the financial system are the two driving forces that dominate real estate value," said Ethan Penner, president of CB Richard Ellis (CBRE) Capital and executive managing director of CBRE Investors, Asia and Asia Pacific.
The US market ended higher on Tuesday on higher-than-expected services industries data and hopes that the Federal Reserve, like the Japanese and Australian central banks, will take new steps to boost the economy. The ISM index rose to 53.2 in September from 51.5 earlier. Investors' confidence was also boosted by the Bank of Japan's move on Monday. The Dow rose 193.45 points (1.80%) to 10,944. The S&P 500 rose 23.72 points (2.09%) to 1,160. The Nasdaq rose 55.31 points (2.36%) to 2,399.
Foreign institutional investors were net buyers of stocks worth Rs671 crore on Tuesday. Domestic institutional investors were net sellers of Rs803 crore in the equities segment on the same day.
Animation and game entertainment and distribution major DQ Entertainment (International) (down 2.05%) has signed a co-production pact with a French company for the animated series of 'Lassie and Friends.'
The agreement with France-based Super Prod and Story Board in association with French broadcaster TF1 has a global pre-sales budget of €7 million, according to a filing with the Bombay Stock Exchange (BSE).
Super Prod will hold the rights of the 52-episode animated series of 'Lassie and Friends' for French-speaking Europe and will exploit the French version of the series worldwide, DQ Entertainment stated.
Realty major Parsvnath Developers (down 0.07%) today said it has raised Rs269.52 crore through private placement of shares with institutional investors and the funds will be utilised for execution of ongoing projects.
The company, which had launched a qualified institutional placement (QIP) of equity shares last week, will issue 1.9 crore equity shares at Rs141.57 apiece, Parsvnath informed the Bombay Stock Exchange (BSE).
The company will utilise the funds raised through the QIP for completion of ongoing projects and not to reduce its debt, which has come down to about Rs1,300 crore at present from a peak of Rs2,200 crore.
Tantia Constructions Ltd (up 2.12%) has informed the Bombay Stock Exchange (BSE) that the company has received a project from South Eastern Railway, Kolkata for construction of a major bridge over the national highway near Bagnan. The project includes girders and a major bridge over the Damodar River including substructure, transportation, erection and launching of super structure, earth work, minor bridges and other miscellaneous works worth Rs30.71 crore.