FMCG Stocks Shine in Lacklustre Weekly Performance

Due to the quarterly results of many companies as well as the host of key economic data announced in the last two weeks, Indian indices remained flat. Sensex gained 0.04% while Nifty gained 0.14%. The corporate earning so far are also not so encouraging which is reflected in the Indian markets.

The week also WPI numbers reported. The data came in line with the market expectations to 7.81%. Earlier in the last week, CPI data showed that the consumer level inflation has eased while IIP data showed marginal growth in the industrial production which was mainly due to the low base effect. The rate cut expectation from RBI seems to be faded as the market did not show a big negative reaction after WPI data. The RBI has further reiterated that the priority remains to tame the inflation. We at Dalal Street Investment Journal expect that RBI will maintain ‘Status Quo’ on the interest rates again on 30^th October 2012.

The global markets during the week have shown good gains with European indices showing significantly positive sentiment while Asian Markets too showing handsome gains. US markets also gained on the back of the positive economic data.

In China the GDP growth for the September quarter was announced. The China GDP growth at 7.4% confirmed the slowdown in the country. It also showed that the Chinese economy has slowed at higher pace than the world has anticipated. At 7.4% Chinese economy has expanded at the slowest pace from 2009. The ray of hope however was seen in the September month numbers as exports grew by 9.9% and Industrial production beat the forecast narrowly. Now markets are expecting that the worst may be over in China and the economy will again be on the high growth trajectory. Chinese inflation for September also eased indicating that going ahead, Peoples Bank of China may ease its monetary policy.

In USA, markets were driven by economic data as well as corporate earning reports. Economic data showed that the retail spending has increased in USA. The US housing data showed that US residential construction has reached at its highest level in four years giving hopes that the recovery is on the way. Corporate earnings reports of Google, Mattel, Coca-Cola, Johnson & Johnson, etc also impacted the markets. The week also saw shock exit of Indian origin CEO of Citigroup, Vikram Pandit.

The European markets during the week remained volatile on the back of the Spain worries as well as the ongoing EU summit. Spain has been declining any urgent help from the EU and has reiterated the same during the week. It also said that it will wait until the ECB has worked completely its bond buying program.

The much hyped EU summit ended today with no clear decision. The summit however agreed on having a single banking regulator for all EU countries. The summit however failed to give any positive conclusion to the market and the key decisions will now be taken in the November Meet.

On the commodity front, Rupee depreciated against all major currencies. Against dollar, Rupee dropped Rs 1.02 while against Euro it depreciated by Rs 2.01. Globally other commodity prices have also shown some softening with crude oil remaining nearly flat.

In the domestic equity markets, FMCG index saw a jump of 2.65% during the week. The positive sentiment was due to the results of ITC. CD stocks have also shown a surge of 1.9% on the back of forthcoming festive season. Bankex saw 0.8% jump and Teck stocks remained nearly flat. Metal, Realty and Oil and Gas indices declined by over 1%.

On Monday India’s most valued company, RIL reported its September quarter results. Its quarterly net profit was down 5.7% to Rs 5367 crore in the quarter. Gross refining margins (GRMs) on YoY basis were lower at USD 9.5 per barrel against USD 10.1 a year ago, on sequential basis however it was up 25%. The results however meet the street expectations due to the higher treasury income.

After the Infosys’ results last week, TCS is also expected to come with its earning later today. The market is expecting 3-4% growth in the earnings on sequential basis. Earlier in the week on Thursday HCL exceeded the analyst’s expectations with 78% rise in its net profit. Analysts expected fall in the EBITDA margins however company reported improved margins.

FMCG and Tobacco major ITC also reported its September quarter earnings on Friday. This Sensex participant achieved 22% jump in the net profit. Margins remained intact as it raised the tobacco prices. Market expects that the company may be suffering on the volume front as the Indian anti-tobacco law is becoming strict.

The telecom stocks during the week remained volatile as the Telecom Commission on Wednesday recommended to give up the entire 900 MHz band of spectrum when the licenses of the telecom companies come for renewal in 2014. Companies like Idea, Bharti Airtel may have to compete with the new companies in a fresh round of auction.

Shares of Vijay Mallya led companies shown mixed performance during the week. Untied Spirits gained about 3% in the week while United Breweries declined 2%. Investment bank UBS has downgraded the United Breweries to ‘Sell’ with price target of Rs 625. The stock has been gaining in last few days on the news that the British company Diegao PLC has confirmed to buy 20% stake in the company. Shares of Kingfisher Airlines after remaining nearly flat during the week plunged today by 4.5% as the airline nears the deadline tomorrow when it has to clear to the DGCA that why its license should not be cancelled.

In the Pharma space, Lupin received USFDA approval for another drug. Strides Arcolab received two approvals for anticancer drugs. It also came with its earnings today and has reported 13% rise in net profit.

Ahead in the next week more corporate results will direct the Indian equity market. The key event that will also be watched is the expiry of the October F&O series which is currently up about 0.5%. Ahead in the next week we expect the market to remain volatile.