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Indian stock market monthly report - August 2009

October 17, 2009, Saturday, 16:21 GMT | 11:21 EST | 19:51 IST | 22:21 SGT

Market Analysis

The four month rally which ended in June amidst concerns on the budget picked up its momentum post budget with Sensex gaining 8.12% and Nifty gaining 8.05%. The selling pressure from the FIIs to the tune of Rs.1365 crs was fully absorbed by the DIIs. Midcaps and Small caps both followed the benchmark indices gaining 9.74% and 8.11% respectively.




Sector Analysis

Amongst the sectoral indices, Auto Sector outperformed all other indices gaining 25.34% on the back of strong monthly Sales numbers for Q1FY10 for all the auto companies, coupled with strong quarterly results. Realty was the other major gainer, up by 21.88% during the month amidst expectations of revival of demand in the sector. FMCG gained 21.01% in the current month amidst revival of demand and better than expected results of sector majors like ITC, Dabur, Nestle and Marico. IT continued its good run in the markets gaining 20.53% during the month on the back of excellent results of TCS and good performance of Infosys. Other indices which ended on a positive note but underperformed the benchmark indices were Healthcare up by 7.13%, Power up by 4.51%, Bankex up by 3.10% and Oil & Gas up by just 0.96%. Capital goods was the only sector which ended in Red down by 1.57%.



Fund Activity

In the month of July 2009 there was huge selling witnessed by the FIIs on account of the expectations of reforms to be announced in the union budget which were not met. They were net sellers amounting to Rs. 1365 crs. DII’s on the other hand were net buyers of Rs. 5819 crs. Overall the secondary markets witnessed a net inflow of only Rs. 4454 crs on the institutional front.




Currency Fluctuations

The partially convertible rupee closed at 47.83 as against 47.91 per dollar, a gain of 0.15%, as the dollar tumbled versus major units overseas and a sharp rise in local shares raised expectations for more capital inflows. The rupee has appreciated 1.6% in the past two weeks, the third best performance among the 10 most active currencies in Asia outside Japan, as overseas investors bought $789 million (Rs3,819 crs) more Indian shares than they sold in the nine days through 23 July. We believe that the rupee`s movement is mirroring the trend in equity markets, which is driven by economic fundamentals. Inflows of more than $6.4 bn so far in 2009 have helped the rupee recover from record low of Rs52.2, hit in early March. Dealers said dollar demand from oil companies capped the rupee`s rise. Oil is India`s largest import and refiners are the biggest buyers of dollars in the domestic market.


One-month offshore non-deliverable forward contracts, traded in Singapore were quoted at 48.19/29, marginally stronger than the onshore spot rate, indicating a bullish near-term outlook.


The dollar slipped as funds moved out of the safe-haven US currency. The dollar fell broadly against the euro as traders flocked to riskier assets as speculation for solid corporate earnings boosted share prices.




International Markets

Stocks added to an already impressive run as another round of earnings reports gave investors new reasons to be optimistic about the economy.

Asian stocks were poised to score double-digit gains in July as investors keep pouring funds on bets the region`s growth engine will lead the global economy out of recession. Foreign investors are favoring emerging markets and Asia in a big way, with inflows into Asian equity funds excluding Japan totaling $1.6 bn in the week ending on 29th July 2009 - the biggest inflow among emerging market groups. Much of that money is being pulled out of money market funds.

The MSCI index of Asia-Pacific stocks outside Japan rose 1.7% to reach an 11-month high and the highest level since just before the collapse of US investment bank Lehman Brothers. For July, the MSCI benchmark for Asia was up 12%, scoring its fourth double-digit gain in the past five months on China`s economic rebound. This year`s elections in Indonesia and India have also been seen as spurring investor-friendly reforms and haves parked big gains in those markets.

South Korea`s benchmark KOSPI index hit a one-year high and Japan`s Nikkei average rose to a 10-month peak as upbeat corporate earnings reports around the world have been viewed as more evidence that companies are coping well and poised to benefit from any recovery. South Korea offered more evidence of the Asia`s strengthening recovery, lifting the won to a 9-1/2-month high. Industrial production jumped 5.7% in June, more than twice as fast as expected and a sixth straight monthly increase.


The Dow Jones Industrial Average closed at 9172, an increase of 8.58%. The NASDAQ composite was up by 7.82% to 1979 during July 2009.





BSE 500 Review




Rain Commodities Ltd gained 56.13% in August-09 driven by good results and sale of investment. The company has posted net profit of Rain Commodities rose 61.47% to Rs 44.34 crs in the quarter ended June 2009 as against Rs 27.46 crs during the previous quarter ended June 2008. Sales declined 11.99% to Rs263.77 crs in the quarter ended June 2009 as against Rs 299.72 crs during the previous quarter ended June 2008. Rain Commodities Ltd has divested its entire equity holding of 11.5% in Petroleum Coke Industries Company, Kuwait. The Hyderabad-based company has sold 17,250,000 shares (including 75,000 shares held by Rain Commodities (USA) Inc, a wholly owned subsidiary) held in Petroleum Coke Industries Company, Kuwait to AL-Mal Investment Company, Kuwait for a consideration of Rs 76.58 crs. The proceeds from the sale would be utilised for repayment of debt and other operational purposes.

Hexaware Technologies ltd increased 52.67% in the month of August-09 backed by good Quarter results. Hexaware Technologies has reported Rs 39.5 crs profits after tax (PAT), a 139.8% sequential jump, on account of rationalization of its office premises and increase in employee utilisation for the quarter ended June 30, 2009. The company had also improved utilization by 3% to 75% this quarter. Hexaware's sequential revenue marginally rose by 1.8% to Rs 259.1 crs, surpassing the upper-end of the revenue guidance by 60 basis points. As a result of low capital expenditure, the company added another Rs 50 crs of cash on its books this quarter and currently has Rs 380 crs of cash on its books.


Ruchi Soya Industries increased by 52.24% during August-09. Ruchi Soya Industries posted a 20% jump in profit after tax (PAT) for the June quarter on back of import of crude vegetable palm oil that allowed its port-based refineries to improve capacity utilisation. The increased volumes of import of edible oil, higher capacity utilisation of port-based refining facilities, better price trend of our end products and improved refining margins have contributed to the satisfactory performance for the quarter.


Onmobile Global Ltd gained 49.99% in the month of August-09. OnMobile has signed a business agreement with Telefonica which will materially alter the growth trajectory of the company. This deal comes on the heels of a similar deal which OnMobile signed with Vodafone.


Gujarat State Petronet Ltd gained 49.43% in the month of August-09 primarily due to good results. Net profit of Gujarat State Petronet rose 146.60% to Rs 80.49 crs in Q1FY2009 as against Rs 32.64 crs during the previous quarter ended June 2008. Sales rose 76.43% to Rs 210.82 crs in Q1FY2009 as against Rs 119.49 crs during the Q1FY2008.





Country Club (India) ltd was down by 30.43% in the month of August 09 on account of poor Q1FY10 results. Country Club (India) reported net loss of Rs 10.10 crs in the quarter ended March 2009 as against net profit of Rs 13.87 crs during the previous quarter ended March 2008.


Titagarh Wagons declined by 30.20% in the month of August 09. The stock moved up sharply before the rail budget which got corrected post the rail budget then thereafter the Q1FY10 results were also disappointing where PAT declined by 53.55%.

IOL Netcom Ltd was down by 20% in the month of August 09. IOL Netcom reported net loss of Rs 14.05 crs in the year ended March 2009 as against net loss of Rs 24.68 crs during the previous year ended March 2008. Sales rose 77.23% to Rs 37.13 crs in the year ended March 2009 as against Rs 20.95 crs during the previous year ended March 2008.

SREI Infrastructure Finance Ltd declined by 18.22% in the month of August 09.

Gammon Infrastructure was down by 17.98% in the month of August 09. The mishap happened in constructing Delhi metro rail where Gammon Infra was a contractor taken its toll on the share price of the company.




Economic Activity for the month of July 2009


During the month of July RBI published its first quarter review of statement on monetary policy. Key take away were as follows.


- Repo, Reverse Repo, CRR and bank rates have been unchanged.
- RBI retained its real GDP growth outlook of 6.0% for 2009-10 with an upward bias.
- Money supply projected to growth at 18%, up from 17% projected in annual policy statement.
- Keeping in view the global commodity prices and domestic demand supply balance, WPI index is projected around 5% for end March 2010. Aggregate deposits and non food credits are expected to grow at 20% and 19% respectively for year 2009-10.


The foreign exchange market has remained orderly during 2009-10 (up to July 24, 2009) with the rupee exhibiting a twoway movement against major currencies. On the whole, the rupee appreciated by 5.3% against the US dollar and 1.6% against the Japanese yen, whereas it depreciated by 8.9% against the pound sterling and 1.7% against the euro. During 2009-10 so far, the domestic equity markets have been on the rise reflecting the global trend and increased optimism regarding the Indian economy.


The performance of the private non-financial corporate sector deteriorated in the second half of 2008-09, reflecting both demand slowdown and moderation in prices. Profit margins were eroded by deceleration in sales, increased interest outgo, significant drop in non-sales income and losses on foreign currency related transactions.


Early corporate results for Q1 of 2009-10 indicate moderate sales growth over Q4 of 2008-09 with improved profit margins.


The large government market borrowing in 2009-10, as projected in the Interim Budget, called for active liquidity management by the Reserve Bank. Accordingly, the Reserve Bank indicated its intention to purchase government securities under open market operations (OMO) for an indicative amount of Rs.80,000 crs during the first half of 2009. It may be noted that nearly 63% (Rs.1,67,911 crs) of the borrowing programme for the first half of the year has been completed by July 27, 2009. An additional amount of Rs.28,000 crs has been raised through de-sequestering MSS balances. The open market operations undertaken so far have been of the order of Rs.33,439 crs, accounting for about 42% of the notified amount of Rs.80,000 crs. There is, therefore, sufficient headroom available to the Reserve Bank to manage the balance borrowing smoothly.


WPI inflation, on account of food articles, is ruling high and WPI inflation for essential commodities is also in double digits. The divergence between WPI and CPI inflation rates has become more pronounced in the recent period with the WPI inflation turning negative, while the CPI inflation is ruling in the range of 8.6-11.5%.


In the US, real GDP declined at an annual rate of 1% in Q2 of 2009 as compared to decline of 6.4% in first quarter driven mainly by a decline in consumption and exports. The IMF`s July WEO Update has projected real GDP of the US to shrink by 2.6% in 2009, a slight improvement from a contraction of 2.8% projected in the April WEO. The main macroeconomic indicators continued to be adverse in Q2 of 2009 with the unemployment rate increasing to 9.5 % in June 2009 accompanied by a dip in wage growth, industrial production, capacity utilization and consumer sentiment. Retail sales and consumption continued to be weak as households were still engaged in repairing their balance sheets ruptured by the fall in asset prices. The below trend growth is likely to persist for some more time.

The outlook for the euro area is worse than that for the US. Real GDP in the euro area declined by 4.9 % in Q1 of 2009 and unemployment rose to 9.5% in May 2009. Although measures of consumer and business sentiment have improved somewhat, signs of recovery have been less evident than in the US. The July WEO Update has projected real GDP of the euro area to shrink by 4.8% in 2009 and by 0.3% in 2010. Real GDP in Japan contracted by 14.2% in the quarter ended March 2009.


However, subsequent data suggest that output is stabilizing and consumer confidence is improving. According to the July WEO Update of the IMF, the Japanese economy is projected to shrink by 6.0 % in 2009 before recovering by 1.7% in 2010. Japan consumer prices fell a record low at 1.7% in June, adding to the signs that that deflation may hamper a rebound from the nation’s worst post war recession.




Outlook For August 2009


Results for Q1FY10 were better than expected. Though, YoY aggregate PAT of NIFTY stocks declined by 5.9% but QoQ the PAT increased by 14.9%.



But the same has already been factored into the valuation. The trailing NIFTY PE has already reached to 21.05 levels.



If we see the above PE chart of Nifty for last bull run between 2003 - 2008 the trailing PE was never able to go up above 22 mark (red line) except in the last leg where the bubble got farmed and PE reached to 28 times. In the present uncertain environment we do not see price earning on trailing basis to go above 22 mark, as such for next 3 months the upside is capped at around 4800-5000 mark.


The high valued market even carries very high risk of below normal monsoon. As of 29th July the country as a whole had 19% below normal rain fall.



If the monsoon does not pick-up in next 10-15 days the market will take it very negatively. The consumer spending related sectors like FMCG, Auto, Consumer durable and to some extent cement, which had outperformed the overall market in recent past, will be directly impacted.

Even in US the results were better than expected in Jun quarter. The international market has further seen depreciation of dollar against other currency along with increase in price of base metal, oil and equities. This co-relation which continued in post March rally, seems to be getting stretched and we may even see opposite move in coming period.

We feel market should see a good correction during the month of August.




Commodity View

Commodity Market Overview:

We have seen good bull run during last one month in base metals, energies, agro commodities have been moving up significantly and precious metals were seen catching up with gains in other commodities. So what’s happening in commodities? What’s the main reason for all commodities to move up? Doses of liquidity infused by Central Banks seem to be working very well for financial market as whole. We have seen very difficult period during last two year and now sustained Bull Run in commodities and people started talking about “Bubble” well Commodities Research Bureau Index is still way down from the peak of 2008. It would be quite premature to call it bubble but yes the pace of recovery is really something which was not unexpected by traders or investors. In our last issue we have pushed Aluminum and prices for the same have surged by more than 20% in last fifteen days, this actually indicates the pace of recovery is indeed very fast.




Precious Metals:


Seasonal demand is likely to pick ahead of festive season in India, more than retail or investment demand we feel the fundamental weakness of dollar is the main reason for it to move up. Despite of redemption by ETF gold prices have moved up from $902/oz to $965/oz. Dollar index made fresh low of 2009, Can Gold prices touch $1200/oz. That`s the question which is there in everyone`s mind. Yes, It can! If dollar index declines further by 10-15% then yes it can move up. During next fortnight downside looks limited in Gold and might test $1000/oz on upside. The way commodities prices are moving up it seems inflation might edge up, which will support gold prices and Indian imports which have remained sluggish the wedding season may result in improvement in demand which also may support Gold prices.

Silver, shining brighter than gold since the start of the year and continue to outperform Gold, with improvement in industrial production across the globe and stronger base metal prices silver should continue to outperform Gold.



Base Metals:


This is the space where most of the action took place during last fortnight Copper, Zinc, Lead, Nickel and Aluminium. Is industrial production across globe so robust? What`s the actual demand status for most of these metals? Should I go short in them? These are the questions one might have for base metals. It all Chinese buying which is the prime reason for these metals to move up and the reason for them to buy metals is that instead of keeping their money in U.S. treasury, invest in something they consume the most, Metals. Adding to this economic reports across the globe are showing encouraging signs of recovery with rebound in Industrial production and better than expected PMI`s. If one looks Chinese imports of copper since last 3-4 months they are on average up by more than 60-65% as compared to imports of year 2007-2008. Traders are talking about China might not buy more metals, but it`s very difficult to assume that and take short call on that assumption. Yes fundamentally if we see healthy correction of 8-10% then one may enter into long position, but it seems prices are running way ahead of fundamentals. We expect profit taking in base metals complex during next fortnight.


Agro Commodities:


Jim Rogers was questioned during last month in an interview with Economic Times, “What will you tell a confused fund manager who seeks your advice?” He replied “Become a farmer.” Investors are not realizing what kind of benefits they can reap if they are investing in agro commodities. Due to global warming, weather uncertainties are edging up and weather at the time of sowing and harvesting day by day becoming very important factor which can have immediate impact on the prices of agro commodities. Recently the Bull Run in agro commodities have given serious thoughts to investors and in times to come volume in all these agro commodities is likely to pick up. Depleting carry forward stocks in soft commodities, stagnant or drop in production makes them more attractive as compared to other commodities. In India, in last four years prices of most of the spices have doubled, it seems Agro commodities are into secular Bull Run and you just have to decide when you want to go long in them. Weak monsoon kept at agro commodities trader active since last one month; and we feel bull run some of the agro commodities like Pepper, Soybean, Soyaoil, Palmoil might continue for next fortnight also.