Both frontline indices opened on a firm note on Monday by recording new intra-day lifetime highs in early trades. But traders turned cautious later in the day and exited part of their positions ahead of the results announcements, which led to a decline and the indices closed lower.
Selling pressure continued on Tuesday as both indices lost nearly 1.5 per cent each. Reliance Industries announced its quarterly numbers after market hours on Tuesday and Infosys came out with its results on Wednesday, which was a holiday for the markets. Both results were lower than market expectations.
The sharp decline in Infosys ADR prices in the US markets on Wednesday set the mood for Thursday. The stock declined close to 5 per cent as disappointed traders dumped it. TCS results, which were announced later on Thursday, were in line with expectations and helped prevent further decline in indices.
Friday morning saw a recovery as Infosys recovered from the pervious day's losses. ONGC rallied more than 2 per cent helping the indices considerably. However, a late sell off saw the indices giving up all their gains and closing marginally lower.
The Sensex lost 266 points or 2.76 per cent during the week and the Nifty declined by 67 points or 2.3 per cent over the week.
Mid-caps continued their out performance over the larger stocks from last week and the mid-cap index closed steady for the week. The index gained on Monday before correcting in the next two sessions. Friday saw a recovery and the index closed with gains of around one-fifth of a per cent. The CNX Mid-Cap 100 index gained 9 points or 0.2 per cent during the week.
Domestic economic and regulatory action
- SEBI has uncovered yet another IPO allotment rigging scam, this time in the IDFC IPO completed last year. The modus operandi was the same as in the case of the Yes Bank IPO, by opening a large number of demat accounts.
The size of the scam is considerably larger than in the case of Yes Bank as the IDFC issue was much larger in size. A group of three individuals and a private company managed to corner more than 8 per cent of the total number of shares reserved for the retail category. The number of demat accounts opened by this group is also considerably higher at nearly 44,000.
As in the case of the Yes Bank scam, Karvy Stock Broking is the depository participant through which these accounts were opened. SEBI has ordered a detailed probe into the activities of Karvy. The regulator would also inspect three merchant bankers, DSP Merrill Lynch, Kotak Mahindra and SBI Caps.
Bank accounts were opened with HDFC Bank, Indian Overseas Bank and ING Vysya. SEBI has requested the RBI to examine the role of these banks along with the earlier names Vijaya Bank and Bharat Overseas Bank.
SEBI now says rigging may have happened in many other recent issues. It is investigating most of the recent issues including such high profile ones like Suzlon Energy, Provogue, Shoppers Stop and Gokuldas Exports.
- Industrial growth for November 2005 declined to 6.9 per cent as compared to 7.7 per cent during the same month of previous year, mostly on account of a sharp decline in the infrastructure sector growth. Manufacturing growth declined by 50 basis points to 8.1 per cent as compared to the same month of 2004.
- Wholesale price inflation for the week ended 31 December remained steady at 4.4 per cent as compared to the previous week.
- Results of Reliance Industries for the December quarter was below expectations, mainly because of lower refining margins and a planned shutdown. Operating profits for the quarter was at Rs2,974 crore as compared to Rs3,290 crore during the third quarter of previous year despite an increase in net sales from Rs17,768 crore to Rs18,168 crore.
Refining margins of Reliance are among the highest in the world because of the economies of scale and the ability to process cheaper grades of crude oil. Margins for the latest quarter declined by around 70 cents per barrel as compared to the third quarter of previous year. Refining throughput also declined during the quarter because of a planned maintenance shutdown.
The company managed to improve its margins in the petrochemicals business as it had raised product prices during the quarter. Petrochemical volumes were lower, again because of plant shutdowns.
Going forward, bottom line growth would depend on volume expansion as margins are already at high levels. Crude prices are expected to remain at these levels which should prevent further erosion in refining margins. Petrochemical prices are close to their peak according to most analysts and further margin expansion in this segment may not be easy.
- For the last few years, HDFC Bank has lagged its main rival ICICI Bank in growing the retail business portfolio. However, the results declared by HDFC Bank for the last couple of quarters show that it can match ICICI's retail growth rates.
Retail assets of HDFC Bank have expanded nearly 75 per cent during the latest quarter ended December as compared to the previous year quarter, taking the share of retail assets in total assets to 54 per cent.
Impressive growth in retail loans has helped the bank to grow net interest income by more than 51 per cent as compared to the prior year quarter. Net interest income growth as compared to the second quarter of the current year is over 15 per cent.
Other income has grown by nearly 48 per cent during the quarter as compared to the previous year quarter and nearly 14 per cent as compared to the second quarter.
Operating profits of the bank for the quarter increased 43 per cent as compared to the previous year quarter and nearly 10 per cent when compared to the September quarter.
Higher operating cost expansion during the quarter limited net profit expansion to 31 per cent as compared to the third quarter of previous year. Net profits were higher by more than 12 per cent as compared to the September quarter.
Interest costs have already started going up and the pressure would increase in the coming quarters. The bank is expected to increase lending rates for commercial borrowers this month by at least 25 basis points, which should protect margins. More aggression in the retail segment would help sustain bottom line growth in the coming quarters.
US markets, global economy and oil
- US markets opened strong for the week as the Dow crossed the 11,000 mark on Monday after a gap more than four years. Steady trend in crude prices and a stable economic outlook for the current year helped the US indices early in the week. Technology stocks maintained their strength from last week on expectations of continued profit growth in future.
All major indices saw a decline on Thursday as brokerages downgraded the earnings outlook for some of the leading stocks. Concerns over the Iranian nuclear issue also induced profit booking by traders.
- The European Commission continues to be optimistic about economic growth in the Euro area and has raised the growth forecast for the June quarter by 10 basis points to 0.7 per cent. However, the president of the European Central Bank said risks of higher inflation and slower economic growth remain. The ECB is widely expected to raise interest rates 2 times by 25 basis points each before June this year. The Current rate is at 2.25 per cent per annum.
- Crude oil remained within a range during the first few days of the week but gained on worries about supply disruptions from Iran. After crossing $65 per barrel in early trades on Thursday, February futures on the NYMEX dropped back below $64.
*Disclaimer: The author may have positions in the stocks mentioned above at the time of writing this article. This analysis/report is only for the purpose of information and is not an investment advice. Readers are advised to consult a certified financial advisor before taking any investment decisions. While efforts have been made to ensure the accuracy of the information provided in the content the author or publisher shall not be held responsible for any loss caused to any person whatsoever.