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The week gone by was one of the worst for global stock markets this year as indices across the board ended deep in the red. This was a combined effect of the Middle East crisis as well as the earthquake/tsunami which hit Japan Friday. Not surprisingly, Japan was amongst the biggest losers of the week, down 4.1%. The strongest performing market of the week was China down 0.2%. Amongst other Asian countries, Singapore closed the week down 0.6% followed closely by Hong Kong down 0.7%. Indian stock market indices also saw considerable losses with the BSE-Sensex down by 1.7% for the week.

In Europe, Germany and U.K. were both down by 2.7% while France closed the week down 2.3%. In the Americas, the U.S. was down by 1% while Brazil was down by 2%.

Source: Yahoo Finance

Moving on to the performance of sectoral indices in India, all stocks barring realty and oil & gas closed in the red. The BSE-Realty index was the biggest gainer for the week, up 1.3% while the BSE-Oil & Gas index was up by 0.7%. Index of Industrial Production numbers (IIP) were also declared during the week. For the month of January, IIP was up by a dismal 3.7%. This was reflected in the BSE-Capital Goods index which was the worst performer of the week, down 3%. BSE-Metals index and BSE-Banking index were also among the worst performers of the week, down 2.9% and 2%, respectively.

Source: BSE

Moving on to key corporate/economic developments, car sales numbers for the month of February were declared last week. As a result of advanced purchases by customers in anticipation of a hike in excise duty in the national budget, car sales hit a monthly high of 189,000 units. This was a growth of 23% YoY for the month. Sales growth was also supported by rising disposable income with the middle class, easy availability of loans and a pickup in new product launches. It may be noted that the market was expecting a 2% hike in excise duty in the budget. However, the Finance Minister left the excise duty unchanged at 10-22% for different segments of cars.

India's biggest auto manufacturer Maruti Suzuki increased its sales by 19.8% YoY for the month while sales for Hyundai grew by 5.3% YoY. Tata Motors (NYSE:TTM) saw its sales for February grow by 14% YoY. Two wheeler sales, on the other hand, grew by 22% YoY. This too was a record at 1 m units. The growth was primarily led by Hero Honda which posted a sales growth of 24% YoY. Sales of trucks and buses grew by 11% YoY to 64,057 units. This was driven by Tata Motors, Ashok Leyland and Eicher Motors. However, going forward, the Society of Indian Automobile manufacturers (SIAM) has cautioned that growth for the next financial year could moderate to 14-16% as a result of high interest rates and commodity prices. Moreover, the base rate has been growing. As a result of the base effect, the growth in automobile sales going forward would not be as strong as what we have seen in the previous quarters.

One of the biggest losers of the week is Voltas. Speaking on concerns in the Middle East, the company's spokesperson has indicated that Voltas' current order book would take care of the company's sales for FY12. So now whatever orders the company takes would be for FY13. As of the 31st of December, Voltas had an order book of Rs 47 billion. Of this Rs 31 billion was from the Middle East, while the rest was from India.

Voltas is now exploring new geographies and plans to expand its operations in South East Asia. This is because the company was facing margin pressure in the Middle East due to competitive pressure. Owing to the Middle East crisis, companies which are operating in Dubai are willing to cut prices to the extent their fixed costs are met. Given this situation, Voltas is increasing its geographical spread so that in the future it does not have to depend on just two countries for its business.

In news from the consumer goods space, companies are either in an acquisition mode or on an expansion mode. Godrej Consumer Products Limited (GCPL) has indicated that it is interested in acquiring soap brands rather than trying to build one up from scratch. GCPL, which has a 10% market share, has started feeling the competitive heat from HUL. It may be recalled that GCPL had a strong two years of growth due to consumers down trading. But now that the economy has picked up again, consumers are up trading to premier quality soaps. GCPL is not expected to feel the effect of this in the short term. However, the company may lose market share if it does not have products across price points and covering significant niche points.

Another consumer goods company looking to expand through acquisitions is Dabur. According to a company's spokesperson, Dabur is targeting a turnover of Rs 50 billion in 2011-12 aided by acquisitions in the personal and healthcare segment. While Dabur is looking for deals in the region of Rs 0.5 billion to 5 billion, the company could bid higher depending on the brand and the company. It was also announced that Dabur expects the personal and skin care segments to be growth drivers for the company during the next fiscal year.

On the other hand, Nestle (OTCPK:NSRGY) is looking inwards to fuel its growth in the coming years. The company plans to invest close to Rs 15
billion over the next 2-3 years as part of its expansion strategy. The company has earmarked Rs 3.6 billion of investment in its new factory at Nanjangud in Karnataka. While this factory was commissioned in March 2010, Nestle is expanding its capacity by 20% to take care of future demand.

The company will also be investing Rs 6 billion in its green field capacity in Haryana. This facility will commence operations by the end of this year. Nestle is witnessing good demand for its chocolates. For this reason the company is investing Rs 2 billion in its chocolate manufacturing facility in Punjab. Furthermore, the company plans to set up two new facilities, one in Goa and the other in Himachal Pradesh. For this Nestle is investing Rs 12 billion. Nestle also plans to set up a new R&D centre in India. For this the company is investing US$ 50 million. The company also plans to launch new products from the stables of its parent company. It is believed that the company will launch four new products in the latter half of the current year under the coffee segment.

Movers and shakers during the week
Company 4-Mar-11 11-Mar-11 Change 52-wk High/Low
Top gainers during the week (BSE-A Group)
TATA GLOBAL BEV. 91 101 11.0% 139/88
UNITECH 34 38 10.6% 98/33
NESTLE 3,575 3,868 8.2% 4,199/2,570
ESSAR OIL 110 119 8.1% 161/102
RELIANCE POWER 114 123 7.8% 191/110
Top losers during the week (BSE-A Group)
IND. INFOLINE 83 71 -13.5% 130/65
EDUCOMP SOLUTIONS 468 416 -11.1% 790/401
NAGARJUNA CONSTRUCTION 108 98 -9.5% 197/90
GLENMARK PHARMA 298 271 -9.0% 390/230
JUBILANT LIFE SCIENCES 177 163 -8.2% 413/160
Source: Equitymaster

In other news, it seems that woes for construction companies especially those in the build-operate-transfer (BOT) space are not over. The Union Budget has been supportive for construction companies by increasing the limits for foreign institution investors in corporate bonds, on the grounds that this is not expected to have a significant effect. Most BOT projects require one-third equity funding with the balance funded through debt. However, an increase in the complexity of and the number of BOT projects in a firm's portfolio has led to delays in execution. Consequently, this has led to lower rate of return on projects and resulted in negative investor sentiments. Moreover, the weakness of the stocks of construction companies in the market has hampered the ability of these companies to raise equity.

As of now, these firms are raising capital by resorting to instruments such as convertible debentures. However, these come at a cost. Furthermore, an extended working capital cycle is putting severe pressure on their bottom line due to high interest costs. Given such a scenario, it seems unlikely that the construction sector will recover in the short term.

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Source: Weekend Wrap-Up: Tsunami Hits World Markets