India Markets Wednesday Wrap-Up: Weak GDP Growth Hits Indian Indices

by: Equitymaster

Indian stock markets had a rather volatile outing on Wednesday. The indices began the day's proceedings on a positive note, and managed to hold on to their gains in the morning session. However, weak third quarter GDP numbers released later during the day dampened sentiments on the bourses.

As a result, the indices shed gains and hovered around the dotted line during the later hours. The final trading hour saw the indices close barely into the positive. While the BSE-Sensex closed higher by around 22 points, the NSE-Nifty closed higher by around 10 points. The BSE Mid cap and the BSE Small cap notched gains of 1% each. With respect to sectoral indices, gains were largely seen in oil and gas, and metals stocks.

As regards global markets, Asian indices closed in firm, while European indices also opened in the green. The rupee was trading at Rs 49.00 to the dollar at the time of writing.

Auto ancillaries stocks closed mixed. While Exide and Amtek Auto found favour, Bharat Forge and Bosch closed in the red. Bosch Limited announced results for the fourth quarter and full year ended December 2011. For the year, the company reported a healthy 20% YoY growth in sales. This was fuelled by improved demand in certain sectors of the automotive industry, such as tractors and light commercial vehicles (LCVs), despite rising interest rates and fuel prices. The introduction of new base line alternators enabled the starters and generators division to register a growth of 63.1% YoY in sales.

Bosch's diesel systems business grew by 19.2% YoY, mainly led by strong demand from the LCV and tractor segments, despite subdued demand in the later part of 2011. The automotive aftermarket business grew by a solid 15.2% YoY in 2011. Net profit growth was even better at 31% YoY, due to improved operating margins and a surge in treasury income. It must be noted that the company has outlined a capex of Rs 7 bn for 2012, and this will be invested across all its business segments.

India's GDP growth for the October-December 2011 quarter came in lower at 6.1%, lower than the 6.9% and 7.7% growth reported in the second and first quarter, respectively. This is not surprising, given that industrial production data has also been poor for the past couple of months.

One of the reasons for the slowdown in GDP has been attributed to the rise in interest rates as the Reserve Bank Of India (RBI) chose to hike rates with the aim of taming inflation. This, coupled with rising fuel prices, only served to dampen demand, thereby contributing to the economic slowdown.

The government's poor state of finances is also a cause for concern and its inability to reduce fiscal deficit has only increased pressure on the central bank to rely on the monetary policy to control inflation. While electricity, construction, transport and communications did well during the quarter, agriculture, manufacturing and mining fared poorly.