The first quarter of the current financial year 2011 has almost reminded of the nightmarish experience of the global melt down of 2008-09 that had beleaguered the equity markets and commodity prices world over. The three months ending June 2010 has seen metal prices plunging down to their recent lows, wearing away hopes of the investors to draw fair return on their investments.
The fiscal year that started on April 1st, 2010 kicked off with Indian government adopting an inclusive growth approach and focus for increasing agriculture production, as was announced by the Finance Minister Pranab Mukherjee in his budget speech for the fiscal 2010-11. However, on the domestic front the first quarter proved to be fairly positive with increased corporate advance tax coming in, showing improved business scenario.
Most Indian firms, including Reliance Industries, L&T, Tata Steel and Tata Motors, have paid higher advance tax in Q1 June 2010 over Q1 June 2009. Higher advance tax payment normally indicates higher profits for the period under review. Advance tax payments by companies during the April-June quarter account for 15% of the total advance tax payable in the fiscal year.
But the global economic factors put a dent in the growth prospects of domestic growth path. The Greek crisis that shook the entire European region also hit Asian equities and commodities markets. The turbulence was so significant that it spread across the world and hampered the overall economic scenario.
Metals turned turtle, so did the stocks
Metal prices in the international markets remained dizzy on the back of weak demand from European countries; those were struggling from the financial crisis. On the international front, Zinc prices shed the most losses during past three months.
Zinc on New York Mercantile Exchange (NYMEX) lost by 34.5% from its peak level of $1.1/lb and tumbled to $0.72/lb in the beginning of June and recovered somewhat to trade at $0.8/lb, which is down by 27% from its recent highs.
Similarly, copper prices too fell by 23% to the bottom and settled with loss of 18.8% in the international market during the given three months. Meanwhile, Aluminium prices witnessed a sharp fall of close to 25% from its peak levels three months back and settled with loss of 21.6% at the end of the first quarter.
On the domestic bourses, India's leading metal stocks too met with the similar fate as of the metals. Copper miner Sterlite Industries Ltd (BOM:500900) lost by over a whopping 62.5% during past three months. While Birla group miner, Hindalco Industries Ltd (BOM:500440) shed losses to the tune of 22.08% and Hindustan Copper Ltd (BOM:513599) lost by 9.25% during the first quarter.
Vedanta Resources group firm, Hindustan Zinc Ltd (BOM:500188) too made heavy losses by falling over 24.5% in one quarter. However, aluminium leader, National Aluminium Company Ltd (BOM:532234) posted moderate gains amid overall weakness in the metals sector. The company stocks gained by over 6% on the Bombay Stock Exchange (BSE) over the said period.
Gold aims sky, while stocks stay dazzled
Gold prices over past three months have headed northwards making new historical highs. On NYMEX, gold prices rose by almost 10% since April 2010 making all time high of $1256.50 an ounce. However, the gold rush lost steam and started heading southwards.
On the Indian bourses, gold stocks reflected mixed trend with leading gold jewellery exporter, Rajesh Exports Ltd (BOM:531500) and Renaissance Jewellery Ltd (BOM:532923) losing ground. Rajesh Exports fell by over 32%, while Renaissance Jewellery lost over 6%. However, Gitanjali Gems Ltd (BOM:532715) made fair gains with uptrend of over 5% in past three months.
Oil stocks get glittery
Oil stocks on the Bombay Stock Exchange (BSE) showed handsome gains on the back of latest development with respect to oil price deregulation in India. The Indian government hinted at the complete deregulation in fuel retailing in India, which spiked off the stock prices on the bourses.
The first quarter of the current fiscal proved to be very significant for the oil companies especially those involved in fuel retailing operations in India post the government decision. Oil retailers posted gains anywhere between 5% and 50% during the past one quarter.
Public sector undertaking, Hindustan Petroleum Corporation Ltd (HPCL) (BOM:500104) zoomed up by 50.59% in past three months. Other OMC PSUs including Indian Oil Corporation Ltd (IOC) (BOM:530965) and Bharat Petroleum Corporation Ltd (BPCL) (BOM:500547) gained over 30% each owing to the positive outlook for better realization of oil prices.
However, provate sector oil companies did not show much of the improvement over the first quarter. India's largest private sector oil company, Reliance Industries Ltd (BOM:500325) lost by over 2% and Essar Oil Ltd (BOM:500134) posted marginal loss of 0.4% over the past three months.
The outlook as mentioned ahead seems positive for the oil companies, but those who have invested in metal stocks have a reason to think about alternate investment instruments for their investments. As the European crisis shows no significant signs of improvement, there seems to be more surprises in the form of further erosion in investors' wealth.