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Jittery at 21K... - Views on News from Equitymaster
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  • Jan 12, 2008

    Jittery at 21K...

    The Sensex hovered around the 21k levels during the week, even though various sectoral indices ended in the red. Three out of the five sessions during the week ended in the green for the index. Thus, for the week ended January 11, 2008, the Sensex gained 0.7%, while the Nifty lost 1.2%.

    The week began on a cheerful note, with the Sensex gaining 126 points and the Nifty appreciating 5 points on Monday. The broader markets managed to stay afloat on Tuesday as they crossed the dotted line during the fag end. Banking and software stocks aided the indices, while select power stocks ended in the red. The Sensex gained 61 points while the Nifty plodded a mere 9 points upwards. At the end of a volatile day on Wednesday, software and power stocks ended in the green, while select auto, pharma and FMCG stocks were out of favour. The Sensex shed 4 points while the Nifty climbed 16 points.

    The broader markets closed in the red on Thursday as the day witnessed a reversal of sentiments with the benchmark indices opening in the positive but losing strength during the later part of the day. Index heavyweights across the board bore the brunt of the selling activity. The Sensex slumped 288 points, while the Nifty shed 115 points. The markets made a thumping comeback on Friday with index heavyweights across the board registering gains but not before witnessing significant volatility during the day. Thus the BSE-Sensex closed at 20,827 (up 245 points) while the NSE-Nifty closed at 6,200 (up 43 points) during the last trading day of the week.

    On the institutional activity front, between 4th January and 10th January, both FIIs and mutual funds emerged as net buyers, purchasing equities to the tune of Rs 11 bn and Rs 5 bn respectively.

    (Rs m) MFs FIIs Total
    4-Jan 6166 5088 11,254
    7-Jan 300 (809) NA
    8-Jan 125 10534 10,659
    9-Jan (2,012) 2746 734
    10-Jan 464 (6,308) (5,844)
    Total 5,043 11,251 16,803

    On the sectoral indices front, the BSE Bankex Index (up 5%) was the only gainer, while the BSE Smallcap Index(down 9%) led the pack of losers.

    Index As on Jan 04 As on Jan 11 % Change
    BSE BANKEX 11,905 12,479 4.8%
    BSE OIL AND GAS 13,917 13,833 -0.6%
    BSE FMCG 2,424 2,395 -1.2%
    BSE HEALTHCARE 4,394 4,183 -4.8%
    BSE AUTO 5,688 5,413 -4.8%
    BSE IT 4,319 4,104 -5.0%
    BSE PSU 11,093 10,399 -6.3%
    BSE MIDCAP 10,113 9,438 -6.7%
    BSE METAL 20,298 18,751 -7.6%
    BSE SMALLCAP 13,884 12,694 -8.6%

    Now let us have a look at some of the key stock/sector specific developments during the week.

    As per a leading business daily, the engineering and construction (E&C) division of Larsen & Toubro (L&T) has won two major contracts worth over Rs 13 bn for the construction of civil work and the consolidated construction work for the northern area development project located near Barmer in Rajasthan to support the JV formed between Cairn India and ONGC for oil production in 2009. The scope of work covers the development of infrastructure facilities, the construction of 18 well pad structures, detailed engineering and construction of all civil and electromechanical works at the Mangala and Raageshwari fields, offsite infrastructure facilities, supply, installation and commissioning of 33 KVA high voltage power line system and the telecom network. Such large contracts in the E&C space are aiding the company's strong growth momentum. At the end of September 2007, the order backlog for the E&C segment stood at Rs 420 bn, 44% YoY higher and more than 3 times the segment's FY07 revenues. L&T (down 2%) along with its peer BHEL (down 4%) led the pack of losers from the engineering and construction pack for the week.

    Infosys announced its 3QFY08 results. The topline grew by 4% QoQ in 3QFY08, 20% YoY in 9mFY08. EBITDA margins expand by 1.3% QoQ during the third quarter, mainly due to costs rationalisation. Bottomline expanded by 12% QoQ during 3QFY08, aided by expansion in operating margins and lower tax expenses. The company has added 47 new clients and a net of 8,100 employees during the quarter. With this, the company's employee base now stands at 88,601 (including subsidiaries). Infosys has increased its full year earnings per share (EPS) guidance to Rs 81, from Rs 80 at the end of 2QFY08. Software stocks closed weak with Infosys (down 7%) and TCS (down 2%) featuring among the key losers.

    Top gainers during the week (BSE A)
    Company Price on
    January 04 (Rs)
    Price on
    January 11 (Rs)
    H/L (Rs)
    BSE SENSEX 20,687 20,827 0.7% 21,207 / 12,316
    S&P CNX NIFTY 6,274 6,200 -1.2% 6,357 / 3,555
    ICICI BANK 1,285 1,440 12.0% 1,450 / 791
    BOI 380 413 8.6% 425 / 132
    ADITYA BIRLA NUVO 2,224 2,379 7.0% 2,502 / 960
    BRITANNIA 1,519 1,602 5.5% 1,780 / 1,092
    RELIANCE 2,986 3,128 4.8% 3,235 / 1,250

    As per a leading business daily, SBI, ICICI Bank, Bank of Baroda and Bank of India will book mark-to-market losses on the exposures of their foreign offices to credit derivatives. This is because the spreads on the derivative instruments are widening since international lenders have turned risk-averse following the crisis in the US subprime market. Credit derivatives are instruments for which the underlying asset is a loan or a bond. Marking to market means valuing a portfolio based on the prevailing market price. The significance of this move is that the net profits of the four Indian banks would be dented for 3QFY08, to the extent of the provisions that they decide to make. ICICI Bank has the highest exposure of US$ 1.5 bn and SBI has an estimated exposure of US$ 1 bn. Bank of India and Bank of Baroda have exposures of US$ 300 m and US$ 150 m respectively. ICICI Bank (12%), SBI (up 2%) led the pack of gainers from the banking pack, while Bank of Baroda (down 8%) featured among the key losers.

    Top losers during the week (BSE A)
    Company Price on
    January 04 (Rs)
    Price on
    January 11 (Rs)
    H/L (Rs)
    MIRC ELEC. 36 29 -19.0% 42 / 16
    BPCL 536 435 -18.9% 560 / 287
    GUJ.IND.POW 178 145 -18.2% 185 / 54
    EIH LTD. 235 193 -18.0% 247 / 88
    FINOLEX IND. 121 100 -17.2% 126 / 65

    These are interesting times, dear reader. Not only for the secondary markets but also for the primary markets, with IPOs coming out one after the other. Warren Buffett in his 2000 letter to shareholders mentions "Investors, mesmerized by soaring stock prices and ignoring all else, piled into these enterprises. It was as if some virus, racing wildly among investment professionals as well as amateurs, induced hallucinations in which the values of stocks in certain sectors became decoupled from the values of the businesses that underlay them. This surreal scene was accompanied by much loose talk about "value creation." What actually occurs in these cases is wealth transfer, often on a massive scale.But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street- a community in which quality control is not prized-will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest." That was at the height of the previous great boom. Do we see history repeating itself?



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