Action packed week!

Volatility ruled the roost during the concluded week of trade. However, significant gains registered during the last two trading sessions ensured closing above the breakeven as the three-week bull run continued during the week. For the week, the BSE-Sensex gained 1.4%, while the NSE-Nifty edged higher by 1.7%.

Proceedings for the week started on a weaker note with the Sensex losing close to 500 points during initial three days of the week. However, the bulls bounced back with vengeance during the last two sessions of trade with the Sensex registering whopping gains of over 700 points. Positive sectoral and stock specific news inflows relating to banking, sugar and oil sectors fueled the rally. The 3QFY07 result season also commenced this week.

As far as the institutional activity on the bourses was concerned, Foreign Institutional Investors (FIIs)as well as mutual funds were net sellers this week to the tune of nearly Rs 51 bn and Rs 8.7 bn respectively.

(Rs m)	MFs	FIIs	Total
5-Jan	155	9	164
8-Jan	(1,483)	(30,757)	(32,240)
9-Jan	(3,646)	(11,068)	(14,714)
10-Jan	(1,236)	(11,068)	(12,304)
11-Jan	(2,506)	1,593	(913)
Total	(8,716)	(51,291)	(60,007)

Amongst the sectoral indices, this week, it was BSE Oil and Gas and BSE Bankex that registered maximum gains, while former was up 3.5%, the latter was not left behind and soared by 3.2%. Gains in the energy sector was propelled by the stocks of oil marketing and refining companies, led by BPCL (up 5%) and followed by index heavyweight Reliance Industries (4%) and HPCL (2%). Banking stocks were on fire as the index gained as much as 6.8% on the lasting trading session of the week. Significant gains were also registered in small size banks like Federal Bank (up 16%), Bank of Maharashtra (13%) and IDBI (12%). Amongst the stalwarts in the sector, ICICI Bank edged up by 7% followed by gains in UTI Bank to the tune of 6%.

Index	As on January 5	As on January 12	% Change
BSE OIL AND GAS	6,339	6,559	3.5%
BSE BANKEX	7,154	7,383	3.2%
BSE FMCG	1,875	1,927	2.8%
BSE SMLCAP	7,192	7,372	2.5%
BSE PSU	6,144	6,215	1.2%
BSE AUTO	5,595	5,638	0.8%
BSE CAPITAL GOODS	9,140	8,957	-2.0%
BSE MIDCAP	5,937	5,975	0.6%
BSE HEALTHCARE	3,850	3,872	0.6%
BSE METAL	8,980	9,030	0.6%

Having looked at the institutional activity and the movement in key indices in the last week, let us consider some sector/stock specific developments

Banking stocks registered stellar gains during the last trading session of the week and ended firm. ICICI Bank (up 7%) and UTI Bank (6%) were amongst key gainers. In a move to augment credit available with the banking sector, center has decided to promulgate an ordinance empowering the RBI to cut the statutory liquidity ratio (SLR) below the floor of 25% of net demand and time liabilities (NDTL). SLR is the amount which a bank has to maintain in the form of cash, gold or approved securities. An amendment to section 24 of the Banking Regulation (Amendment) Act, 1949 will facilitate this flexibility for RBI and thus free up free up bank funds for funding incremental credit growth. The mismatch between the demand and supply of loanable funds occurred with credit registering a growth of over 30%, while the deposits has grown at a lower rate of 20%. Thus, the move will enhance the loanable funds with the banks. The major beneficiaries of the move are likely to be private sectors bank with SLR ratio close to 25%. Both HDFC Bank and UTI Bank announced their third quarter results this week.

Results season has one again kicked off with Infosys announced strong results for the third quarter and nine-month ended December 2006. For 3QFY07, revenues and net profits have each grown by 6% QoQ. What is more noticeable is that the company has been able to expand its operating margins during the quarter, despite the pressure on the rupee (which appreciated by almost 3% against the US dollar during the quarter). For the nine-month period, however, operating margins have declined by 110 basis points (1.1%). Marginally raising its revenue outlook for FY07, the company has said that the consolidated revenues for FY07 are expected to be US$ 3.1 bn, a growth of 44% YoY. On the basis of geographies, margins were under pressure in North America (down 278 basis points) and Europe (down 320 basis points). The stock pared 2% gains during the week.

The Cabinet has finally lifted the much-awaited ban on sugar exports after a gap of about six months. After continued demand from the sugar industry and assessing the sugar situation, a decision has been taken to lift the ban. Though international sugar prices have declined from about US$ 460 a tonne to US$ 330 since the ban was imposed, lifting the ban will give a lease of life to the domestic sugar industry. The domestic price has declined from Rs 1,750 a quintal to Rs 1,550 over the period and the companies were facing margin pressure. Total availability of sugar would be 27 million tonnes this season, with carry over stocks from the last crop year of about 4 million tonnes and expected bumper crop of 23 million tonnes in the current harvest. India's population of more than one billion people annually consumes about 19 million tonnes of sugar. Thus, the surplus, which otherwise would have exerted pressure on the realisation of sugarcane as well as sugar, can be exported. Sugar major Balrampur Chini gained 5% during the week.

We had earlier raised our concerns regarding impending volatility at the current level of benchmark indices. We continue to believe that short-term volatility can be mitigated by widening the investment horizon along with investment in select good quality mid cap and large cap stocks. We advice investors not to be influenced by the continued gains clocked by the index and rather stick to a disciplined mode of investment. Factors such as fundamentals, quality of management and valuations should at no point be overlooked as they prove to be decisive clauses in the success or failure of an investment decision. Further, with the Sensex now having entered an unchartered territory, investors need to be more rational and avoid hasty investment decisions.