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Gravity acts on flying markets - Views on News from Equitymaster
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  • Jan 19, 2008

    Gravity acts on flying markets

    The Sensex which seemed in full flight last week seemed affected by the pulls of gravity during the week gone by as all five sessions ended in the red. Moreover, all sectoral indices ended in the negative. Thus, for the week ended January 18, 2008, the BSE-Sensex lost 8.7%, while the NSE-Nifty lost 8.0%.

    The week began on a pessimistic note with the Sensex shedding 99 points, although the Nifty appreciated 7 points on Monday. While select index heavyweights from the auto pack registered gains, heavyweights across the board bore the brunt of selling activity on Tuesday, as the negative sentiment grew stronger. The Sensex sank lower by 477 points while the Nifty lost 133 points. Wednesday was no different as power and auto stocks dragged the indices down along with weak closings in the Asian markets and a negative trend on European bourses. Even though the banking pack registered gains, the Sensex lost 383 points while the Nifty shed 139 points.

    It was a repeat performance on Thursday as well, as the broader markets closed in the red in a volatile backdrop. Heavyweights from the auto, FMCG and engineering pack came to the rescue but not enough to counter the losses from software, power and banking scrips. The Sensex lost 206 points while the Nifty closed 23 points lower. The biggest blow of the week came on the last day that saw a precipitous decline during the second half of the day. Cement stocks waged a lonely battle in the market in the face of a steep decline in the broader markets. Thus the BSE Sensex closed at 19,014 (down 687 points) while the NSE Nifty closed at 5,705 (down 208 points) during the last trading day of the week.

    On the institutional activity front, between 11th January and 17th January, both FIIs and mutual funds emerged as net sellers, selling equities to the tune of Rs 40 bn and Rs 10 bn respectively.

    (Rs m) MFs FIIs Total
    11-Jan (2,742) 1137 (1,605)
    14-Jan (5,514) 1744 (3,770)
    15-Jan (5,195) 2258 (2,937)
    16-Jan (595) (22,796) (23,391)
    17-Jan 3,612 (21,860) (18,248)
    Total (10,434) (39,517) (49,951)

    On the sectoral indices front, the BSE Oil and Gas Index (down 9%) led the pack of losers.

    Index As on Jan 11 As on Jan 18 % Change
    BSE HEALTHCARE 4,183 4,025 -3.8%
    BSE FMCG 2,395 2,303 -3.9%
    BSE SMALLCAP 12,694 12,160 -4.2%
    BSE AUTO 5,413 5,148 -4.9%
    BSE MIDCAP 9,438 8,894 -5.8%
    BSE PSU 10,399 9,660 -7.1%
    BSE IT 4,104 3,791 -7.6%
    BSE METAL 18,751 17,259 -8.0%
    BSE BANKEX 12,479 11,372 -8.9%
    BSE OIL AND GAS 13,833 12,595 -8.9%

    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 government may provide BHEL with secure bulk orders from NTPC for its upcoming 800 mw super critical thermal plants. However, the order consisting of 8 to 10 sets of boilers and turbines will have to be executed incorporating the new global technology and manufacturing would have to start under a specified time frame. This is significant because BHEL had earlier suggested that it would be able absorb 90% of the technology only by the time it supplied the 10th unit of 800 mw- towards the end of 11th Plan. The price for the order will be set through international competitive bids (ICB). This is a positive development for BHEL as it sought to manufacture the 800 mw sets. However, the power ministry favored international bids instead of straightaway awarding the deal to the company. While BHEL closed lower by 5% for the week, NTPC ended 12% lower.

    DLF has signed a Memorandum of Understanding (MoU) with Gayatri Projects(GPL) to develop roads and highway projects across the country. Together, the companies aim to develop projects worth at least Rs 10 bn every year. DLF-Laing O'Rourke Ltd (LOR), the JV between DLF and LOR would be the contractor for the projects of DLF-GPL. GPL at present has projects worth over Rs 35 bn under construction including national and state highways, dams, reservoirs, ash ponds and major canal works. It may be noted that infrastructure is an attractive sector given the rising demand and focus of the government in promoting PPP projects. It expands DLF's presence beyond the well-established verticals of residential, commercial and retail projects. This venture is a significant development in the overall growth plan of the company, as it would further diversify its portfolio having already ventured into new businesses of Hotels, SEZs and financial services. While DLF closed lower by 16%, GPL ended 10% higher.

    Top gainers during the week (BSE A)
    Company Price on
    January 11 (Rs)
    Price on
    January 18 (Rs)
    H/L (Rs)
    BSE SENSEX 20,827 19,014 -8.7% 21,207 / 12,316
    S&P CNX NIFTY 6,200 5,705 -8.0% 6,357 / 3,555
    HINDUJA TMT 738 795 7.7% 890 / 332
    MIRC ELEC. 29 30 4.3% 42 / 16
    ASAHI INDIA 125 127 1.8% 152 / 96
    GUJARAT GAS 341 342 0.3% 379 / 243
    ORCHID CHEMICALS 292 292 0.2% 328 / 176
    IPCA LABS 709 710 0.2% 794 / 545

    Indian pharma stocks ended weak with Ranbaxy (2%) and Dr Reddy’s (1%) leading the pack of losers. Ranbaxy, the largest pharmaceutical company in India, reported 13% YoY growth in revenues in CY07, driven by the strong performance in Europe and Rest of the World. The operating margins of the company expanded marginally by 20 basis points (0.2%) during the year, largely due to the marginal reduction in SG&A and R&D expenditure (as percentage of sales). The net profit of the company grew by 53% YoY in CY07, led by higher forex gains and extraordinary income. Excluding the impact of both, net profits fall by 13% YoY. Ranbaxy will announce the scheme of demerger of the R&D division in early February on receipt of all approvals. It has also acquired a 14.9% stake in Krebs Biochemical Industries Limited, a 14.9% stake in Jupiter Biosciences Limited, and a further equity stake in Zenotech Laboratories Limited (from 7% to 45%) to bolster its biotech business.

    Top losers during the week (BSE A)
    Company Price on
    January 11 (Rs)
    Price on
    January 18 (Rs)
    H/L (Rs)
    RELIANCE CAPITAL 2,768 2,343 -15.3% 2,925 / 560
    REL. ENERGY 2,486 2,124 -14.6% 2,632 / 448
    CANARA BANK 371 318 -14.4% 421 / 174
    CHAMBAL FERT 78 67 -14.4% 94 / 30
    ICICI BANK 1,440 1,245 -13.5% 1,465 / 791

    Market declines often elicit the opposite reaction to what they should. Warren Buffett mentions in his 1990 letter to shareholders, “Investors… illogically become euphoric when stock prices rise and unhappy when they fall. We will be buying businesses - or small parts of businesses, called stocks - year in, year out as long as I live. Given these intentions, declining prices for businesses benefit us, and rising prices hurt us. The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces.” Have you been checking out businesses with an eye for good opportunities at falling prices, dear reader?



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