Jan 21, 2006|
Action packed week!
It was a week filled with pessimism and euphoria, which resulted in intense volatility on the bourses. Global stockmarket jitters, rising global crude oil prices, the Reliance (ex-merger) price discovery session and a slew of market-expectation-beating results by companies, which are amongst the leaders in their respective industries, took centre stage and kept investors on their toes right throughout the week. Thus, at the end of the tug-of-war between the bulls and the bears, it was the bulls that emerged the winners. The Indian stock markets ended the week on a buoyant note with the BSE-Sensex and the NSE-Nifty gaining 1.6% and 1.8% respectively.
Continuing from where they had left the previous week (down about 3%), the Indian stockmarkets began on a jittery note and proceeded to trade lower throughout Monday's trading session. Though there was some attempt made on the following trading day to recover lost ground with Reliance taking centre stage (up 7%) a day prior to the special trading session on Wednesday, it turned out to be a short-lived moment as Wednesday saw a huge sell-off on the bourses until noon, before some buying emerged at lower levels. However, the damage had already been done.
While some of the weakness in sentiments could be attributed to the fairly average results of last week, which seemingly raised concerns over the sustenance of the current Indian stock market valuations, weakness in global markets, especially the Asian indices, kept investors nervous. Further, with global crude oil prices having once gain gone past the US$ 66 per barrel mark during the week (affecting stocks like HPCL and BPCL), investors preferred to book profits.
However, all of this changed Thursday onwards, in tandem with the global stockmarket sentiments, as investors scrambled to take advantage of the correction that was witnessed in the Indian stockmarkets over the last few trading sessions. It must be noted that the Sensex had lost about 5.5% by Wednesday afternoon before bargain hunting resumed at lower levels. This trend continued well into Thursday's trade as the Sensex hit a double ton (up 212 points) to record its biggest gain in the last 4-months. Investor optimism was aided by a slew of corporate results that were well above market expectations, seemingly putting to rest the fears of a slowdown in India Inc. earnings. The euphoric buying continued well into the final trading session, with the Sensex recovering 4% from the lows it hit on Wednesday this week. However, mid-cap stocks ended the week with relative underperformance.
On the institutional activity front, while domestic mutual funds (MFs) continued to book profits (Rs 7.3 bn in the first 4 trading sessions of the week) taking their total to over Rs 31 bn (approx. US$ 700 m) of net sales since the beginning of December 2005, Foreign Institutional Investors (FIIs) continued to instill faith in Indian equities by investing Rs 3.7 bn this week and Rs 123 bn (US$ 2.7 bn) since December 2005.
Top gainers over the week (NSE-50)
Jan 13 (Rs)
Jan 20 (Rs)
|| 9,690 / 6,069
|S&P CNX NIFTY
|| 2,927 / 1,894
|| 2,274 / 900
|| 548 / 272
|| 1,599 / 630
|| 712 / 389
|| 164 / 107
Now let us consider some sector/stock specific developments this week:
Nalco (up 2%), the largest alumina and second-largest aluminium producer in the country, raised aluminium prices by Rs 2,500 per tonne across all product categories with immediate effect. This was followed by a similar hike in aluminium prices by Hindalco (up 6%). It must be noted Indian players follow international price trends. The sudden spurt in prices internationally is due to demand having outpaced supply during CY05. This trend is expected to continue in the medium-term, as no major capacity expansion is on the cards. This has led to spot alumina prices also soaring back to US$ 600 per tonne in the internal markets, which is particularly positive for Nalco.
The largest banking entity in the country, SBI, hinted at raising lending rates for loans in the retail segment given the current liquidity crunch and lower deposit mobilisation. Given the liquidity squeeze, besides concentrating on raising deposits, banks would also have to look at raising resources by tapping other sources like securitisation of their loan assets. SBI itself is planning to venture on these lines (i.e. the mortgage-backed securitisation market) to satiate its funding needs. These initiatives will help banks counter margin pressures being faced currently. However, the stock ended lower this week, down 2%. Other banking stocks
Reliance dominated the stockmarket proceedings in the first half of the trading week, as it played the most important role in determining market movements. This was not surprising considering the weightage of the stock in the benchmark indices. The reason for which Reliance remained in the limelight for most part of the week was owing to the price discovery session that was carried out on Wednesday in a special trading hour dedicated to Reliance, the de-merged entity. While the price discovered during the special session was Rs 723, the stock ended the week down 3% from this new level. As far as the other Ambani group stocks were concerned this week, while IPCL ended the week lower (down 2%), Reliance Energy (up 5%), Reliance Infrastructure (up 11%) and Reliance Capital (up 3%) gained ground. Top losers over the week (NSE-50)
Jan 13 (Rs)
Jan 20 (Rs)
|| 380 / 282
|| 157 / 108
|| 500 / 338
|| 382 / 230
|| 173 / 136
The Indian telecom industry posted the strongest net addition of 4.5 m users during the month of December 2005. The subscriber base rose to 75.8 m during the month, a sequential growth of 62%. Both GSM and CDMA operators witnessed strong growth due to an increase in coverage and interesting packages like 'free lifetime incoming'. Overall telephone subscribes touched 125 m. Bharti Tele (up 2%) added 9 m subscribers in December 2005 taking its subscription base to 16 m. It has a market share of 24%. Tata Tele (up 0.2%) added only 0.5 m subscribers.
Going forward, considering that the December 2005 quarter results have picked up steam, volatility on the bourses cannot be ruled out until the results season passes away. While, India Inc. results have as yet been rather good, the activity on the corporate results announcements front would only heighten over the next couple of weeks as fund managers, analysts and investors alike scramble through the numbers and try to read between the lines to decide upon their future course of investment action.
However, we continue to believe that judging a company on the basis of its one-quarter performance would be limiting one's investment horizon to mere speculation, which often leads to over-reaction or 'irrational exuberance' as they call it. As far as the quarterly results are concerned, we feel that the 'trend' emerging from quarterly results should be taken as a reference for longer-term investment decisions and one or two quarters of below average performance should not make a difference if the fundamentals of the company and the sector to which it belongs to remains intact. Happy and safe investing!
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