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Directionless week - Views on News from Equitymaster
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  • Jan 22, 2005

    Directionless week

    While at the end of this holiday-shortened week, investors continued to remain clueless about where the markets could be headed next; one word can aptly describe the market behaviour this week - volatile (as discussed later). This week saw a plethora of results being declared - most good but some failing to meet market expectations. Finally, at the end of all this, the end result was that the indices closed flat with the BSE-Sensex closing marginally in the positive (up 0.2%) while the Nifty ending the week with marginal losses (down 0.3%).

    Last week's bearish sentiments spilled over to this week also, as the indices opened Monday on a rather weak note. However, after languishing in the red for most part of the day, the last couple of hours witnessed a strong bout of buying at these lower levels pushed the indices into the positive. Just to put things in perspective, with respect to the scale of the pullback on Monday, the Sensex managed an intra-day gain of near 150-points from the lows of the day! However, the party was not to last long. Despite a firm opening on the following day, investors seemed to have lacked the conviction to hold on, as they opted to take the profits off the table, pushing the indices back into the red.

    This was precisely the behaviour that continued into the following two trading sessions also. Investors opted to book profits at every rise (again on Wednesday) and bought at lower levels as witnessed during Thursday's trade in the closing hour of trade. This trend in the market can be attributed to the fact that Foreign Institutional Investors (FIIs), which have been the primary pillars of this rally when they pumped in close to US$ 15 bn in the last two years, have shown little interest in the year 2005 as yet. This is vindicated by the fact that of the 13 trading sessions for which FII net investment figures are available for the current month, they have been net sellers in 9 of those (see chart above) with cumulative net sales of Rs 268 m until Wednesday. And the reason being attributed to this lack of interest by the FIIs (as yet) is the possibility of a sharper than anticipated rise in interest rates in the US (as made evident by the US Fed Reserve minutes). This not only makes the US bonds relatively attractive than before for FIIs to park their money in, but has also given support to the tumbling US dollar, which has shown signs of strengthening again.

    Now, let us consider some stock specific action on the bourses this week:

    Despite the overall lackluster week-on-week performance of the indices, one stock that clearly stood out this week was ITC, which closed the week with near 10% gains. The euphoria towards the stock could be attributed to the fact that ITC was facing various state level duties in the nature of luxury tax, which has been done away with as per a Supreme Court order. This would lead to a one-time windfall gain for ITC, the effect of which would be seen in FY06. The quantum of gains is being pegged in the region of about Rs 6-8 bn. This, when compared to the Rs 16 bn of profits notched by ITC in FY04, explains the rise in the stock price on the bourses this week. The impact of this news was also felt on other tobacco stocks like GTC (20%), VST Industries (8%) and Godfrey Philips (5%).

    Some key gainers over the week (NSE-50)
    COMPANY Price on Jan 14 (Rs) Price on Jan 20 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 6,174 6,183 0.2% 6,696 / 4,228
    S&P CNX NIFTY 1,931 1,925 -0.3% 2,120 / 1,292
    ITC 1,255 1,379 9.9% 1,393 / 812
    HDFC 733 763 4.1% 808 / 450
    IND HOTEL 508 519 2.2% 575 / 321
    CIPLA 266 271 2.1% 322 / 194
    HLL 140 142 1.5% 208 / 101

    Apart from this, IDBI and IDBI Bank also managed to buck the overall market trend by gaining 9% and 5% respectively during the week. It must be noted that Thursday saw the board of directors of IDBI having approved the Scheme of Amalgamation envisaging the merger of itself with IDBI Bank. The swap ratio for the same has been decided at 100 shares of IDBI against 142 shares of IDBI Bank. It must be noted that the merged entity will be the 5th largest bank in the country after SBI, ICICI Bank, PNB and Canara Bank. Post the merger; the consolidated entity will have assets to the tune of Rs 943 bn and 213 branches along with 312 ATMs.

    Some key losers over the week (NSE-50)
    COMPANY Price on Jan 14 (Rs) Price on Jan 20 (Rs) % CHANGE 52-WEEK H/L (Rs)
    RANBAXY 1,070 984 -8.1% 1,279 / 867
    MARUTI 419 395 -5.9% 600 / 300
    GAIL 218 207 -5.3% 266 / 101
    HPCL 353 337 -4.5% 542 / 262
    BAJAJ AUTO 1,072 1,032 -3.7% 1,160 / 765

    As far as the losers were concerned, Ranbaxy, Bajaj Auto and HPCL were among those that ended the week with losses. While the losses in drug major, Ranbaxy, and two-wheeler major, Bajaj Auto, could be attributed to the poor set of December quarter numbers declared by these companies, weakness in HPCL was seemingly a factor of rising global crude prices, which, once again, reared its head nudging the US$ 50 per barrel mark during the week on expectations of a severe than expected winter this year and dwindling oil supplies around the globe.

    Further, this week saw many industry majors report their December quarter numbers some prominent ones being those of ICICI Bank, Hero Honda, Satyam, Tisco, Nalco, ITC, Reliance, Wipro and Ranbaxy. To read the detailed analysis of all these and more, kindly visit the Track Corporate India section on our website. Next week will also see hectic activity on this front as the results flow intensifies. The key results to watch out for next week include M&M, L&T, SBI, Maruti, HPCL, ONGC, MTNL, Hindalco, Indian Hotels, Tata Tea, HDFC, NTPC, Ashok Leyland, SAIL, Bharti Tele, Grasim and GAIL.

    While most of the results have managed to meet market expectations, investors do not seem to be enthused by these. While the uncertainty with respect to the FII stance towards India in the near-term could be playing on investors' mind, another factor like apprehension with respect to the continuance of the strong performance by India Inc. going forward in wake of rising input costs and rising interest rates seemed to have tamed investor expectations. However, we believe that though the near-term scenario of Indian stock markets could remain clouded, the long-term prospects of India remain strong and investors need to follow a disciplined approach while investing in equities. Happy Investing!



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