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Eventful week

Jan 24, 2004

It was one of the most volatile weeks ever witnessed on the bourses in the recent past with 3-digit falls and rise (in the Sensex) being a common feature during the week. Apart from last week's profit-taking sentiments spilling over into the current week, uncertainties regarding the fate of participatory notes in the Indian markets also aided the havoc that prevailed during the week. The indices, finally, closed the week with losses of 2.2% (Sensex) and 2.8% (Nifty).

Breaking off from last week's bear carnage, the indices closed the first trading day (Monday) of the week on a strong footing, giving indications that the long-overdue correction was over. However, as unexpected as it could be, markets got a surprise the following day when the indices decided to head southward amidst all round selling pressure. The profit booking exercise continued well into Wednesday and Thursday with no indications of the bear stampede coming to an end. Then, when the mood was that of utmost caution and bearishness, markets, once again, managed to surprise the markets, however, this time on the upside on Friday.

Top 5 gainers over the week
COMPANY Price on
January 16 (Rs)
Price on
January 23 (Rs)
%
CHANGE
52-WEEK
H/L (Rs)
BSE-SENSEX 5,946 5,817 -2.2% 6,250 / 2,904
S&P CNX NIFTY 1,901 1,848 -2.8% 2,015 / 920
CADILA HEALTHCARE 371 401 8.0% 422 / 115
SSI LTD. 206 222 7.8% 235 / 54
HCL TECH 307 325 5.9% 340 / 118
SATYAM COMP 324 342 5.6% 391 / 127
MOSER-BAER INDIA 332 349 5.0% 421 / 86

Apart from the fact that profit-booking sentiments largely prevailed when the investors went in to trade at the start of the week, the bloodbath on the bourses during the week could also be attributed to the uncertainties regarding Participatory Notes (PN). Markets had feared that SEBI would ban the issue of PN, which could have a negative impact on the foreign money inflow as a significant amount of money is routed into the country through this medium. It must be noted that it was more of panic and fear of the above, which led to the unwinding of positions by retailers and domestic institutions in the cash as well as futures & options markets. This is because, Tuesday-through-Thursday, when the indices lost almost 8% in just 3 trading sessions, FIIs were net buyers of equities. This not only confirms the fact that FIIs are here to stay, it also re-affirms our stand that investors should take a long-term investment horizon so as to relatively insulate themselves from such intense intra-day market movements.

Top 5 losers over the week
COMPANY Price on
January 16 (Rs)
Price on
January 23 (Rs)
%
CHANGE
52-WEEK
H/L (Rs)
DSQ SOFTWARE 17 12 -26.6% 25 / 5
TATA CHEMICALS 168 126 -24.7% 172 / 58
HIND LEVER CHEM 365 285 -22.0% 379 / 142
SHREE RAMA MULTI 12 9 -19.9% 17 / 4
IND. RESORT 125 102 -18.2% 143 / 38

However, Friday was the all-important day during the week on the back of two counts. First and foremost, the clarification by Securities and Exchange Board of India (SEBI) with regards to Participatory Notes gave the markets enough reason to cheer as the regulator allowed the issue of PN, albeit only to regulated entities. It must be mentioned here that while the markets did expect a clarification from the regulator on Friday, the same came only after market hours. However, it seems that market men had already anticipated SEBI's decision, the result of which was the 4% gains witnessed in the indices.

The second important news was the raising of India's long-term foreign currency rating to investment grade from sub-investment or speculative grade by the global rating agency, Moody's Investors Services. The effect of this seems to have been witnessed amidst Friday's trade, as this development would attract more foreign investment in the capital markets and FDI. The upgrade would not only aid easier borrowing by India Inc., as it would improve the liquidity of foreign debt paper of Indian companies, but will also help middle-rung corporates to get finer rates in foreign loans. This would thus help corporate India to continue to reduce their average cost of borrowing and also keep a check on the domestic interest rates.

While the current week was filled with important results of the likes of Tisco, Ashok Leyland, Hindalco, Ranbaxy, Reliance Energy, Grasim, Satyam, Maruti, Telco and Wipro, the following week promises to be not less exciting. Though the next week would, more likely than not, continue to remain volatile with the expiry of the F&O segment due on Thursday, the longer-term story continues to remain as promising as ever. Reforms, improving productivity and profitability of India Inc., lower interest rates, continuation of the infrastructure drive, improved ratings, huge forex reserves, etc. will all continue to be the driving force for the markets well into 2004. The only caveat here could be the upcoming elections, which could slow the reform process just in case the current government fails to come back to power. However still, as already mentioned above, invest for the long-term in order to relatively insulate yourself from the daily and weekly wild swings witnessed on the bourses. But, stick to fundamentally sound companies.

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