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No ordinary thriller this!

Jan 26, 2008

The Indian stock market witnessed unprecedented volatility this week, with losses and recoveries of a 1,000 points becoming par for the course. The magnitude of the volatility could be gauged from the fact that the week was witness to both the highest ever single day loss as well as single day gain on an absolute basis on the Sensex. However, in the end it were the bears that triumphed, pulling the BSE-Sensex down by a little more than 3% and the NSE-Nifty down by nearly 6%The week began on a disastrous note as the indices plummeted throughout the day to clock the biggest ever fall in the Indian stock market history. The Sensex lost 1,408 points while the Nifty shed 497 points on Monday. The bloodbath continued on Tuesday as the indices struggled to recover from the day's lows at which point the Sensex had shed more than 2,000 points. The day ended with the Sensex closing 875 points lower while the Nifty lost 289 points. The US Fed played the knight in shining armour on Wednesday enabling the broader markets to close well above the dotted line. Index heavyweights from the power and software sectors registered gains amidst buying activity across the board. The Sensex gained 864 points while the Nifty accumulated 319 points.

It looked like it would be an encore performance on Thursday, but it turned out to be quite the opposite as the day wore on. The Sensex closed lower by 372 points after a steady decline during the latter part of the day. The Nifty lost 169 points. Select index heavyweights from the telecom sector registered gains while stocks from the power sector bore the brunt of selling activity. Inspired by their global counterparts, the bulls on the Indian indices were back with a huge bang on Friday, enabling the Sensex to record its biggest ever one day rise on an absolute basis.

On the institutional activity front, between 18th January and 24th January, while mutual funds emerged net buyers worth Rs 4 bn of equities, FIIs sold equities worth close to Rs 10 bn.

(Rs m)MFs FIIsTotal
21-Jan 1,998 (2,426)(428)
22-Jan 1,181 (2,256)(1,076)
23-Jan 872 (2,500)(1,628)
24-Jan 347 (1,351)(1,005)
Total 4,127 (9,889)(5,763)

On the sectoral indices front, barring the IT and the Bankex, all the other indices witnessed a decline with the small cap index being the worst hit, coming off by as much as 14%.

IndexAs on Jan 18As on Jan 25% Change
BSE IT3,791 3,800 0.3%
BSE BANKEX11,372 11,380 0.1%
BSE AUTO5,148 4,843 -5.9%
BSE FMCG2,303 2,160 -6.2%
BSE HEALTHCARE4,025 3,692 -8.3%
BSE METAL17,259 15,604 -9.6%
BSE MIDCAP8,894 8,021 -9.8%
BSE PSU9,660 8,664 -10.3%
BSE OIL AND GAS12,595 11,198 -11.1%
BSE SMALLCAP12,160 10,421 -14.3%

Now let us have a look at some of the key stock/sector specific developments during the week.

HDFC Bank reported 60% YoY growth in interest income on the back of 49% YoY growth in advances. A healthy mix of CASA (low cost deposits) was retained despite 52% YoY growth in deposits. What is infact more enthusing is that the bank's net interest margins improved by 0.3% in the nine month period as it continues to enjoy the distinction of having the highest proportion of low cost deposits in its books (50.9% in 9mFY08). The net interest margins of the bank improved to 4.3% from 4.0% in FY07. The bank has been able to grow its fee income base by 39% YoY in 3QFY08. The capital adequacy ratio is at comfort level at 13.8%. While HDFC Bank closed 2% higher for the week, ICICI Bank ended 1% higher.

ONGC announced results for 3QFY08. The topline declined by 3% YoY mainly hit by a subsidy payout of Rs 61 bn. The EBITDA margin also contracted to 53.1% during 3QFY08, down from 57.2% in 3QFY07. Higher raw material cost and other expenditure worsened the matters. Other income grew by 23% YoY and the bottomline registered a decline of 7% YoY in 3QFY08 owing to operating margin erosion. Crude oil production remained steady for the quarter at 6.62 Million Metric Tonnes (MMT) (6.63 MMT for 3QFY07). Natural Gas production amounted to 5.78 Billion Cubic Meters (BCM) for 3QFY08 up from 5.73 BCM for the corresponding quarter last year. Turnover declined due to a subsidy payout of Rs 61 bn to the PSU oil marketing companies - IOC, BPCL and HPCL. The subsidy burden for the corresponding quarter last year was Rs 22 bn. The impact of the subsidy at the PBT level is to the tune of Rs 55 bn, while it is Rs 37 bn at the bottomline level. While ONGC closed lower by 16%, RIL ended 7% lower.

Top gainers during the week (BSE A)
COMPANY Price on January 18 (Rs)Price on January 25 (Rs)% CHANGE52-WEEK H/L (Rs)
BSE SENSEX 19,014 18,362 -3.4% 21,207 / 12,316
S&P CNX NIFTY 5,7055,383 -5.6% 6,357 / 3,555
SATYAM 373 406 9.0% 522 / 305
PIDILITE 169 179 5.7% 220 / 103
GTL 254 268 5.7% 317 / 127
BHARTI AIRTEL 874 915 4.7% 1,149 / 661
INFOSYS 1,4641,521 3.9% 2,439 / 1,212

Grasim announced its 3QFY08 results. Topline grew by 19% YoY propelled by its core businesses of cement and VSF, while operating profits grew 24% YoY due to lower growth in operating costs during the quarter. The company has lowered its debt burden on the back of improved cash flows resulting in a lower interest outgo. This coupled with higher other income (40% YoY growth) boosted net profits by 29% YoY. Ultratech, its subsidiary, has fared well during the quarter with a topline growth of 10% YoY and a robust 32% YoY growth in bottomline. The company has also entered into an agreement for sale of its entire holdings of 54% in Shree Digvijay Cement at a price of Rs 42.5 per share to Cimpor Inversiones S.A. While Grasim closed lower by 9% Ambuja Cements ended 11% lower.

Top losers during the week (BSE A)
COMPANY Price on January 18 (Rs)Price on January 25 (Rs)% CHANGE52-WEEK H/L (Rs)
NEYVELI LIGNITE 214 148 -31.1% 274 / 49
RNRL 206 144 -29.8% 250 / 22
MRPL 120 88 -26.9% 149 / 32
ESCORTS 132 97 -26.4% 174 / 73
ARVIND MILLS 71 53 -25.3% 94 / 35

The wild swings witnessed this week highlight the need for a calm temperament for investors. Warren Buffett has often said that investing is not so much about IQ as it is about temperament and the ability to think for oneself. When supposedly smart money downgrades its appraisal of several Indian businesses by around 20% within a day, one is left pondering. Are they really smart and can their process really be called appraisal? We continue to urge you, dear reader, to calmly appraise the businesses you like and buy when you think the price is right. At other times, its better to focus on how the businesses are performing and not the stock quotes. To borrow from test cricket, the scoreboard takes care of itself if the batsman keeps his focus on the ball and plays it on its merits, without taking undue risks.

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