Markets give a 'Nifty' salute! - Views on News from Equitymaster

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Markets give a 'Nifty' salute!

Jan 27, 2007

While the flow of buoyant results continued unabated, the week will likely go down as one where the Nifty, one of the most widely tracked Indian indices, ended at levels not reached before. In other words, it closed at an all time high! Thus, for the holiday-shortened week ended January 25, 2007, while the BSE-Sensex ended higher by 0.5%, gains in NSE-Nifty were a little higher at 0.9%.Markets ended in the positive for three days out of four during the week. However, it was not a smooth ride for bulls as they had to overcome stiff resistance from the bears for most part of the week. Infact, until late Thursday afternoon, there were fears that the markets might close the week in the red. But the last hour buying on Thursday changed the scenario completely as buoyed by extremely encouraging results from a couple of heavyweights and some positive corporate announcements, investors appetite once again rekindled and in the process pulled the indices higher and enabled the Nifty to close the week at an all time high.

As far as the institutional activity on the bourses was concerned, Foreign Institutional Investors (FIIs) were net buyers this week to the tune of nearly Rs 10 bn. Domestic mutual funds also turned out to be net sellers to the tune of Rs 13 bn.

(Rs m)MFs FIIs Total
18-Jan58911191,708
19-Jan(4,020)768 (3,252)
22-Jan(542)3,198 2,656
23-Jan(5,372)2,691 (2,681)
24-Jan(3,511)1,727 (1,784)
Total(12,857)9,503 (5,062)

As far as sectoral indices are concerned, this week it was the 'BSE Metal' index that hogged the limelight and emerged as the highest gainers with gains of 7%. Infact, such was the dominance of the metal index that the 'PSU' index, the second best gainer could manage just 2% gains. With the commodity cycle continuing to remain strong as proved by Hindalco and Nalco results, investors made a beeline for metal stocks and helped them achieve robust gains. On the other hand, below expectations results from some pharma and auto heavyweights took the toll on the performance of these indices as evident from the bottom place they have taken up on the list.

IndexAs on January 18As on January 25% Change
BSE METAL8,973 9,625 7.3%
BSE PSU6,220 6,324 1.7%
BSE IT5,310 5,365 1.0%
BSE OIL AND GAS6,658 6,691 0.5%
BSE MIDCAP6,076 6,089 0.2%
BSE SMLCAP7,560 7,576 0.2%
BSE FMCG1,950 1,951 0.0%
BSE AUTO5,620 5,592 -0.5%
BSE BANKEX7,485 7,447 -0.5%
BSE HEALTHCARE3,885 3,803 -2.1%

Having looked at the institutional activity and the movement in key indices in the last week, let us consider some sector/stock specific developments:

Bharti Airtel was one of the better performers during the week and ended higher by 5%. The buying interest emanated from the fact that that the company put up another impressive performance during 3QFY07. For 3QFY07, as per US GAAP numbers, while revenues have grown by 62% YoY, net profits are up 123% YoY, led by a strong expansion in operating margins. The quarter saw the company cross the 31 m GSM mobile subscriber mark, and increase its share to 21.8% of the total wireless mobile base in the country (inclusive of GSM and CDMA subscribers). While the pressure on ARPUs continued, as these declined by 9% YoY during 3QFY07, it was more than compensated by the 14% YoY growth in volumes (minutes of usage). What is more, Bharti was able to reduce churn rates in both the prepaid and postpaid segments of its mobile business. The company also increased its network to cover 54% of India's population, from 38% at the end of December 2005. The non-mobile businesses viz., broadband, telephone services (ILD and NLD) and enterprise services also raked in strong YoY growth during the quarter. Among other sector stocks, MTNL and VSNL ended week on a firm note (each up 2%).

Top gainers during the week (BSE A)
CompanyPrice on
Jan 18 (Rs)
Price on
Jan 25 (Rs)
% Change52-Week
H/L (Rs)
BSE Sensex14,218 14,283 0.5% 14,326 / 8,799
S&P CNX NIFTY4,109 4,148 0.9% 4,158 / 2,596
ING VYSYA BANK 163 196 20.2%201 / 82
ZEE ENTERTAINMENT 289 327 13.2%339 /121
SAIL 99 112 13.1%113 / 53
KOTAK BANK 427 476 11.5%487 / 210
ORCJID CHEMICALS 212 232 9.5%400 / 142

HDFC, India's largest mortgage lending institution, announced yet another quarter of strong performance. For 3QFY07, while income from operations has grown by 38% YoY, net profits were up 25% YoY. The financial institution (FI) has benefited from the sustenance in asset growth. More than commensurate rise in interest expenses has, however, impacted the FI's net profit margins, which have contracted by 260 basis points during 3QFY07. The stock, along with its peers ICICI Bank and UTI Bank, closed higher by 1%.

Top losers during the week (BSE A)
CompanyPrice on
Jan 18 (Rs)
Price on
Jan 25 (Rs)
%
Change
52-Week
H/L (Rs)
DABUR172103-40.1%176 / 102
BIRLA CORP366323-11.8%413 / 164
CMC LTD11591044-9.9%1320 / 335
INDIA CEMENTS245222-9.2%255 / 103
CANARA BANK270250-7.7%320 / 165

Tata Motors, India's largest CV manufacturer also announced its 3QFY07 results during the week and put up yet another impressive topline performance. However, the bottomline growth comparison was made difficult on account of profits accrued to the company during same quarter last year from the sale of stake in a subsidiary. If one were to consider the performance excluding the other income component, then the bottomline growth stood at 71% YoY during the quarter. This had been made possible on the back of a robust 37% YoY jump in topline, driven by 27% YoY growth in volumes during the quarter. Performance at the operating level was also impressive with margins expanding by 140 basis points and profits growing by 50% YoY. On a consolidated level, while the topline growth stood at 37% YoY during the quarter, bottomline grew at a subdued 9% YoY rate. The stock ended firm (up 1%).

Results will continue to pour heavily next week as well and yet again, save for a few exceptions, these are most likely to be buoyant. While it will be extremely difficult to predict how the markets would react to this phenomenon, as this is too short term, we would like to reiterate that all the long-term fundamentals seem to be in place for investors to achieve sizeable returns from equities from a long-term perspective without taking undue risks. The key is to be disciplined and stay invested in fundamentally strong companies with a proven track record.

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