X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
When liquidity strikes! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 28, 2006

    When liquidity strikes!

    The Indian stock markets continued their breath-taking and gravity-defying run in this holiday-shortened week also, with the BSE-Sensex and the NSE-Nifty gaining 4% and 3% respectively. The action, however, was largely restricted to large-caps, as was evident from the relatively tepid gains in the mid-cap (up 1.5%) and small-cap (up 1.1%) indices. Continuation of good numbers from India Inc., the Reserve Bank of India (RBI) raising its GDP growth estimates for the country from 7.5% to 8%, positive indications by the government in terms of FDI, recovery in global markets and smooth rollover of January derivatives series all collectively aided sentiments on the bourses.

    Despite the firm end to last week's trading, the Indian stock markets began the week on a rather subdued note. This followed weak global cues, as stockmarkets across the globe were subdued on the back of concerns pertaining to rising crude oil prices. The indices remained largely rangebound throughout Monday's trading session, however, performing relatively much better than their Asian peers. Tuesday and Wednesday, on the other hand, were different ballgames altogether. With oil prices showing signs of cooling off and Asian markets having bounced back smartly, the Indian bulls too went on a buying spree, in the process, pushing the markets higher and into a new orbit. Wednesday saw the indices register new lifetime highs as the Sensex cruised past the 9,700-mark with much ease. This was followed by intensified lapping up of stocks on Thursday, as the indices clocked new lifetime highs once again, with the Sensex nudging the 9,900-mark.

    However, amidst all this euphoria and action on the bourses, domestic mutual funds (MFs) preferred to remain spectators and watched from the sidelines. As per the data available for three trading sessions (Friday's data will be available only on Monday), domestic MFs were net sellers to the tune of Rs 3.4 bn, thus, taking their total net sales tally to over Rs 34 bn. It must be noted that while MFs have been net sellers in 8 of the last 9 weeks, Foreign Institutional Investors (FIIs) have bought equities worth Rs 129 bn, with the Sensex having gained almost 1,000 points in this period. FII inflows have remained positive in all but 1 of the previous 9 trading sessions. This week also, FIIs bought equities worth Rs 5.4 bn.

    Now let us consider some sector/stock specific developments this week:

    • The quarterly review of the monetary policy was announced during the week. While on the one hand, the RBI retained the outlook on inflation and credit growth, on the other hand, it also highlighted the risks that had emerged - credit quality concerns, rising asset prices (especially housing), high and volatile international crude prices, the widening trade deficit and the upturn in the international interest rate cycle. Consistent with this stance, the RBI once again raised the reverse repo and repo rates by a quarter percentage point each. While banks have already taken the hit of the higher cost of funds on their margins, the tightening of liquidity will necessitate passing on the rate hike to consumers. While this will on one hand, ease pressures on the sector's margins, on the other, it will also dissuade 'generous' disbursement of credit. Banking stocks this week

      Top gainers over the week (NSE-50)
      Company Price on
      Jan 20 (Rs)
      Price on
      Jan 27 (Rs)
      %
      Change
      52-Week
      H/L (Rs)
      BSE-SENSEX 9,521 9,871 3.7% 9,884 / 6,118
      S&P CNX NIFTY 2,901 2,983 2.8% 2,990 / 1,896
      L&T 1,869 2,136 14.3% 2,156 / 890
      ABB 2,252 2,544 13.0% 2,672 / 925
      SAIL 53 58 9.3% 70 / 47
      TATA STEEL 362 395 9.2% 456 / 329
      BHEL 1,581 1,716 8.5% 1,726 / 630

    • Engineering stocks shot onto the investors' radar this week, with hectic buying witnessed in the sector. ABB was the biggest gainer amongst the Nifty stocks. The strength in ABB was seemingly on the back of the good set of numbers for 4QCY05 and CY05 announced by the company. Continuation of strong growth in the company's power technologies and automation technologies divisions aided the topline performance, which grew by more than 30% YoY during the period under consideration. Also, cost savings resulted in an expansion in operating margins, as is evident by the 50% YoY growth in operating profits for CY05. Other engineering stocks

    • Barings Private Equity Partners, which holds around 35% stake in MphasiS BFL, is reportedly in negations with EDS, a US-based company, to sell its stake. The move will be beneficial for MphasiS (up 4%), as this could result in higher order flows from the US multinational. However, there is no clarification from the management of MphasiS. It should also be noted that earlier, Barings had tried to divest its stake in MphasiS, but was not successful in getting through the deal. Hence, investors should tread with caution. Other software stocks

      Top losers over the week (NSE-50)
      Company Price on
      Jan 20 (Rs)
      Price on
      Jan 27 (Rs)
      %
      Change
      52-Week
      H/L (Rs)
      JET AIRWAYS 1,126 1,009 -10.4% 1,379 / 973
      ORIENTAL BANK 259 250 -3.5% 382 / 230
      HPCL 317 309 -2.5% 380 / 282
      VSNL 382 373 -2.4% 445 / 161
      BPCL 439 431 -2.0% 471 / 339


    • Oil retailing stocks were out of favour this week on the back of rising crude oil prices. International crude oil prices had recently nudged the US$ 70 per barrel mark, thus, making investors apprehensive about the impact of this on domestic oil retailing companies like HPCL and BPCL. It must be noted that rising crude oil prices leads to contraction in margins of oil retailing companies, as they cannot pass on the increased costs to consumers owing to political compulsions, which consequently affects their profitability. Both the above stocks lost ground this week. Other energy stocks

    • Reliance Industries (RIL) announced its plans to raise Rs 60 bn for its refinery project through an IPO. A new subsidiary, Reliance Petroleum Ltd. (RPL), will implement the new refinery and petrochemical projects at Jamnagar at an estimated cost of Rs 270 bn. It will be a 27 MT export-oriented refinery and 1 MT pa polypropylene plant. The project would be funded by a debt of Rs 160 bn and equity of Rs 110 bn. The commercial production would start by the second half of FY09. RIL has also announced an investment of Rs 33 bn in retail business. The stock, however, did not participate in the rally this week and was down 1%. As far as the other Ambani group stocks were concerned, while Reliance Capital ended the week almost flat, Reliance Energy gained about 2% and Reliance Infrastructure was up 27%.

    With the Sensex trading at 18.7 times its trailing 12-month earnings and over 16 times one-year forward earnings, valuations continue to remain stretched. Going forward, we believe, with little value left on the table for investors across sectors/stocks, it is advisable to just sit back and introspect about the sustainability of this liquidity-driven euphoria. It would be a wise move now to think about what could go wrong that could lead to investors, especially FIIs, pulling out their investments from Indian equities. Our concern should not be construed as if we are bearish on the markets, since we continue to believe that Indian equities is one place to remain invested in for the next 3 to 5 years. However, we do believe that investors must not falter from their investing principles just because stocks around them are flying.

    In fact, at this point of time, investors must remember the famous quote by the legendary billionaire investor, Warren Buffett, "only buy something that you'd be perfectly happy to hold if the market shut down for 10 years". Happy and safe investing!

     

     

    Equitymaster requests your view! Post a comment on "When liquidity strikes!". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 18, 2017 (Close)

    MARKET STATS