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Bulls back with a vengeance! - Views on News from Equitymaster
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  • Jan 29, 2005

    Bulls back with a vengeance!

    The current weeks stock market performance must have provided a (big) sigh of relief to most market participants. This weekˇ¦s behaviour of the indices was very much unlike the previous 3 weeks of the month wherein for the first couple of weeks, the indices had met with severe pounding as FIIs decided to cash out of Indian equities by booking some profits leading to a 9% fall in the indices. The third week was more in the nature of consolidation as buying emerged at every fall in the markets and selling at higher levels. This had, however, given rise to substantial volatility during the week. In contrast to the above, the current (4th) week was like a happy ending to almost a month long agony for investors, as the indices notched gains of about 4% week-on-week.

    The markets opened on a rather weak note on Monday and continued to tread lower into the red. This was primarily in continuation of the trend witnessed during the entire third week of the month wherein investors opted to book profits at every rise. It must be noted that on Thursday (last week) the indices had recovered smartly (100 points on the Sensex) from intra-day lows to end the day in the positive. However, Tuesday onwards was a different ballgame altogether. After displaying some volatility in the first half of trade on Tuesday, the indices started their northward movement, which continued well into Thursday and Fridayˇ¦s trade. Wednesday was a holiday on account of Republic Day. Consequently, the indices ended the week with gains of over 3%. However, if we consider the gains from the intra-day lows during the week, the gains are much more sharper at about 6%!

    While the key reason for this weekˇ¦s rally seems to be the continued strong December quarter results doled out by India Inc., the fact that expectations are also being built up from this years Budget, which could have perked up investor interest in stocks. Already, as per reports, there are positive noises emanating from the government with respect to a favourable budget in February. While the latter is the speculative part that has generated positive vibes, the former (strong 3QFY05 results) is more of a concrete reason. Just to put things in perspective, considering the Quantum Universe of companies that have declared their December quarter results so far, the topline and bottomline have registered YoY growth of 25% and 27% respectively. Apart from this, the smooth rollover of derivatives contracts on Thursday and the return of the FIIs have also aided market sentiments.

    Let us now consider some stock/sector specific news during the week.

    • Dabur, the Ayurvedic products major, which reported good December quarter numbers, was in the limelight during the week on the back of the news of its acquisition of the oral and healthcare major, Balsara (revenues of Rs 2 bn) and all its well known brands for a total cash consideration of Rs 1.4 bn. Consequently, Dabur will own brands like Promise, Babool and Meswak in oral care segment, Odomos mosquito repellant and household care brands like Odonil, Odopic and Sanifresh. The deal is a good fit for Dabur's existing oral care folio and will propel it into No. 3 position in this segment (11.1% share), behind Colgate and HLL.

    • Another big news for the FMCG sector this week was the announcement of Procter & Gamble (P&G) intentions to acquire Gillette globally for US$ 54 bn. If and when the deal goes through, P&G will become the world's largest consumer products player surpassing Unilever NV. To read our view on this development, click here

      Key gainers over the week (NSE-50)
      Company Price on
      Jan 20 (Rs)
      Price on
      Jan 28 (Rs)
      H/L (Rs)
      BSE-SENSEX 6,183 6,419 3.8% 6,696 / 4,228
      S&P CNX NIFTY 1,925 2,008 4.3% 2,120 / 1,292
      MARUTI 395 449 13.7% 600 / 300
      M&M 480 533 11.2% 63 / 360
      SAIL 55 61 11.2% 65 / 21
      SATYAM 360 400 11.2% 442 / 230
      SHIP. CORP. 142 158 10.9% 188 / 61

    • Among the key gainers this week was steel major, SAIL (see table above), which posted strong performance in the 3QFY05 results declared during the week. While the topline of the company grew by 32%, the net profit of the company more than doubled. While strong steel prices (up 34% YoY) have primarily contributed to this performance by the company, improvement in product mix has also helped the company to post strong margin expansion, which was supported by better efficiencies at operating level. Other steel stocks

      Key losers over the week (NSE-50)
      Company Price on
      Jan 20 (Rs)
      Price on
      Jan 28 (Rs)
      H/L (Rs)
      VSNL 214 210 -1.9% 252 / 110
      ZEE TELE 151 149 -1.4% 189 / 100
      HDFC 763 754 -1.2% 808 / 450
      HERO HONDA 537 531 -1.0% 616 / 320
    • It must be noted that most of the stocks that have gained substantial ground during the week have come out with encouraging December quarter results, which helped support investor sentiments towards the same. However, loss of over 1% this week in Zee Telefilms was on the back of the disappointing 3QFY05 numbers declared by the company. Further, until there is more clarity on the Zee-Padmalaya tangle, investors seem to have taken a cautious approach towards the stock. Other media stocks

    Going forward, with the results season now almost behind us, markets would now focus back on companiesˇ¦ future prospects and accordingly arrive at a stand. Further, with increasing activity on the Budget front, there could be some volatility on the bourses in the run-up to the same as speculation with respect to the possible government stand towards various sectors starts to flow. However, investors should avoid getting swayed by rumors and continue to remain focused on the fundamentals of a stock. Long-term staggered investment approach continues to remain the appropriate recipe for decent returns from the current stock market levels.



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