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Heavyweights speak

Feb 1, 2003

With the sustained selling seen for the last two weeks in January, the NSE-Nifty and the BSE-Sensex shed 4.6% and 3.7% respectively during the month of January. Disappointing numbers from tech sector and apprehension of a possible conflict in the Middle East were the key reasons for the flight from equities. The activity for the week was driven by Government policy announcements and of course, quarterly numbers. The week was special as HLL showed signs of coming out of the topline decline trough and Reliance reported impressive numbers. The supply overhang from the previous week continued. Consequently, the bourses got off to a weak start on Monday. Even the CCD meet held on Sunday, the 26th of January, that gave a go ahead to the divestment of Hindustan Petroleum Corporation Ltd (HPCL) failed to revive sentiments. Also, the possibility of the Iraq-US war caused nervousness and technology stocks drew flak. However, MTNL was clearly the star performer as it gained ground almost every single trading day and closed the week with gains of 36%. The TRAI's (telecom regulatory authority of India) decision to hike basic monthly rentals and local call charges will result into higher revenues for MTNL that has 4.5 m basic subscriber base. A back of the head calculation suggests that the Rs 30 hike in rentals will translate into incremental revenue of Rs 1,620 m (17% of FY04E net profits). We expect the company to hike rentals progressively and as a result, incremental revenues will benefit over a period of time. Besides, the average revenue per user, which was declining till now, could rise in light of hike in local call charges.

Top 5 gainers for the week: BSE 'A' Group
Company Price on Jan 24
2003 (Rs)
Price on Jan 31
2003 (Rs)
% Change 52-Week
H/L (Rs)
BSE-Sensex 3,288 3,250 -1.1% 3,758 / 2,828
S&P CNX NFTY 1,056 1,042 -1.3% 1,206 / 920
MTNL 85 117 36.7% 177 / 81
Sterlite Industries 138 163 18.2% 172 / 122
Polaris Software 132 152 15.8% 285 / 114
Digital GlobalSoft 517 578 11.8% 786 / 457
Hexaware Technologies 122 136 10.7% 162 / 38

Tuesday saw markets inching up post the selling seen on Monday. TVS Motors, Steel Authority of India (SAIL) and Grasim industries were among those who announced results during the course of the day’s trading. However, it was Wednesday when one of most important set of numbers for the bourses came out. FMCG major, HLL posted its results. On a like-to-like basis, sales have shown a negligible decline for 4QFY03, while profits are up 9%. Domestic FMCG sales in 4QFY03 declined by 0.2%. This was mainly on account of a 16% fall in food sales (primarily ice creams). HLL has performed well on most of the other areas of presence. Personal care has grown by 6% in 4QFY03 (64% of total sales). All segments have shown improvement in PBIT margins, except for foods. But the star of the day’s trading was MTNL that gained 15%. While fundamental reason for improvement in sentiment was the hike in rentals, the market sources opine the sharp turn around in sentiment was Mr. Pramod Mahajan’s exit from the Telecom Ministry. He was in the favour of an MNTL-BSNL merger. The markets ended in the red, primarily due to the selling HLL saw before its numbers came out. The stock, after touching Rs 169 levels, recovered to close at Rs 173. However, it still closed lower by 3% knocking 14 points off the Sensex.

Top 5 losers for the week: BSE 'A' Group
Company Price on Jan 24
2003 (Rs)
Price on Jan 31
2003 (Rs)
% Change 52-Week
H/L (Rs)
Hinduja Finance 226 185 -18.1% 400 / 104
Sterlite Optical 56 48 -14.1% 153 / 46
Hind Lever Chem 164 144 -11.9% 208 / 144
Kingfisher Properties 26 23 -11.4% 171 / 23
M&M 109 97 -10.8% 140 / 79

On Thursday there was some good news from the technology sector after a string of disappointments in the recent past. i-flex Solutions and Digital posted a strong growth in topline and bottomline for the quarter ended December 2002. i-flex’s net profits for the quarter ended December 2002 grew 17% sequentially. However, this is including a write off of Rs 38 m. Excluding the write off, the company's revenues jumped 25% sequentially. Revenues have grown 11% QoQ. Digital on the other hand, was back after a short break. The company saw revenue growth slowing down for the quarter ended September 2002 (2QFY03) as the parent HP was busy sorting out merger related issues. However, in 3QFY03 net profits jumped 26% sequentially, on the back of a 16% growth in revenues and improved margins.

Top 5 gainers for the month: BSE 'A' Group
Company Price on Dec 31
2003 (Rs)
Price on Jan 31
2003 (Rs)
% Change 52-Week
H/L (Rs)
Moser-Baer India 155 210 35.0% 365 / 137
MTNL 95 117 23.3% 177 / 81
Hexaware Technologies 116 136 16.8% 162 / 38
Aurbindo Pharma 213 247 15.6% 281 / 191
Bharat Electronics Limited 175 201 14.5% 233 / 107

On the last trading day of the week the markets made a strong come back with Sensex gaining 42 points during the day’s trading. The strong numbers from Digital and i-flex caused a u-turn in sentiment towards technology stocks. Consequently, Infosys and Satyam closed the day with gains.

Top 5 losers for the month: BSE 'A' Group
Company Price on Dec 31
2003 (Rs)
Price on Jan 31
2003 (Rs)
% Change 52-Week
H/L (Rs)
Pentamedia Graphics 25 15 -40.7% 65 / 15
Silverline Technologies 23 14 -39.1% 66 / 13
Hinduja Finance 282 185 -34.3% 400 / 104
DSQ Software 20 13 -34.2% 50 / 10
Shyam Telecom 61 43 -29.6% 128 / 38

But it was index heavyweight Reliance’s (RIL) 3QFY03 results that were largely responsible for the pull up. The company declared strong results for the quarter, with topline increasing by close to 7% driven by increased realisations (5%) and marginal growth in volumes (2%). The company's total expenditure growth, on the other hand, was lower at 4.2% resulting in higher operating margins during the quarter. This led to a healthy growth of nearly 20% in operating profits for the company. Reliance reported a huge 110% growth in net profit (excluding extraordinary income of Rs 3.6 bn earned last year from sale of L&T stake to Grasim). The stock gained significantly and at one point was up 4%. But it finally saw some profit taking and closed up over 2%.

foreign Institutional Investors (FIIs) investments for the month of January 2003 saw a 109% jump compared to January 2002. February 2002 was a record month for FII investments (19.7 bn), which is over 80% of total FII net investments during 2002. The February record thus, will be tough to beat. Further the debt markets after witnessing a dream run for almost year and a half have witnessed a sharp correction. This could cause investors to move away from the debt markets and the money might find its way into the equities markets. However, a dark cloud on the horizon is possibility of the Iraq-US conflict.

Going forward, speculation regarding the budget is likely to drive sentiment. With elections around the corner, expectations are that the Finance Minister is likely to present a populist budget. As the D-day draws nearer and nearer the noise regarding the populist budget is likely to gain strength. A certain section of the market is also likely to keep buying on these expectations. Consequently, the Nifty and Sensex may rise. However, be careful. This might be a 'suckers' rally, a noise being purposely created to bring the gullible retail investor into the markets. Remember that the indices have not seen the pre-budget highs (budget 2002-03) till date.

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