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Volatility reigns supreme...

Feb 2, 2008

The Indian stock market continued to witness volatility throughout this week, with the Sensex ending in the negative in 4 out of the 5 days. For the week ended February 01, 2008, the Sensex lost 0.6%, while the Nifty lost 1.2%.The week began on a negative note with the BSE-Sensex shedding 209 points while the NSE-Nifty lost 109 points on Monday. However, it could have been worse had the broader markets, helped chiefly by auto stocks, not recovered from the early setbacks. It was the opposite story on Tuesday, as the markets closed weak after relinquishing most of their early gains in response to RBI's third quarter review of the monetary policy for 2007-08. The Sensex shed 61 points while the Nifty gained 7 points. Wednesday went down as a gloomy day on the markets with the indices starting off to a dispirited cue and marching steadily downward thereafter. Cement and software sectors registered maximum gains, while power and auto stocks bore the brunt of selling activity. The Sensex lost 333 points while the Nifty shed 113 points.

Thursday was marked by volatility as the markets experienced sharp movements in both directions. Although initially the indices seemed unenthused by the 0.5% rate cut by the US Fed, that soon changed with Sensex making a sharp u-turn and zooming past the dotted line by more than 200 points. However, it gravitated downwards toward the final trading hours to close lower by 110 points. The Nifty lost 30 points. The broader markets ended with a flourish after recovering from a decline earlier on Friday aided by software stocks amidst broad based buying. Thus the BSE Sensex closed at 18,233 (up 585 points) while the NSE Nifty closed at 5,317 (up 180 points) during the last trading day of the week.

On the institutional activity front, between 25th January and 31st January, FIIs emerged as net sellers selling equities to the tune of Rs 51 bn, while mutual funds bought equities to the tune of Rs 9 bn.

(Rs m)MFs FIIsTotal
25-Jan2,212 66918,903
28-Jan3,688 (15,134)(11,446)
29-Jan(1,177)(2,851) (4,028)
30-Jan4,163 (6,114) (1,951)
31-Jan NA (33,934) NA
Total8,886 (51,342) (8,522)

On the sectoral indices front, the BSE IT Index (up 4%) led the pack of gainers, while the BSE BANKEX (down 4%) led the pack of losers.

IndexAs on Jan 25As on Feb 01% Change
BSE IT3,800 3,934 3.5%
BSE AUTO4,843 5,005 3.3%
BSE FMCG2,160 2,225 3.0%
BSE METAL 15,604 15,910 2.0%
BSE HEALTHCARE3,692 3,643 -1.3%
BSE OIL AND GAS 11,198 11,023 -1.6%
BSE MIDCAP8,021 7,762 -3.2%
BSE PSU8,664 8,377 -3.3%
BSE SMALLCAP 10,421 10,072 -3.3%
BSE BANKEX 11,380 10,890 -4.3%

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

HPCL announced results for 3QFY08. In 3QFY08, the topline grew by 22% YoY. Results were adversely affected due to high crude and product prices, which could not be fully passed on to the consumers. The EBITDA margins contracted to 0.5%, from 0.9% in 3QFY07 due to a 23% YoY rise in expenditure and due to increased under recoveries. The Gross Refining Margins (GRMs) for 9mFY08 were US$ 6.17 per barrel (last year US$ 4.86) for Mumbai refinery and US$ 6.30 per barrel (last year US$ 3.35) for Vishakapatnam refinery. The bottomline turned negative owing to erosion in operating margin and higher interest costs. While HPCL closed lower by 4% for the week, BPCL ended 6% lower.

Hindalco announced its 3QFY08 results. Net sales declined 3% YoY during the quarter, led by 2% fall in copper revenues. While volumes were higher, a 41% lower TcRc (Treatment Charges and Refining Charges) and an adverse rupee dollar rate constrained the copper business. Spiraling costs lead to a 23% YoY drop in operating profits as margins contracted by 4.7%. A benign depreciation charge and near doubling of other income restricted the bottomline decline to 16% YoY during the quarter. For the first nine months, the bottomline shrunk by 3% YoY on the back of a 5% rise in topline. While Hindalco closed higher by 2%, Nalco ended 4% lower.

Top gainers during the week (BSE A)
CompanyPrice on
January 25 (Rs)
Price on
February 1 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX18,362 18,243 -0.6% 21,207 / 12,316
S&P CNX NIFTY5,383 5,317 -1.2% 6,357 / 3,555
SUN PHARMA977 1,118 14.5% 1,265 / 790
GUJ.MINERAL DEV.360 407 12.9% 634 / 77
ASIAN PAINTS 1,048 1,174 12.0% 1,320 / 642
JINDAL STAINLESS150 166 11.1% 244 / 110
HDFC2,713 2,998 10.5% 3,257 / 1,397
THOMAS COOK INDIA71 78 9.3% 144 / 46

Bajaj Auto announced results for 3QFY08. In 3QFY08, the company has posted a 3% YoY drop in topline on the back of a similar decline in overall volumes. However, tight control on costs has led to an operating margin improvement of 30 basis points during the quarter. The bottomline has suffered a fall of 5% YoY after being affected by an extraordinary expense to the tune of Rs 511 m. Excluding the same, bottomline has grown at a modest rate of 6% YoY. In the nine months, bottomline has suffered a fall of 10% YoY on the back of a 9% fall in topline. The company's sales in volume terms have fallen by 10% YoY in the domestic market while exports have jumped 32% YoY during the quarter. The fall in the domestic market has been led by motorcycles, where sales have come off by 10% YoY. Although this is a much-improved performance than the first half, where volumes had shrunk by 25%, the company has continued to lag the industry, where volumes were down by 7% YoY. While Bajaj Auto closed higher by 8%, Hero Honda ended 5% higher.

Top losers during the week (BSE A)
CompanyPrice on
January 25 (Rs)
Price on
February 1 (Rs)
%
Change
52-Week
H/L (Rs)
BHARAT ELEC.1,8831,554-17.5%2,180 / 1,352
KOTAK BANK1,088961-11.6%1,436 / 402
THERMAX LTD.689610-11.5%968 / 341
MASTEK287255-11.3%419 / 224
ROLTA INDIA284253-11.2%390 / 138

What should the volatility that the markets are currently going through mean to you, dear reader? Here's what Warren Buffett has to say in his 1993 letter to shareholders-" a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly." He further adds- "...we'll... seek whatever information will further our understanding of the company's business". We recommend you the same approach.

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