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Another summit scaled!

Feb 3, 2007

It continued to rain gains during the holiday-shortened week ended Feb 2, 2006 and thus for the sixth time in a row, both the BSE-Sensex as well as the NSE-Nifty edged higher by 1.3% and 1.4% respectively. It should also be noted that these benchmark indices closed the week with another lifetime high.Bogged down by a few heavyweights, markets opened the week on a bearish note and the decline continued into Tuesday, where the losses were even steeper. Huge selling pressure on Tata Steel and Reserve Bank of India's (RBI) repo rate hike proved to be the main dampeners. The strong rally over the next two days however, not only helped reverse the losses, but also enabled the indices to close well into the positive. The US central bank's decision to keep the interest rate steady had a rub off effect on almost all the global indices and India was no different. Buoyed by the news, investors readily bought into Indian equities, that had been laid low to an extent owing to the sell off witnessed over the first couple of days of the week.

As far as sectoral indices are concerned, the tables turned completely during the week as the 'Healthcare' index, previous week's worst performer came out on top while the 'Metal' index that had risen sharply and was previous week's number one, fell to the bottom of the list. Gains in the healthcare index were driven by heavyweights like Ranbaxy and Sun Pharma, both of which gained between 3% during the week. On the other hand, steel major, Tata Steel bled profusely during the week and lost almost 11%. With the company accounting for 30% of the metal index, little wonder the index was the worst performing index in the week.

IndexAs on January 25As on Feb 2% Change
BSE HEALTHCARE3,803 3,855 1.4%
BSE IT5,365 5,392 0.5%
BSE MIDCAP6,089 6,118 0.5%
BSE PSU6,324 6,348 0.4%
BSE AUTO5,592 5,598 0.1%
BSE SMLCAP7,576 7,561 -0.2%
BSE OIL AND GAS6,691 6,655 -0.5%
BSE BANKEX7,447 7,406 -0.5%
BSE FMCG1,951 1,920 -1.6%
BSE METAL9,625 9,457 -1.7%

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

Tata Steel was the biggest loser on the Nifty during the week as it edged lower by 11%. The weakness was owing to the fact that it had to shell out 34% more than what was envisaged before to buy a controlling stake in Corus, Europe's second largest steelmaker. Markets seem concerned about Tata Steel's ability to service the debt it will have to undertake to finance the acquisition. While these are near term concerns, over the long run, we believe the acquisition will create huge synergies and will be value accretive to the company.

Top gainers during the week (BSE A)
CompanyPrice on
Jan 29 (Rs)
Price on
Feb 2 (Rs)
%
Change
52-Week
H/L (Rs)
BSE Sensex14,212 14,404 1.3% 14,463 / 8,799
S&P CNX NIFTY4,124 4,184 1.4%4,199 / 2,596
UTI BANK504 587 16.6% 615 / 222
ESCORTS122 141 15.8% 142 / 53
EXIDE INDUSTRIES42 47 12.6%51 / 19
GUJ. MINERAL DEV.388 424 9.4% 491 / 237
JINDAL STEEL 2,330 2,529 8.5% 2,580 / 1,151

Reliance Communications, India's second largest cellular player announced robust results for 3QFY07 and this enabled the company to close the week with gains of 8% along with its rival Bharti Airtel. During 3QFY07, the topline of the company grew at a healthy rate of 26% YoY. Further, on the back of a strong expansion in operating margins, the net profits recorded a robust 198% YoY growth. This strong performance is a culmination of robust addition to the subscriber base, as the company neared the 27 m mobile subscriber mark. Backed by this, the mobile segment revenues increased by 39% YoY during the quarter. Among other segments, while broadband grew by 149% YoY, the company's global business (ILD and NLD service) recorded a 4% YoY decline in sales.

Top losers during the week (BSE A)
CompanyPrice on
Jan 29 (Rs)
Price on
Feb 2 (Rs)
%
Change
52-Week
H/L (Rs)
TATA STEEL519 463 -10.9%679 / 377
HINDUSTAN ZINC761 693 -8.8%1,119 / 325
ASAHI INDIA142132-7.0%152 /70
ROLTA INDIA335 313 -6.5%343 / 124
NESTLE1,125 1,060 -5.7%1,387 / 800

Tobacco major, ITC, reported a robust performance for the December quarter, with a near 24% YoY growth in net sales led by cigarettes (up 14% YoY), branded packaged foods (up 65% YoY), hotels (up 29% YoY) and agri businesses (up 20% YoY). The margins for the quarter remained steady at 34%. Barring the one-time extraordinary effect in 3QFY06, bottomline has grown in line with the topline. The company's effort to de-risk its revenue model by increasing the share of its other businesses in its total revenue pie was yet again visible in this quarter. The stock ended 3% higher for the week while its peer Nestle was down 6%.

With most of the heavyweights out with their results, the season is about to draw to a close. The markets are most likely to turn their attention towards the union budget and the kind of fiscal policies it spells out, which will determine which way the indices move next. With the economy in such a cruising mode, we do not expect the FM to tinker too much with the status quo. All in all, save for a few blips, it seems most likely that we are set for a good long-term buoyancy.

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