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So near yet so far! - Views on News from Equitymaster
 
 
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  • Feb 4, 2006

    So near yet so far!

    It was profit-booking time on the Indian bourses this week as the benchmark indices lost over 1%. While there was no specific reason that triggered the correction, the fact that most of the international markets remained largely weak could have contributed to some bearishness on the bourses. However, despite the overall weak trend, the indices did not fail to make new lifetime highs during the week. In fact, the BSE-Sensex almost nudged the psychological mark of 10,000 before retreating to lower levels.

    Having ended the previous week at historical levels, the markets began this week on a cautious note. Seemingly, the investors who had been riding the bull wave and waiting eagerly for the 10,000 mark opted to book profits at higher levels, thus putting pressure on the indices. Tuesday turned out to be a good day for investors as bulls returned to their buy mode, helping the markets to scale new peaks during the trading session. This strength continued well into Wednesday's trade as the Sensex made an unsuccessful attempt to breach the much-awaited 10,000 mark. Nonetheless, the Sensex must be given due credit for the fact that it did manage to come within striking distance of the 5-digit mark before declining sharply to lower levels and ending the day in the red.

    However, the pressure did not end there as the following two trading sessions saw investors continue to remain in the sell mode. Though there was some resilience visible in the markets in the form of buying at lower levels, the final hour of trade on Friday saw the bears take total control of the market proceedings and the bulls were forced to run for cover. However, it must be noted that the selling pressure this week seemingly emerged from the non-institutional segment of the market as both Foreign Institutional Investors (FIIs) (Rs 7.4 bn) and mutual funds (MFs) (Rs 241 m) were net buyers in the first four trading sessions of the week. Apart from large-caps, intense selling pressure was seen in small cap stocks with the BSE Small-cap index losing 5% this week.

    Top gainers over the week (NSE-50)
    COMPANY Price on Jan 27 (Rs) Price on Feb 3 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 9,871 9,743 -1.3% 9,994 / 6,118
    S&P CNX NIFTY 2,983 2,941 -1.4% 3,011 / 1,896
    NALCO 254 292 15.0% 310 / 139
    SUN PHARMA 684 770 12.5% 775 / 375
    CIPLA 443 484 9.1% 500 / 212
    DR. REDDY 1,073 1,161 8.1% 1,216 / 605
    BHEL 1,716 1,846 7.6% 1,870 / 740

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

    • Domestic pharma major, Dr. Reddy's, was one stock that bucked the overall bearish market trend and managed to gain 8% during the week. The company has inked an agreement with US-based company, Merck, to manufacture, sell and distribute generic versions of two of the latter's drugs Zocor (Simvastatin) and Proscar (Finasteride), once they go off patent. This means that Dr. Reddy's has become the first Indian company to become an authorized generics manufacturer. Currently, Zocor is the second-largest selling drug in the world having generated US$ 5.2 bn in global sales. The market size of Proscar is pegged at US$ 630 m. This agreement means that in the event of another generic company being granted the 180-day exclusivity period for these drugs, Dr.Reddy's will be authorized to launch these drugs during the period as well, enabling it to generate substantial revenues. Other pharma stocks (gainers)

    • Cipla too notched considerable gains this week (up 9%). While the company did report strong results for 3QFY06 last week, what really set the stock on fire was the announcement made by the company regarding its plans for a bonus issue. The company's board of directors is scheduled to meet on February 11, 2006 to discuss this issue. It is also planning to consider the issue of raising funds and increasing the limit of investment of foreign institutional investors (FIIs) in the company. Other pharma stocks (losers)

    • Nalco (up 15%), the largest alumina and second-largest aluminium producer in the country, raised aluminium prices by Rs 5,000 per tonne effective this month. Hindalco (up 2%) also raised prices by Rs 6,000 per tonne. It must be noted Indian players follow international price trends, which have continued their surge on sustained demand for the metal. Lack of adequate aluminium supply and low inventory in the London Metal Exchange warehouses has aided the upward momentum of aluminium prices. Alumina prices have also soared back to US$ 600 per tonne in the international markets in recent times, which is particularly positive for Nalco. It must be noted that alumina is the key ingredient used in the manufacturing of aluminium.

      Top losers over the week (NSE-50)
      COMPANY Price on Jan 27 (Rs) Price on Feb 3 (Rs) % CHANGE 52-WEEK H/L (Rs)
      ONGC 1,266 1,162 -8.2% 1,298 / 800
      GUJ. AMBUJA 92 85 -7.9% 103 / 49
      ICICI BANK 620 571 -7.8% 621 / 350
      TATA TEA 950 879 -7.5% 971 / 482
      SAIL 58 53 -7.4% 70 / 47


    • A year after it bought into India's largest cement maker ACC, Swiss major, Holcim, acquired 14.8% of promoter stake in Gujarat Ambuja Cements (GACL) at Rs 105 a share. The acquisition price includes a 'non-compete fee' of Rs 15 per share to ensure that the sellers do not pursue the same business activity later. The promoters, Sekhsaria's, will continue to hold a 9% stake in GACL post the stake sale. At about US$ 200 EV/tonne, the Holcim-GACL deal tops all earlier domestic cement buyouts and equals the most expensive worldwide in valuation terms. However, the stock ended the week with losses (down 8%) seemingly on the back of profit booking, as the stock had run up considerably (up 20%) in the month of January. Other cement stocks

    Going forward, with India Inc. results out of the way, investors would now get back to their number crunching game and re-focus on the future of companies. However, now, the future of the stock markets would have to be judged in the backdrop of a few factors. It must be noted that the current market (Sensex) valuations of about 16 times one-year forward earnings does not leave significant margin of safety on the table for investors in case India Inc. performance falters for some reason. Further, the challenge for India Inc. to deliver from hereon would stand increased considering a scenario of hardening interest rates, stronger fuel prices and no relief on the inputs front as commodity prices continue to hold firm.

    Having said that, we, however, continue to believe that the India story is not over and staggered investments with 3 to 5 years investment horizon is a sound approach to mitigate the impact of most risks. We feel that fundamentals do not change by the day, week or month. If the fundamentals and performance of the company are strong, markets will acknowledge the same in due course of time. Happy and safe investing!

     

     

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