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Tug-of-war - Views on News from Equitymaster
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  • Feb 12, 2005


    The Indian indices ended at almost the same levels as that of last week. Both the BSE-Sensex and the NSE-Nifty closed marginally (0.2%) above last Friday's levels. However, though this week ended with marginal gains, the volatile movement of the indices during the week displayed signs of apprehension and lack of investor confidence at the current high index levels. However, buying at lower levels capped the downfall in the markets.

    Post the near 7% gains witnessed in the markets since the final week of January 2005, investors seemed cautious at continuing to invest at the current levels. Rather, they took every opportunity to book profits at every rise in the markets thus preventing the indices from making any serious headway during the week. All efforts by the bulls to provide a fillip to the indices were neutralized by the equally strong selling pressure. FIIs, which have been the pillars of the rally on the Indian bourses, preferred to stay relatively inactive. Nonetheless, the net inflows during the week (first 4 days of the week) were positive at over Rs 6 bn (US$ 144 m). Further, considering the rally witnessed on Friday, this number would be higher.

    Some key gainers over the week (NSE-50)
    Company Price on
    Feb 4 (Rs)
    Price on
    Feb 11 (Rs)
    H/L (Rs)
    BSE-Sensex 6,618 6,634 0.2% 6,696 / 4,228
    NSE-Nifty 2,078 2,082 0.2% 2,120 / 1,292
    ABB 1,066 1,269 19.1% 1,320 / 491
    TATA TEA 495 546 10.4% 560 / 251
    GAIL 226 246 9.2% 270 / 101
    MARUTI 463 500 8.2% 600 / 300
    ACC 360 379 5.1% 387 / 221

    Let us now consider some key sector/stock specific news this week:

    • Engineering stocks continued to hog the limelight this week also. With higher investments envisaged for the sector over the next few years in light of expanding rural electricity networks, engineering companies are likely to benefit in terms of larger orders to set up power plants. ABB was amongst the biggest Nifty gainers this week (up 19%). However, in our view, the order book position cannot rise at a much faster rate than what is executable and therefore, investors have to be realistic with respect to the order book growth. The stock has been consistently gaining ground over the last few weeks (43% since mid-January compared to 7% of Sensex).

    • Tata Tea was another key gainer during the week (up 10%) on the back of the restructuring initiatives planned by the company. The company will be restructuring its plantation activities in south India. The restructuring will be done by way of sale or leasing out of assets to a new private limited company. This will enable the company to focus on the branded business and it will also be protected from increasing fixed costs and volatility associated with the plantation business including vagaries of commodity prices, which will in turn benefit the shareholders of the company.

    • ACC was another key gainer and in the process made a new 52-week high (Rs 385) during the week. The stock has been in the limelight ever since Holcim (along with Gujarat Ambuja) announced the acquiring of a stake in the company. Further, Holcim has made an open offer at Rs 370 per share; however, the stock price has consistently managed to hold ground at the current levels. It must be noted that as per reports, LIC, the largest domestic investor in ACC with a 15.7% stake, has seemingly pegged ACC share value at Rs 500 per share. This has kept the momentum alive towards the ACC stock, which has sustained above Holcim's offer price on expectations that the international cement major might have to raise the offer price for its open offer to go through, which the company has denied.

      Some key losers over the week (NSE-50)
      Company Price on
      Feb 4 (Rs)
      Price on
      Feb 11 (Rs)
      H/L (Rs)
      HLL 170 155 -8.5% 205 / 101
      BHARTI TELE 222 209 -5.7% 245 / 114
      WIPRO 728 695 -4.5% 775 / 396
      COLGATE 200 192 -4.0% 215 / 102
      CIPLA 285 276 -3.1% 322 / 194

    • The ‘big-daddy' of the Indian FMCG sector, HLL, announced its results this week. The company reported a marginal recovery in revenue growth during the quarter, which is a better performance as compared to over 3% dip in September quarter topline. For the full year, it reported over 2% dip in topline. But price competition took a big toll on operating margins of the company, both for the quarter, as well as for CY04. Consequently, profits dipped by nearly 33% during the quarter (down over 32% in CY04). The company has declared Rs 2.5 per share as final dividend, taking the total dividend payment for CY04 to Rs 5 per share.

    Going forward, with India Inc. showing little signs of faltering on its performance coupled with the positive noises emanating from the government with respect to more conducive policies in order to aid India's economic growth, it would not be wise to stay out of Indian equities. However, considering the fact that Indian indices are trading close to their all-time highs and many sectors/stocks are fairly valued at the current juncture, the need of the hour is to follow a bottom-up and staggered investment approach. Happy investing!



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