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6,000...once again!

Feb 14, 2004

It was a good week for the indices, as bulls once again made their presence felt. While the BSE-Sensex gained just under 4%, the NSE-Nifty closed higher by 4.4%. Some positive indications given by the government with respect to India's fiscal position and the continuance of the upward revision of GDP growth target seemingly provided investors with enough reason to go on a buying spree, especially after the correction witnessed during the month of January 2004.

During the week, while the Foreign Institutional Investors (FIIs) continued to pour money into Indian equities, the mutual funds (MFs) industry was busy booking profits. This is evident from the chart above, which shows that mutual funds have been net sellers in the current month up till February 12, 2004 to the tune of Rs 1.8 bn, which is in sharp contrast to the FIIs investment of Rs 18.5 bn.

Top 5 gainers over the week
COMPANY Price on
February 6 (Rs)
Price on
February 13 (Rs)
%
CHANGE
52-WEEK
H/L (Rs)
BSE-Sensex5,7866,0123.9%6,250 / 2,904
S&P CNX NIFTY 1,8341,9144.4%2,015 / 920
HINDALCO1,2161,35111.2%1,599/532
RELIANCE ENERGY57864110.8%644/205
NALCO16618310.6%206/70
NIIT1952139.2%282/94
OBC2532758.8%297/52

Last week's bullish sentiments trickled down to the current week also with the indices gaining significant ground on the back of all round buying witnessed across sectors, which once again pushed the Sensex and the Nifty beyond the crucial psychological levels of 6,000 and 1,900 respectively. It must be noted that with the gains this week, the Sensex has made a smart comeback of almost 450 points to the current levels from the low of 5,550 it touched during the first week of the current month. However, this week, practically all the gains were garnered on the first (140 points) and the last trading days (75 points) of the week, with Tuesday-Thursday witnessing a rather lackluster trading activity, as markets consolidated for a while before resuming their upward journey.

Top 5 losers over the week
COMPANY Price on
February 6 (Rs)
Price on
February 13 (Rs)
%
CHANGE
52-WEEK
H/L (Rs)
DR. REDDY'S1,333 1255-5.8%1,471/805
INFOSYS5,5595,376-3.3%6,100/2,300
ICICI BANK321311-3.1%352/119
COLGATE149148-0.9%175/118
BAJAJ AUTO10311022-0.9%1,210/460

Further, the upward revision of India's GDP growth targets continued in the current week also with the Central Statistical Organisation (CSO) releasing its expected GDP growth for FY04. It indicated that the economy is likely to grow by over 8% on the back of a 9% growth in agriculture and also an improved growth in manufacturing. Another positive news emanating from the government was with regards to India's deficit position, wherein the government indicated that on the back of higher economic growth and control on expenditure, the revenue deficit of the country would be wiped out by FY06, two years ahead of the time the 'Fiscal Responsibility and Management Act' envisages. Further, the CII's revision of India's current year growth rate to 7.8% from the earlier 7.2% could also have had a positive impact on market sentiment.

Some key developments at India Inc. during the week were:

ICICI Bank (down 4%) is planning to raise upto Rs 30 bn through a domestic public issue of shares by April. This will be the largest equity float by any private entity in the domestic market. The reasons cited by the bank for this include strengthening its equity base and leveraging opportunities in the Indian retail credit growth and the under-penetrated insurance segment. Apart from this, the proceeds would be used at increasing its international branch presence. The higher capital base would also, in a way, make the bank less vulnerable to being a takeover target of international banking majors.

While the pharma stocks remained largely in favour during the week, domestic pharma major, Dr. Reddy's lost 6%. The fall would have been much harsher but thanks to the overall strength witnessed on the bourses, the stock managed to recover some lost ground. The sharp fall in Dr. Reddy's had come about due to the news that the US FDA has blocked the approval for AmVaz, the anti-hypertension and angina drug from the company. Notably, this drug has a market potential of around US$ 200 m for Dr. Reddy's in about two years. If Dr. Reddy's had received the approval from US authorities, as was expected in October 2003, this drug was expected to garner a market share of around 10%-15%.

In a strategic move, Bharti has tied up with Ericsson to build and manage its telecom networks. This contract has been signed up for a period of 3 years for a consideration of US$ 400 m. Under the contract, Ericsson will manage and maintain the existing capacity of Bharti. This tie up will prove beneficial for Bharti in the sense that it will provide the users the services of an international standard considering the experience of Ericsson. The contract will help Bharti to save on operational cost on the existing networks. The Bharti Tele stock gained 10% during the week.

Software stocks witnessed strength on the bourses during the week. This was on the back of the news that the US annual report by the President's council of economic advisors has favoured outsourcing of services to Indian companies. With increasing voices against outsourcing to low cost destinations like India that is resulting into significant job losses in the US, this report has come as a respite.

The news of price hike of cement by Rs 10-15 per 50 kg bag came as good news for cement stocks This rise in price has come about at a time when cement demand is at its peak with a lot of construction activity taking place throughout the country. While the industry volumes grew at a modest rate of 4.4% during the April-November 2003 period, the demand picked up in the month of January. This, coupled with the current improvement in prices, is likely to provide companies with better profitability going forward.

Going forward, we believe that with much of 2004 growth having already been factored into the current valuations and in the absence of any fresh triggers, markets could continue to trade in a volatile fashion. Further, until the scenario becomes clearer post the general elections, the uncertainties regarding the same is likely to largely keep investors at bay. Here we would like to re-iterate that from hereon, any upside in stock prices has to be in conjunction with an equivalent improvement in the quantum and quality of earnings for the markets to sustain. Happy Investing!

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