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The rally snaps - Views on News from Equitymaster
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  • Feb 19, 2005

    The rally snaps

    The past four weeks of rally, which saw the BSE-Sensex gain more than 7%, snapped this week as domestic investors decided to take some profits off the table before the budget. This week, both the Sensex and the NSE-Nifty ended with about 1% losses. Positive expectations from the budget and a sound macro economic picture going forward continued to attract the Foreign Institutional Investors (FIIs) towards Indian equities.

    After the tug-of-war witnessed last week between the bulls and the bears, which saw the indices closing with only marginal gains, this week was not much different. However, by the end of the week, the bears emerged a stronger hand. The indices had a pretty firm start on Monday with the Sensex having held ground above the 6,700 levels for most part of the day before a sharp bout of profit booking, led by index heavyweights, pushed the index to lower levels, albeit closing in the positive.

    However, after that, for the next four trading sessions, ample volatility characterised market behaviour, as buying at lower levels pushed the indices to higher levels, which was being countered by an equal amount of selling pressure bringing the indices back to lower levels. This behaviour on the bourses seemed largely a factor of the wait-and-watch policy having been adopted by investors at the current levels in view of the impending budget.

    It must be noted that the apprehensiveness towards equities seemed to have emanated largely from the domestic investors' camp as FIIs continued to buy into Indian equities all throughout the week (Friday's figures not available), while the former have triggered occasional bouts of selling (see chart above). Just to put things in perspective, in the first 4 trading sessions of the current week also, FIIs pumped in close to Rs 21 bn (US$ 500 m) taking their total exposure to over Rs 72 bn (US$ 1.6 bn) in the current calendar year so far.

    It must be noted that earlier in the year, with the US Fed indicating of higher interest rates, fear of FII inflows had gripped the markets, which had led to a sharp fall in Indian equities. However, these fears have now been belied with FIIs having refocused their attention towards India. In fact, it must be noted that, as per reports, FII inflows into India have been higher than those into the Korean or Taiwanese equity markets, which tends to re-affirm, to a certain extent, the fact that FIIs are ‘here to stay'.

    Some key gainers over the week (NSE-50)
    COMPANY Price on Feb 11 (Rs) Price on Feb 18 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 6,634 6,584 -0.7% 6,696 / 4,228
    S&P CNX NIFTY 2,082 2,056 -1.3% 2,120 / 1,292
    GLAXO 681 712 4.6% 799 / 520
    BHARTI TELE 209 218 4.5% 245 / 114
    BHEL 819 851 3.8% 877 / 375
    TISCO 399 414 3.7% 419 / 155
    INFOSYS 2,104 2,165 2.9% 2,398 / 1,031

    Mentioned below are some sector/stock specific developments during the week.

    • Tisco hit a new 52-week high on the back of the news that the company is likely to increase prices of its products and is in negotiations for long-term contracts. It should be noted that steel prices have consistently been on the rise in the international markets and Tisco would follow the trend, thereby increasing prices for all the products. While the exact quantum of price hike is not known, the company has denied market rumours that the hike could be in the vicinity of Rs 4,000-5000 per tonne. Further, the company is also contemplating getting listed on an international stock exchange like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE). However, this is a long drawn process. The stock was amongst the key index gainers this week. More steel stocks

    • MNC pharma major, GSK Pharma, was a key gainer (up 5%) amongst the Nifty stocks this week. The company declared its December quarter and annual results for 2004 recently, wherein it reported impressive numbers both for the quarter and full year. Nonetheless, the improvement in company's profitability was mainly on account of higher contribution from power brands. Gross margins also expanded on the back of lower marketing, sales promotion and administrative expenses. However, it must be noted that this performance is not comparable to that of the previous year, as 2004 numbers include numbers of 'Burroughs Wellcome India Limited' (BWIL), which got merged with the company during the year. More pharma stocks

      Some key losers over the week (NSE-50)
      COMPANY Price on Feb 11 (Rs) Price on Feb 18 (Rs) % CHANGE 52-WEEK H/L (Rs)
      MARUTI 500 463 -7.5% 600 / 300
      HLL 155 145 -6.9% 194 / 101
      M&M 568 534 -5.9% 574 / 360
      HPCL 374 353 -5.8% 542 / 262
      SHIP. CORP. 171 162 -5.4% 188 / 61

    • HPCL was amongst the key losers this week (down nearly 6%). Another oil marketing major, BPCL, was also in the losers' list (down 4%). The weakness in these stocks could be attributed to international crude prices, which have been on the rise again. It must be noted that global crude prices, which were hovering in the region of US$ 45-46 per barrel a few days ago, are currently trading well above the US$ 48 per barrel mark on the back of reports of production cut by OPEC countries. It must be noted that a rise in crude oil prices impacts the earnings of these oil-marketing majors in the event of the same being not passed onto consumers. More energy stocks

    • The IPO of the first airline issue in a decade, Jet Airways, was oversubscribed within minutes of its opening on Friday. Jet Airways is a leading private airline company in India, providing regular scheduled services on routes between all of India's major cities. It is the largest domestic airline in India in terms of passengers carried, both in FY04 as well as in 1HFY05. To read our detailed view of the IPO, click here.

      Also read: Are you investing in IPOs?

    Going forward, while speculation with respect to possible announcements in the upcoming Union Budget will only gather steam over the next few days, which could keep the markets volatile, we would advise investors to concentrate otherwise and take a longer-term approach towards investing in equities. However, with markets trading at their all time highs and many sectors and stocks trading at their fair values (even considering their medium-term growth prospects) at the current juncture, a stringent filter, consisting of various parameters like valuations, management, etc. while selecting stocks is required to build a fundamentally sound portfolio.



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    Aug 22, 2017 03:36 PM