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IPOs play spoilsport

Feb 21, 2004

Continuing with high volatility in 2004, the indices, after gaining nearly 4% last week, came under a bear grip this week. Both the indices lost significant ground with the BSE-Sensex losing 2.7% and the NSE-Nifty closing lower by 3.2%. Broad based selling across sectors, took a severe toll on the indices. This was seemingly on the back of some churning taking place in investors' portfolios in wake of a slew of primary and secondary offerings lined up for the remaining days of February and the in the month of March.

Post the gains witnessed last week, the markets continued on a similar positive manner on the first trading day of the weak as it opened to strength. The indices traded in a narrow range in a largely lackluster fashion before selling pressure in the closing hour saw them close almost flat. Tuesday was no different as the Sensex continued to trade in a narrow range of 60 points, albeit closing the day with some gains. However, it was Wednesday that witnessed things getting out of hand a bit. A strong bout of profit booking saw the indices dive into the negative territory and this trend only gathered momentum on the following day (see chart above).

Top 5 gainers over the week (NSE-50)
COMPANY Price on
February 13 (Rs)
Price on
February 20 (Rs)
% CHANGE52-WEEK
H/L (Rs)
BSE-SENSEX 6,0125,851-2.7%6,250 / 2,904
S&P CNX NIFTY 1,9141,853-3.2%2,015 / 920
IPCL1831966.8%240 / 80
SUN PHARMA6396806.4%725 / 256
M&M4634905.8%506 / 97
ITC1,0591,0913.0%1,199 / 604
L&T5275422.8%600 / 182

Thursday saw the indices plunge almost 3% on the back of heavy selling across the board, as investors booked profits. Liquidation of current holdings by investors in order to participate in the upcoming IPOs was the cause of this selloff. The good quality of IPOs lined up and the government's act of making the offers at discounts to retailers could be fuelling investor sentiments to churn their current portfolios. It must be noted that Thursday's weakness was primarily owing to the retail segment as FIIs (Rs 2.6 bn) and domestic mutual funds (Rs 18 m) remained net buyers. Thursday's weakness trickled down into Friday also. However, bargain hunting at lower levels in the closing hours led to the indices paring losses on Friday.

Top 5 losers over the week (NSE-50)
COMPANY Price on
February 13 (Rs)
Price on
February 20 (Rs)
% CHANGE52-WEEK
H/L (Rs)
HLL203 179-11.8%245 / 135
BAJAJ AUTO1,022913-10.6%1,210 / 460
ZEE TELE154141-8.3%175 / 60
SATYAM338310-8.3%425 / 127
WIPRO16261504-7.5%1,870 / 797

Some key developments during the week:

  • FMCG major, HLL, was out of favour on the bourses this week as the company declared dismal 4QFY04 results wherein it reported a YoY 2% dip in its topline. However, the company did manage to increase its bottomline by 3% YoY. Operating margins also took a 10 basis point hit. The stock has lost over 12% since it declared its results. Further, in wake of the topline being under pressure and increasing competition, HLL may drop prices of some of its higher value packs (with higher margins) in order to propel its growth. Some key losers

  • Software stocks continued to get hammered on the bourses as the flow of negative news from the US failed to subside. In another move to curb outsourcing to Indian companies, the US administration has introduced another anti-BPO bill, which is aimed at banning the use of federal funds to buy goods and services produced by either overseas workers or by domestic companies using foreign sub-contractors. Some key losers

  • Commodity stocks were in the news on the bourses this week. While Hindalco (down 1%) remained relatively firm (though closing in the negative) during the week owing to the news of a price hike by the aluminium major, steel stocks were in favour owing to a slew of capacity expansion plans announced by steel majors. While Tisco (up 1%) announced its intentions (last Friday post market hours) of increasing its capacity from the current 4 million tonnes (MT) to 15 MT by 2015, the public sector steel behemoth, SAIL (down 6%), also announced its plans of expanding capacity by 8 MT (currently 12 MT) over the next 8 years.

  • Automobile stocks closed firm on the bourses this week. The optimism towards Maruti and Tata Motors could be attributed to the fact that both the companies have announced expansion plans. While Maruti, the largest carmaker in the country, is exploring the possibility of setting up a greenfield car manufacturing facility in Haryana, Tata Motors is also going for a brownfield expansion. The move by these companies comes in wake of the strong growth seen in the domestic passenger car market. For Tata Motors, exports have also played an important role, as the company has commenced the supply of cars to UK-based MG Rover. Some key gainers

Going forward, while the long-term prospects have not been altered a bit, the immediate term scenario seems hazy. This is because, since the last few trading sessions, the trend of profit booking at higher levels has become more prominent, which indicates the lack of conviction from market players to hold onto their positions. This can be attributed to the lack of any fresh trigger and the cautious approach adopted by investors owing to the impending general elections. Further, with much of FY05 growth having already been factored into the current prices, from hereon the gains in stock prices need to be justified by a similar growth in earnings. Happy investing!

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