A fall by the 'fifer'! - Views on News from Equitymaster

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A fall by the 'fifer'!

Feb 24, 2007

With there being no respite from the recent spate of bad news, it was red all over during the week ended Feb 23, 2007 on the Indian bourses. For the week, both of the most widely tracked indices viz. 'BSE-SensexSensex' and 'NSE-Nifty' edged lower by 5% each. The markets remained in the red for four days out of five. The only saving grace was Monday, when the indices edged higher. However, here too, the ride was not smooth and the tension was clearly palpable. The next three days saw a distinct pattern emerge. While the markets did open in the positive for all of the three days and remained range bound for most part, it were the final couple of hours during all the days that really saw the bears take charge and push indices deep into the red. There were no such luxuries on the final day as the markets opened in the negative and plunged to greater depths with each passing hour.

As far as the institutional activity is concerned, between Feb 19 and Feb 22, both mutual funds and Foreign Institutional Investors (FIIs) remained net buyers to the tune of Rs 1.5 bn and Rs 4.3 bn respectively.

(Rs m)MFs FIIs Total
19-Feb1,308 2,202 3,510
20-Feb30 4,739 4,769
21-Feb178 (402)(224)
22-Feb8 (2,252) (2,245)
Total1,523 4,287 5,810

On the sectoral indices front, all the sectors were awash in red during the week. The 'Metal' index however was the least hurt as it lost a tad less than 1%. This was owing to the strong performance of Tata Steel that emerged as the top gainer on the Nifty with gains of over 4%. 'Banking' index was the worst hit as it lost near 6% during the week. Sector behemoths like ICICI Bank and HDFC Bank lost 5% and 8% respectively during the week and this led to the sector's poor showing on the bourses during the week. SBI, another important constituent of the index was also down 6% during the week.

IndexAs on Feb 16As on Feb 23% Change
BSE METAL 8,876 8,799 -0.9%
BSE OIL AND GAS 6,705 6,536 -2.5%
BSE MIDCAP 5,953 5,665 -4.8%
BSE PSU 6,189 5,876 -5.0%
BSE HEALTHCARE 3,803 3,611 -5.1%
BSE SMLCAP 7,290 6,904 -5.3%
BSE AUTO 5,636 5,337 -5.3%
BSE IT 5,566 5,262 -5.5%
BSE FMCG 1,893 1,786 -5.6%
BSE BANKEX 7,183 6,760 -5.9%

Let us have a look at some stock/industry specific development during the week:

ABB, the power equipment major announced strong results for the fourth quarter and full year ended December 2006 during the week. For CY06, the company has reported a topline growth of 44% YoY. Also, operating margins have expanded by 50 basis points due to stock related adjustments and lower staff and other costs. Due to this, as also on the back of lower interest charges, the bottomline growth at 56% YoY has outperformed the growth in topline. Strong growth from all segments was made possible by the company's robust accretion to orders. However, along with the broader market, the stock fell 3% during the week. As regards its peers, both Siemens (down 3%) and BHEL (down 5%) also ended in red.

Top gainers during the week (BSE A)
CompanyPrice on
Feb 16 (Rs)
Price on
Feb 23 (Rs)
%
Change
52-Week
H/L (Rs)
BSE Sensex14,356 13,633 -5.0% 14,724 / 8,799
S&P CNX NIFTY4,146 3,939 -5.0% 4,245 / 2,596
SKF INDIA286 311 8.8% 376 / 209
NIIT607 638 5.1% 665 / 247
LUPIN599 622 3.8% 678 / 406
TATA STEEL442 459 3.8% 679 / 377
GUJ. MINERAL DEV422 438 3.8% 491 / 237

FMCG behemoth, Hindustan Lever Ltd (HLL), also announced its fourth quarter and full year ended December 2006 results during the week. For CY06, the company reported a topline growth of 9.4% YoY. Operating margins expanded by 60 basis points due to stock related adjustments. Due to this, as also on the back of lower interest charges, the bottomline growth at 13.7% YoY (excluding the extraordinary) outperformed the growth in topline. However, the results for the quarter are not comparable to those of 4CY06 to the extent of amalgamation of Vashisti Detergents Limited with the Company and the demerger and subsequent disposal of Doom Dooma and TEI plantation divisions. Not enthused, investors turned their back to the stock as it ended 9% lower. ITC and Dabur were also down 4% and 6% respectively.

Top losers during the week (BSE A)
CompanyPrice on
Feb 16 (Rs)
Price on
Feb 23 (Rs)
%
52-Week
H/L (Rs)
GRASIM2,654 2,271 -14.4%2,908 / 1,462
BIRLA CORP 291 252 -13.4%413 / 164
CUMMINS INDIA293258-11.8%306 / 143
ARVIND MILLS57 51 -11.6%114 / 47
IDBI98 87 -11.5%110 /49

Telecom stocks also ended the week in the red. Major losers here included Bharti Airtel (5%) and Reliance Communications (7%). Apart from following the broader markets, pressure on these stocks was also seemingly due to profit booking, considering that these stocks already trade at expensive valuations from a medium tern perspective. While there is no denying the strong growth opportunity across telecom services like wireless, broadband and enterprise services, we have been of the belief that investors need to tread with caution with respect to telecom valuations.

Confluence of a lot of factors like interest and inflation related concern, pre-budget jitters and current stretched valuations across sectors seem to be having a significant negative impact on the markets. As far as we are concerned, we have been maintaining that given the inherent strengths of the economy and increased consumption spending, such corrections should be taken advantage of to participate in the long term India growth story. The key is zeroing in on strong companies trading at reasonable valuations. However, if they still fall from here, don't panic but continue buying and wait for the markets to reward you for your patience and perseverance, which eventually it is more likely to do than not do.


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