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Countdown begins... - Views on News from Equitymaster
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  • Feb 26, 2005

    Countdown begins...

    The apprehensiveness on the bourses was clearly visible this week also as the indices refrained from showing any big moves either side. While there was some intra-day volatility witnessed during the week, the BSE-Sensex remained rangebound within a band of 100 points. This largely lacklustre behaviour of the markets since the last few weeks could be attributed to investors adopting a wait-and-watch approach before the Finance Minister (FM) rises to deliver his Budget Speech on Monday.

    There was nothing worth noting about the behaviour of the markets this week. Continuing from where it had left off last week, the indices opened on Monday on a weak note and ended the day in the red for the fifth consecutive session. Though Tuesday's session saw a sharp bounce back on the back of positive noises emanating form the government (mentioned below), the euphoria did not last for long. The next three trading sessions were rather lacklustre, as investors preferred to exercise caution and refrained from making any serious investments. Investors are seemingly awaiting a clearer road map to future growth of the economy in the budget on Monday. Thus, the announcements that will be made in the budget will determine the fate of the markets in the near-term, until unless the activity does not turn out to be a non-event leaving the investors guessing. However, Foreign Institutional Investors (FIIs) continued to invest into Indian equities (Rs 8 bn in the first 4 trading sessions) taking their cumulative investments in 2005 to near US$ 2 bn. mutual funds (MFs), which had been net sellers in the recent past, also bought equities worth Rs 2 bn during the week.

    However, barring the muted stockmarket behaviour, this week was important from another perspective. A couple of announcements made by the government during the week re-confirmed the government's intentions of pursuing reforms seriously, despite the constant pressure and opposition from its allies. The announcements were pertaining to the banking and real estate/construction sectors.

    As far as the banking sector is concerned, the Ministry of Finance cleared a new autonomy package for PSU banks aimed at creating a level-playing field for them with their private sector counterparts. Besides allowing PSU banks the freedom to decide on virtually the entire gamut of human resource issues, the package permits them to undertake acquisitions of companies or business, close or merge unviable branches, open overseas offices, set up subsidiaries, take up a new line of business or exit an existing business, without seeking prior Government approval. While a certain degree of autonomy would be common to all banks, a higher degree of freedom would be permitted for 'stronger' banks that have made a net profit for the past three years, capital adequacy of 9% or more, net non-performing assets (NPAs) of less than 4% and minimum owned funds of Rs 3 bn. This news led to optimism towards banking stocks, PSUs in particular, during the week despite a directionless market.

    The other big news was the government's clearance of a proposal to allow 100% FDI through the automatic route in construction. The government has also laid down measures to prevent speculation in real estate by foreign investors. The new guidelines will aid various types of construction projects in the country including those of townships, housing, commercial premises, hotels, resorts, hospitals, etc. Real estate/construction stocks, of course, reacted very positively to the news. In fact, stocks of companies like Bombay Dyeing, Nicholas Piramal and Bata India, which have huge real estate investments, also were in the reckoning during the week.

    Some key gainers over the week (NSE-50)
    Company Price on
    Feb 18 (Rs)
    Price on
    Feb 25 (Rs)
    H/L (Rs)
    BSE-SENSEX 6,584 6,570 -0.2% 6,696 / 4,228
    S&P CNX NIFTY 2,056 2,061 0.3% 2,120 / 1,292
    DABUR 106 116 10.0% 118 / 60
    ONGC 806 843 4.5% 948 / 510
    SBI 658 685 4.1% 696 / 390
    GLAXO 712 738 3.7% 799 / 520
    PNB 422 438 3.6% 449 / 212

    Among other sector/stock specific news this week:

    • International crude prices continued to soar and flirted with the US$ 52 per barrel mark last week. While upstream majors like ONGC would benefit from this development, it is the oil marketing majors like HPCL and BPCL that will be taking a hit owing to their inability (read government control) at passing on the increase to consumers. Further, another news doing the rounds in the markets, which was later denied by the government, was that of ONGC and GAIL discontinuing from sharing of oil and gas subsidies, which would have to be borne by the marketing majors themselves. Thus, at the end of the week, while ONGC gained 5%, BPCL (4%) and HPCL (3%) lost ground.

      Some key losers over the week (NSE-50)
      Company Price on
      Feb 18 (Rs)
      Price on
      Feb 25 (Rs)
      H/L (Rs)
      COLGATE 193 183 -4.9% 215 / 102
      CIPLA 272 259 -4.9% 322 / 194
      BPCL 431 413 -4.2% 519 / 230
      ZEE TELE 150 144 -4.1% 189 / 100
      HCL TECH 344 330 -3.9% 407 / 234
    • Ayurvedic products major, Dabur, was the biggest gainer amongst index stocks this week. The stock has been in the limelight ever since its acquisition of Balsara, which is being viewed positively because of the latter's oral care brands. The acquisition has taken Dabur to No.3 in the Indian oral care market with over 11% share. The company is also looking to double its revenues from international markets over the next 3 years. All these have added to the positive sentiment.Other FMCG stocks

    • The sentiments towards the Zee stock turned sour during the week (down 4%) as the Madras High Court, in its interim ruling, awarded the telecast rights of the soon to begin Indo-Pak series to Prasar Bharti. However, a final ruling on this contentious telecast issue is due within the next couple of weeks.Other media stocks

    Going forward, we would like to re-iterate that considering the various positives working in favour of the growth of the Indian economy, the potential for growth in the long-term is immense. However, while the ‘under-valuation' India story is now over, from hereon, earnings growth will be the key driver for Indian stocks. Our long-term view is that there are companies in India with very good managements and robust business models. We also believe that over the long-term, money flow into equities will rise. We do not believe that equities as an asset class will ever be dead.



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