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The meltdown continues... - Views on News from Equitymaster
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  • Feb 28, 2004

    The meltdown continues...

    Last week's weakness continued on the bourses this week with both the indices i.e. the BSE-Sensex and the NSE-Nifty, losing about 3% each. While there was no adverse development during the week which could have had led to the continuation of the correction, investors continued to book profits at every rise in the indices, which not only led to increased volatility but also put selling pressure on the indices.

    Markets opened the week on a sullen note and continued to drift lower as the trading day progressed. It must be noted that in continuation of the trend witnessed last week, unwinding of positions in the secondary markets in wake of a slew of IPOs hitting the Indian markets seems the primary cause of the meltdown in the indices. Monday's 150+ points Sensex crash was followed by a small bounce back on Tuesday as investors bargain hunted at lower levels. However, things turned for the worse on Wednesday, once again, as the day began on weak investor sentiments. Further, matters got worse in the latter half of the trading day as bears took advantage of the government's statement that it will identify the reasons for the massive selling pressure witnessed in PSU stocks.

    The government's intention was followed by a statement by the Divestment Minister on Thursday who raised an alarm that a bear cartel was acting in concert in pulling down the prices of companies in line for divestment. As per the minister, some people were manipulating the markets in anticipation of the government announcing a 5%-10% discount on the last closing price of these divestment companies while deciding upon the floor price. This warning led to some initial euphoria in early trade on Thursday but failed to reign in the bears, as all round profit booking set in, pushing the indices to close at their lowest levels in calendar year 2004. Another reason, this week, playing on the minds of investors was the expiry of the February futures and options contracts on Thursday. However, Friday saw a smart recovery as investors, once again, jumped in to bargain hunt at lower levels. Thursday's statement by the Divestment Minister, which led to sharp increase in subscriptions, aided market sentiments.

    Top 5 gainers over the week (NSE-50)
    COMPANY Price on February 20 (Rs) Price on February 27 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 5,851 5,668 -3.1% 6,250 / 2,904
    S&P CNX NIFTY 1,853 1,800 -2.8% 2,015 / 920
    VSNL 161 188 16.7% 189 / 69
    RELIANCE ENERGY 655 743 13.4% 746 / 205
    ABB 668 696 4.2% 745 / 280
    L&T 542 563 3.9% 600 / 182
    ORIENTAL BANK 272 283 3.9% 297 / 55
    Click the stock to get detailed quotes

    Now let us consider some stock specific developments over the week.

    Reliance Energy was one of the biggest gainers amongst the index stocks this week (see table above). This was on the back of the news that this power arm of the Reliance Group laid a road map for raising the funds for its 3,500 MW gas based power plants in UP. L&T was also amongst the key gainers as it announced a large Rs 10 bn contract from ONGC for a turnkey project involving the setting up of well-head platforms for ONGC's wells.

    Top 5 losers over the week (NSE-50)
    COMPANY Price on February 20 (Rs) Price on February 27 (Rs) % CHANGE 52-WEEK H/L (Rs)
    GAIL 222 202 -9.0% 312 / 73
    ICICI BANK 297 271 -8.7% 352 / 119
    TATA MOTORS 552 509 -7.8% 570 / 148
    SHIPPING CORP. 157 145 -7.3% 203 / 50
    TATA POWER 372 347 -6.8% 450 / 110
    Click the stock to get detailed quotes

    However, on the laggards' side, ICICI Bank continued to lose ground in the current week. It must be noted that the stock has been witnessing selling pressure ever since it has announced its plans of raising massive funds from the markets. GAIL also lost significant ground during the week. The government has decided Rs 185 as the offer price for the company's offer. Another adverse development on Friday, which took place after the Indian stock markets closed, was the ruling pertaining to Amlodipine Maleate, which went finally in favour of Pfizer. This news led to the Dr. Reddy's ADR crashing on the US bourses by 13%. The effect of this will also be seen on the stock when the domestic markets open on Monday.

    Going forward, the indices are likely to continue in a volatile fashion in the short-term considering the liquidity overhang of the Rs 150 bn worth of government IPOs. However, since we feel that the long-term outlook continues to remain promising for India Inc., the temporary blips in markets provide investors with good opportunities to build a sound portfolio at attractive point-of-entry levels. Happy Investing!



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