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Stockmarkets: Taking all in stride... - Views on News from Equitymaster
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  • Mar 1, 2008

    Stockmarkets: Taking all in stride...

    Weak global sentiment, rising commodity prices and then a market 'unfriendly' Budget would have been a recipe for debacle for Indian stock market. But ultimately, it did not turn out that bad. The Indian benchmark indices, BSE-Sensex and NSE-Nifty, actually closed with 1% and 2% gains respectively during the week ended 29th February 2008.

    Monday saw the markets opening in the green but subsequently dipping precipitously below the dotted line. However, after the first hour of trade, there was only one direction, i.e., upwards. The momentum carried on till the final hour of trade as the indices ended firmly in the positive territory. Tuesday also saw the markets trading amidst strength on the back of global cues, especially after the strong performance of key Asian and European markets.

    Wednesday brought some pressure back to the markets. Although the indices opened on a very strong note that day as well and had a stable first half, they tumbled during the second half of the day's proceedings to close near the dotted line. On Thursday, The broader markets struggled to reach the dotted line throughout the day, apparently unenthused by the Economic Survey for 2007-08. While there was buying interest in select heavyweights from the auto, pharma and software sectors, cement stocks ended up among the key losers.

    Friday saw the market treading a volatile path following the announcement of the Union Budget 2008-09. This budget, the last before the next general elections, was supposed to be nothing but a way to appease the voters. It turned out exactly that way. There were a whole lot of dole outs and grants for social sectors (and deservedly so). But the scale of the same with no real announcement of a major revenue collection exercise was the key highlight of the budget. P. Chidambaram also pricked some nerves by not reducing the corporate tax rate and the surcharge thereon. Rather, he increased the short-term capital gains tax from 10% to 15%. The stocks markets took note of the same with the Sensex and Nifty closing the day losses of over 1% apiece.

    Overall, at the end of the week, while the BSE Sensex closed at 17,578 (up 229 points), the NSE Nifty closed at 5,224 (up 113 points). On the institutional activity front, between 22nd and 28th February 2008, on a net basis (buying minus selling) FIIs bought equities to the tune of Rs 2.3 bn, while mutual funds bought equities worth of Rs 10 bn.

    Net investments from MFs and FIIs
    (Rs m) MFs FIIs Total
    22-Feb (1,636) (4,538) (6,174)
    25-Feb (1,405) 7,385 5,980
    26-Feb 5,259 854 6,113
    27-Feb 1,925 3,964 5,889
    28-Feb 6,008 (5,293) 715
    Total 10,151 2,372 12,523

    On the sectoral indices front, the BSE Healthcare index (up 5%) led the pack of gainers, while BSE IT index (down 1.4%) led the pack of losers.

    Performance of BSE sectoral indices
    Index As on Feb 22 As on Feb 29 % Change
    BSE HEALTHCARE 3,745 3,929 4.9%
    BSE AUTO 4,708 4,887 3.8%
    BSE OIL AND GAS 10,673 11,032 3.4%
    BSE PSU 8,209 8,484 3.3%
    BSE METAL 16,369 16,739 2.3%
    BSE FMCG 2,231 2,274 1.9%
    BSE MIDCAP 7,594 7,680 1.1%
    BSE SMALLCAP 9,595 9,628 0.3%
    BSE BANKEX 10,150 10,113 -0.4%
    BSE IT 3,918 3,862 -1.4%

    Let us now look at some of the key stock specific developments during the week

    After remaining lacklustre for the most of past few weeks, auto stocks were back in the limelight in the latest week. Major gainers included Punjab Tractors (up 16% during the week), Maruti (13%) and TVS Motor (11%). The first two were seemingly the beneficiaries of the government's increased allocation towards rural spending and excise duty cuts. The Union Budget announced yesterday has proposed a reduction in excise duties from 16% to 12% on manufacturing of two and three wheelers, buses and small cars. This is a positive development for the auto sector as the reductions will help lower prices and stimulate demand for two and three wheelers and small cars. Moreover, there is also a higher allocation towards road development programmes such as the NHDP, which would help in increasing demand for new buses from STUs (State Transport Undertakings) as well as private players. Suppliers to the defense sector are also likely to benefit from higher defense sector allocation. Other auto stocks

    Engineering stocks also closed the week amidst strength. Major gainers included BHEL (up 11% during the week), Bharat Earth Movers (7%) and Crompton Greaves (6%). Strength in BHEL was a result of two key announcements made by the company during the week. First, the company reported of planning a joint venture with the Nuclear Power Corporation of India (NPCIL) to take up construction activities for nuclear power plants in the country. Currently, about 80% of the country's nuclear-based electricity is generated from sets manufactured and supplied by BHEL. Although much depends on future events, this is a positive development for the company as it anticipated that an additional 20,000 to 40,000 MW nuclear power capacity would be commissioned in India. In the second news, BHEL announced of securing a Rs 11 bn engineering and construction order for setting up a 350 MW gas turbine-based combined cycle power plant at Hazira, Gujarat from the Gujarat State Energy Generation. Other engineering stocks

    Top gainers during the week (BSE A)
    Company Price on
    February 22 (Rs)
    Price on
    February 29 (Rs)
    H/L (Rs)
    BSE SENSEX 17,349 17,579 1.3% 21,207 / 12,316
    S&P CNX NIFTY 5,110 5,223 2.2% 6,357 / 3,555
    GSK PHARMA 953 1,109 16.4% 1340/800
    PUNJAB TRACTORS 244 283 16.0% 383/183
    GUJ.IND.POW 97 111 14.4% 185/54
    MARUTI SUZUKI 767 867 13.0% 1252/700
    NALCO 415 463 11.6% 547/204
    SUN PHARMA 1,102 1,226 11.3% 1280/790

    In one of the biggest news flows for the week, as also the biggest consolidation move in the Indian banking industry, HDFC Bank announced the merger of Centurion Bank of Punjab (CBoP) with itself. Read our view. As a matter of fact, CBoP has 394 branches and 452 ATMs with employee strength of around 7,500. HDFC Bank has a branch network of 754 and over 200 more licenses in hand. After the merger, the combined entity would have a formidable network of over 1,100 branches with a pan-India presence. A share swap ratio is of 1 share of HDFC Bank for every 29 shares held in CBoP. CBoP has a larger presence in the northern and southern India and a considerable exposure to the agriculture sector. We believe that, in the long run, the merger will be a win-win situation for HDFC Bank, as it would acquire around 400 branches and also will boost its presence in the northern and the southern regions. HDFC Bank is hopeful of completing the integration process in about five to seven months. The stockmarkets, however, did not take the news in a positive sense, as seen from the 13% and 2% decline in shares of CBoP and HDFC Bank during the week. Other banking stocks

    Top losers during the week (BSE A)
    Company Price on
    February 22 (Rs)
    Price on
    February 29 (Rs)
    H/L (Rs)
    EIH 186 173 -7.0% 247/88
    GSFC 268 253 -5.6% 370/152
    REL CAPITAL 1,902 1,818 -4.4% 2925/560
    CHAMBAL FERTILISERS 61 59 -3.3% 94/30
    TAMILNADU NEWSPRINT 109 105 -3.7% 147/81

    There is no real change in our view on stocks post the Budget announcement. While speculators and short-term traders are likely to feel the heat of a higher short-term capital gains tax, these folks must take respite from the fact that the finance minister did not tinker with the STT (securities transaction tax).

    As for the long-term investors, we believe that they will indirectly benefit from implementation of policies on education and healthcare over the next 3 to 5 years. These steps should position our major strength, our demographics in such a way that we continue to reap the benefits of a growing, sustainable economy for many more years to come. So, if the economy grows, the companies placed in it and consequently, the stock prices would likely take care of themselves. Thus, our long-term outlook on equities remains as buoyant as ever provided one takes sensible investment decisions.



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