X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
No bad news is good news! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 4, 2006

    No bad news is good news!

    This seemed to be the basic premise for investors to have encouraged them to go on a buying spree on the Indian bourses this week. Thus, the Indian stockmarket rally gathered momentum this week, with the Union Budget having seemingly gone down well amongst most market participants. They expressed their acceptance of the budget by giving a thumbs-up to the stockmarket indices, which scaled new peaks this week. The BSE-Sensex and the NSE-Nifty gained a good 4% and 3% respectively, backed by strong retail and institutional participation. As far as the mid-cap (index up 3.5%) and small-cap (index up 2.3%) segments of

    The markets began the week on a robust note, seemingly in anticipation of positive announcements from the Union Budget, which was to be presented the following day. The Economic Survey released on Monday also helped sustain the momentum, which projected an 8.1% growth for the Indian economy in FY06 and a reduced (7.7%) consolidated fiscal deficit situation. This was followed by the Budget on Tuesday. Though the markets remained significantly volatile during the course of the Finance Ministerís speech and for a brief period, post its conclusion, wherein the Sensex lost almost 150 points from its early intra-day highs to come near the 10,200-mark during noon, post that, it was a different scenario altogether, as the tables turned on the bears.

    The bulls took over the market proceedings from hereon, as they made an exceptionally strong comeback on Tuesday and also in the following two trading sessions. In all these three trading sessions (latter half of Tuesday to Thursday), the bulls were in total control of the Indian stockmarkets. The Sensex scaled new lifetime highs on the back of strong support from all the factions of the investor community, as it breached the 10,700-mark on Thursday, which implies a near 500-points gain in a mere three trading sessions! However, the bulls seemingly took a breather on Friday, which led to marginal losses for the indices.

    As far as the institutional activity on the bourses this week was concerned, while the Foreign Institutional Investors (FIIs) continued to lap up stocks worth Rs 18 bn (data available for the first four trading sessions of the week as yet), taking their total to Rs 120 bn (US$ 2.7 bn) in 2006 to date, MFs were net buyers to the tune of Rs 6 bn. However, it must be noted that while mutual funds (MFs) have raised significant money from investors in the last couple of months through new fund offers, they have been net sellers of Indian equities so far in 2006 to the tune of Rs 17 bn (US$ 390 m).

    New listings during the week
    Company Allotment
    price
    Price on
    Mar 3 (Rs)
    % Change High/Low
    (Rs)
    GVK Power 310 302 -2.6% 400 / 295
    Sadbhav Engineering 185 329 78.1% 380 / 200
    Reliance Natural Resources 5 17 243.0% 26 / 17

    We belong to that faction of the market which believes that there was nothing extraordinary about the budget this year and in our view, it was largely a non-event, the fact that there was nothing (bad/negative) in the budget seemingly helped market sentiments. While certain sectors like engineering, power, food processing and auto emerged clear winners, for the media and energy sectors there was some bad news. However, most of the sectors remained largely unaffected.

    Top gainers over the week (NSE-50)
    Company Price on
    Feb 24 (Rs)
    Price on
    Mar 3 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    BSE-SENSEX 10,201 10,595 3.9% 10,706 / 6,118
    S&P CNX NIFTY 3,050 3,147 3.2% 3,170 / 1,896
    MARUTI 778 931 19.6% 940 / 393
    TATA MOTORS 784 905 15.4% 910 / 400
    ACC 593 683 15.2% 722 / 351
    BHARTI TELE 364 408 12.1% 412 / 193
    BHEL 1,908 2,123 11.3% 2,180 / 740

    Now let us consider some sector/stock specific developments this week:

    • Maruti (up 19%) and Tata Motors (15%) were the key gainers amongst index stocks this week. This could be attributed to the announcement of the 8% excise duty reduction from 24% to 16% for compact cars, i.e. passenger cars having an engine capacity upto 1,200 cc in the case of petrol-based engines or 1,500 cc in the case of diesel-based engines, and cars measuring upto 4,000 mm in length. The move is a positive, as most of Maruti's offerings and Tata Motors' Indica are likely to be the key beneficiaries. M&M (up 4%) also found favour this week, seemingly on account of the budget announcement of the increase in agriculture lending upto Rs 1,750 bn and the availability of credit at a concessional rate of 7% for loan amounts upto Rs 0.3 m. This, in turn, is expected to aid demand for tractors, as it will facilitate availability of funds for farm mechanization. Other auto stocks

    • Cement stocks, which have been finding favour on the bourses since the last couple of weeks, witnessed some selling pressure in the latter half of the trading week. The positive sentiments towards cement stocks had stemmed on account of reports of price hikes in some parts of the country upto Rs 15 per bag, which was being attributed to strong demand in those regions. However, the management of a leading cement company denied any such price hike in recent times at the manufacturer level. Moreover, it indicated that price hikes, if any, were largely to neutralize the effect of the rise in freight costs post the recent Supreme Court judgment banning overloading of trucks and would not have any major positive impact on the profitability of companies. Nonetheless, cement stocks managed to end the week with significant gains.

    • Steel stocks were in the reckoning this week, as integrated steel producers have increased basic prices of steel by Rs 1,500 to Rs 2,000 per tonne on the back of rising international steel prices. Also, the basic import duty on major steel products, which is 5%, was not changed in the budget. Only duties on alloy steel and stainless steel were cut to 7.5% from 10%. Hence, integrated steel manufacturers like SAIL, Tata Steel, JSW Steel, Ispat and Essar Steel have all raised prices of their products. Hot rolled coil (HRC) prices have also been increased, which led to a rise in prices of downstream flat steel products like cold rolled coils and galvanised steel, with Tata Steel raising the prices of HRCs by Rs 500 to Rs 2,000 a tonne and galvanised steel products by Rs 750 to Rs 1,000 a tonne.

      Top losers over the week (NSE-50)
      Company Price on
      Feb 24 (Rs)
      Price on
      Mar 3 (Rs)
      %
      Change
      52-Week
      H/L (Rs)
      BPCL 449 425 -5.4% 471 / 339
      HDFC 1,365 1,317 -3.5% 1,420 / 677
      ONGC 1,180 1,145 -2.9% 1,298 / 806
      NALCO 286 279 -2.5% 310 / 139
      IPCL 238 233 -2.2% 272 / 156

    • Energy was one of the sectors that was at the receiving end in the budget on the back of the announcements that the cess on petroleum crude oil stands increased from Rs 1,800 per tonne to Rs 2,500 per tonne and a reduction of 5% from 10% on the customs duty of naphtha. Also, the FM stated that the increase of levy on crude oil would be absorbed by oil-producing companies and will not be passed on to the consumers. As far as the reduction in peak customs duty is concerned, lower import duty on petroleum products (including naphtha) is likely to lower the gross refining margins of refining companies, as the protection from import duty stands reduced. Therefore, overall, the budget measures this year were negative for the energy sector as a whole.

    To conclude, the meteoric rise of the Indian stock markets and the valuations of most sectors/stocks continue to baffle us as a research house. At the risk of sounding repetitive, while we do remain optimistic about the growth prospects of the Indian economy over the next 3 to 5 years, the Sensex valuations of 17x and 16.3x FY07 expected earnings assuming a growth rate of 15% and 20% respectively indicates that there is not much upside left on the table for investors. This also implies that there is not much margin of error available for India Inc. and any negative surprise on the earnings front could take a severe toll on stock prices.

    Investors must realise that it is the sheer gush of global (FIIs) and domestic liquidity (MFs) that is helping the Indian stockmarkets sustain the momentum. Thus, we continue to advocate utmost caution at the current levels and advise investors not to get swayed by market movements and rather follow a disciplined and long-term approach to investing. Happy and safe investing!

     

     

    Equitymaster requests your view! Post a comment on "No bad news is good news!". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 21, 2017 10:55 AM

    MARKET STATS