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It's all over!

Mar 6, 2004

Oh no! By this we do not mean that the growth story of India Inc. is over, but rather some uncertainties with respect to liquidity concerns in the market have been put to rest with the biggest of all the government offerings (ONGC) finally on the floor. With the current 'successful' IPO season already mid-way, investors gave a thumbs-up to the markets this week as they went on bargain hunting at lower levels. This led to the Sensex and the Nifty closing the week higher by 3.8% and 3.6% respectively.

The indices have been in a strong grip of volatility (see chart above) since the dawn of 2004. While the markets wake up to the results season at the start of every calendar year, this year was different for Indian stock markets in the sense that the Sensex was, once again (after 4 long years), in striking distance of the coveted 6,000 levels. This was due to the impressive growth of the economy leading to an even spectacular performance by Indian corporates, thanks to the rain Gods. However, since much of the December quarter performance was already factored into the valuations, even the slightest of uncertainties (like the issue related to Participatory Notes) panicked investors and pushed the indices into a correction mode (January 2004).

Top 5 gainers over the week (NSE-50)
COMPANY Price on
February 27 (Rs)
Price on
March 5 (Rs)
H/L (Rs)
BSE-SENSEX 5,668 5,880 3.8% 6,250 / 2,904
S&P CNX NIFTY 1,800 1,865 3.6% 2,015 / 920
TATA POWER 347 395 14.0% 450 / 110
GRASIM 1,069 1,184 10.7% 1,214 / 325
HPCL 454 499 9.8% 501 / 268
IPCL 188 206 9.4% 240 / 80
BPCL 460 501 8.8% 533 / 205

However, with the same speed at which the indices fell, they recovered ground once again as investors flocked to buy stocks at lower levels, realizing the fact that it was the right time to take part in India's growth story through participation in equities. However, this time around, it was concerns related to the liquidity factor in the markets that led to investors taking a back seat once again. The liquidity concerns arose on account of the government's announcement of raising almost Rs 150 bn from the domestic markets by making a secondary offering of parts of its residual stakes in several of its companies. This had caused some nervousness among various sections of the market about such a huge amount being sucked out of the domestic markets. This had led to investors unwinding their positions during mid-February owing to the fear of the liquidity concerns actually materialising.

Top 5 losers over the week (NSE-50)
COMPANY Price on
February 27 (Rs)
Price on
March 5 (Rs)
H/L (Rs)
DR. REDDY 1,241 1020 -17.8% 1,471 / 805
HLL 174 158 -8.9% 245 / 135
ZEE TELE 133 126 -5.9% 175 / 60
COLGATE 143 138 -3.4% 175 / 118
BRITANNIA 663 646 -2.5% 786 / 482

However, interestingly, amidst all the volatility, one class of investor community continued to stay put on Indian equities i.e. Foreign Institutional Investors (FIIs). Just to put things in perspective, this investor community has brought in approximately US$ 1.5 bn into Indian equities in 2004 (to date). However, the month of March (the current week) has again witnessed a revival in stock markets. This could be due to the fact that with the largest of the government offerings, that of the energy behemoth, ONGC, currently on the floor for bidding and which is expected to garner almost Rs 100 alone of the total receipts has received a tremendous response despite the massive offer size. And with this last of the government offerings for FY04 already up for grabs, much of the liquidity concerns have been put to rest.

Now, let us consider some key developments at India Inc., during the week.

  • The effect of last weeks unfavourable ruling against Dr. Reddy's with respect to Amlodipine Maleate was clearly visible on the stock, which tanked over 18% on Monday and failed to recover during the week.

  • P&G's announcement of a reduction in prices by 30%-50% of a couple of its key detergent brands led to jitters running down through the spine of investors having exposure in HLL's stock. This is because the move by P&G led to a counter move by the FMCG giant, which would have a substantial negative effect on HLL's margins. On the bourses this week, both P&G and HLL lost about 9% each.

  • The week saw a lot of excitement in the steel sector as major steel producers were forced (by the steel ministry) to partially roll back the prices increased last week. During the week, while Tisco gained 3%, SAIL was down marginally.

  • The setback for the Indian software sector continued this week with another Bill being presented in the US on Thursday that, when passed, would prevent US companies from outsourcing work to other countries. This affected sentiments towards domestic software sector stocks on the final trading day of the week.

Going forward, with the government IPOs largely out of the investors' concerns list, now only one key issue remains and that is the impending general elections as it is the outcome of this, which would be a key determinant in the continuance of the current reforms process underway in the economy. Further, though we feel that investors need to tone down their expectations from the current juncture, the growth prospects for India Inc. are intact and patience is the name of the game going forward. Happy Investing!

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