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A week to pick stocks - Views on News from Equitymaster
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  • Mar 8, 2003

    A week to pick stocks

    While the week that just went by would be one that an investor would love to forget about quickly, the trading seen does hold in store a lot of interesting insights. First a quick recap. Post the finance minister’s budget announcements, operators found that they had nothing to gain from them. Consequently, there was significant amount of unwinding. The positions taken in anticipation of a post budget rally were squared off. Also, the markets saw a supply over hang due to a broker selling to meet his margin calls on the derivatives segment. The end result, the Sensex and the Nifty closed with losses of 4% and 4.4% respectively.

    COMPANY Price on
    Feb 28 (Rs)
    Price on
    Mar 7 (Rs)
    %CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 3,284 3,153 -4.0% 3,704 / 2,828
    S&P CNX NFTY 1,063 1,017 -4.4% 1,200 / 920
    BANK OF BARODA 76 85 11.7% 88 / 44
    CROMPTON GR. 57 60 5.2% 64 / 35
    MRF LTD. 885 911 2.9% 961 / 717
    RANBAXY 614 630 2.6% 664 / 475
    SUN PHARMA 280 285 1.6% 346 / 252

    The markets opened on a positive note on the first day of the week but soon fell prey to profit booking. The software stocks that had gained post budget announcements were in the red, while banking stocks that had witnessed selling pressure were back in favour. The despatch figures from cement companies and sales volumes from auto companies from the month of February started to flow in. L&T reported a strong 18.5% growth in cement dispatches for the month of February. The growth in volumes is strong considering the fact that cement producers had pushed volumes in corresponding period last year. The demand seems to be stemming from the work on road projects shifting to the southern region of the country after the projects in the northern region have progressed.

    COMPANY Price on
    Feb 28 (Rs)
    Price on
    Mar 7 (Rs)
    %CHANGE 52-WEEK H/L (Rs)
    ASHOK LEY FIN 20 14 -29.6% 110 / 14
    HPCL 70 52 -25.8% 210 / 51
    ICICI BANK 105 84 -20.0% 117 / 50
    PFIZER LTD. 13 10 -19.7% 66 / 10
    THERMAX LTD. 72 58 -19.6% 112 / 51

    February sales numbers for the two-wheeler segment also came in strong. The motorcycle segment posted a strong growth in February with TVS Motors posting a 31% growth in volumes. Hero Honda and Bajaj Auto registered a 6.5% and 22.5% growth in volumes, respectively during the same period. However, it must be remembered here that the growth of TVS Motors is on a smaller base. In the 11 months ending February, Hero Honda has cumulative sales of 1.56 million units, which makes it almost certain now that the company is going to miss its target of achieving sales of 1.8 million units in FY03. Both Hero Honda and Bajaj Auto are planning to launch new variants in the market in the near future. TVS Motors sales continued to rise largely on the back of the success of its executive segment offering, Victor.

    Pharma stocks also gained during Monday’s trading. One of budget measures for the pharma industry was the removal of duties on all materials used for clinical trials. This is intended to promote growth of pharma related R&D in the country. Considering the fact that clinical trials in India cost one tenth of what they cost in the US, there is a significant opportunity for companies in India.

    On Monday the markets closed with marginal losses and on Tuesday the selling intensified. This was due to profit booking in banking and auto stocks. In a swift move to stem customer loss, BSNL has announced a 47% cut in STD rates for distances above 500 kms. Other private players who are offering long distance telephony like Bharti are also reviewing their tariff structures to offer competitive prices. MTNL is likely to take hit as its share of revenues in DLD (domestic long distance) will fall and the company will earn lower tariffs.

    Wednesday saw Sensex sliding below 3,200 levels intra-day. However, as banking and software stocks made a come back in the last hour of trading, BSE-30 index managed to keep its head above the 3,200 mark. Pharma stocks witnessed selective buying interest amidst all round sell-off seen on the bourses. Ranbaxy gained on the back of the news that the company has received tentative clearance from the US Food and Drug Administration (USFDA) to market the bio-equivalent of Lotensin, the hypertension drug from Novartis. To put things in perspective, the drug clocked sales of US$ 333 m in 2002.

    Selling continued into the fourth day of the week and the markets closed below the 3,200 levels. Highlight of Friday’s trading was the buying in FMCG stocks. The gainers list included Tata Tea and Nestle. While Tata Tea gained on the news that the company’s brand Tata Tea Premium had done well post its re-launch in November, Nestle gained on the back of its performance for the financial year ending December 2002 (FY03).

    Much awaited numbers also came in from Telco. The Tata group commercial and passenger vehicles major, reported a 65% growth in sales in its commercial vehicles (CV) segment in the month of February. The sales of its passenger car 'Indica', however, recorded a 30% drop in the same period. The robust growth in CV sales has been mainly due to the fact that there has been a strong replacement demand, as well as due to increased movement of grains. Increased infrastructure spending has also led to higher movement of commodities like cement and steel across the country.

    At the beginning we mentioned that market movements like these help investors develop interesting insights. Let us take a look at the stocks that figure in the list of top losers. The list includes stocks like Trigyn Technologies, Saregama, Zee, DSQ, SAIL and Hexaware. These stocks are known to be favorites with the operators and are traded more for technical reasons as compared to their fundamentals. Infact with many of these stocks we have serious concerns regarding the promoters and their attitude towards minority shareholders. When markets plunge, the day traders exit first. Therefore, the top losers are usually the favorites with these groups. Retail investors should be very careful before investing in operator favorites as these stocks are prone to a significant element of volatility and (we would like to point out once again) do not trade on fundamentals.

    Now let us look at the gainers list, it includes stocks like Ranbaxy, Dr. Reddy’s, Tata Tea, Asian Paints, Trent and Raymond. One thing common to all these stocks is that they are leaders in their respective businesses and have a proven track record. At times like these, when the markets are nervous, serious investors move in to pick up stocks at attractive valuations. We are not suggesting the fact that you blindly buy these stocks, but what we are getting at is that falling market present opportunities to pick stocks. To support our statement we would like to point out that inspite of market falling every day of the week, one of the most serious group of investors, the FIIs, have invested to the tune of Rs 4.7 bn into Indian equities during the week.



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