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The rising star...

Mar 11, 2006

That is the Sensex we are talking about. This is one index that has become the darling of all investors big and small, domestic and international as everybody scrambles to get a piece of it. Continuing with the trend witnessed over the last several weeks and months now, the BSE-Sensex, went on to make a new lifetime high during this week, ending with 1.6% gains. The NSE-Nifty too gained 1.2%. However, the action in the mid-cap and small-cap segments was relatively better with the indices gaining 2.6% and 2.0% respectively. However, while at the end of the week, the picture seems rather encouraging, investors were subjected to a roller coaster during the week. Riding on the back of the over 6% gains under their belt in the last couple of weeks, the Indian indices began on a firm note this week and stayed that way for almost the entire trading session on Monday. Riding strong on the back of strong Foreign Institutional Investors (FIIs) and domestic mutual funds (MFs) inflows, the indices continued to register new lifetime highs. However, the following day witnessed choppiness owing to profit booking at higher levels, which aggravated into a full blown sell-off on Wednesday as Indian stocks fell like nine-pins across the board. The news of FIIs being net sellers to the tune of US$ 357 m in the derivatives segment on Tuesday set off this selling spree on Tuesday. Panic set in amongst investors as they dumped stocks seemingly assuming that this act of the FIIs was a signal of worse times to come, as FIIs would continue to pull out of Indian stocks. The Sensex lost over 200-points on this day.

The bearish sentiments trickled into Thursday's trade as well with the Indian indices continuing their southward journey. In fact, in early trades, the Sensex was down another 130 points, thus taking the total fall to nearly 380-points (from Tuesday's highs) in a couple of trading sessions. However, this was only a temporary joyous moment for the bears as the bulls came back with greater vigour with the Sensex ending the day comfortably in the positive. Buying continued well into Friday's trade with the Sensex not only recovering its entire last couple of days' losses, but also making further inroads into higher territories.

As far as the institutional activity was concerned, both FIIs and MFs were net buyers in the first four trading sessions of the week with net purchases of Rs 10 bn and Rs 8.6 bn respectively. With the buying this week, FIIs have crossed the US$ 3 bn mark, which is almost at par with what they had invested in the corresponding period of the previous fiscal. However, MFs continue to remain net sellers as yet (US$ 200 m), though considerably reduced in the last couple of weeks.

Top gainers over the week (NSE-50)
Company Price on
Mar 3 (Rs)
Price on
Mar 10 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 10,595 10,765 1.6% 10,782 / 6,118
&P CNX NIFTY 3,147 3,184 1.2% 3,194 / 1,896
ABB 2,679 3,024 12.9% 3,100 / 1,070
ACC 683 760 11.2% 778 / 351
GUJ. AMBUJA 91 99 8.9% 103 / 49
MTNL 150 162 8.4% 164 / 108
CIPLA 550 584 6.2% 624 / 212

Let us now consider some sector/stock specific developments this week.

  • Reliance Communications Venture Limited (RCVL), the telecom investments holding arm of the Reliance Anil Dhirubhai Ambani Group (ADAG), got listed on the Indian bourses this week. The stock touched a high of Rs 322 on listing day. RCVL is the holding company of the 3 telecom ventures of Reliance ADAG namely Reliance Infocomm (RIC), Reliance Telecom (RTL) and Reliance Communications Infrastructure (RCIL). It has around 66%, 36% and 45% stake in these entities respectively, with the remaining being held directly by Reliance ADAG. It has around 15.6 m subscribers, out of which 13.8 m subscribers are from its CDMA technology. The stock ended the week at Rs 300. Other telecom stocks

  • Domestic pharma major, Cipla, has been granted US FDA approval to launch the generic version of global pharma major GSK Plc's allergy drug 'Flonase'. Cipla had already been selling the drug in the European market. The US market for this drug is pegged at US$ 1 bn per annum. This development is a positive for Cipla and will help it in boosting its exports. It must be noted that exports currently contribute around 46% to the company's total revenues. The stock ended the week higher by 6%. Other pharma stocks

  • Siemens India, a leading engineering company with operations in many areas like power and industrial solutions services, along with its parent, bagged an order worth Rs 6.4 bn from Qatar General Electricity and Water Corporation for the development of a power transmission network in the country. The order has been received to set up five sub-stations, to be executed within 19 months. Apart from engineering services, Siemens India will also supply equipments worth Rs 5.4 bn. The stock ended the week higher by 16%, continuing its northward journey being witnessed over the last couple of months (up 60%). Other engineering stocks

  • Cement stocks were on fire this week. With cement prices on the rise since the last couple of months and retail prices reportedly touching Rs 200 per bag in select markets of the country, it has created an air of optimism around cement stocks. However, it would be pertinent to re-confirm as to how much of the recent price increases were a factor of higher freight costs (attributed to the banning of overloading of trucks) and how much of it could be attributed to strong demand. While we do continue to believe that the Indian cement sector is in for good times going forward considering the strong demand for the commodity on the back of housing and infrastructure activities, valuations of most of the cement stocks makes us wary. Key gainers in the sector this week included ACC (11%) and Gujarat Ambuja (9%). Other cement stocks

Top losers over the week (NSE-50)
Company Price on
Mar 3 (Rs)
Price on
Mar 10 (Rs)
%
Change
52-Week
H/L (Rs)
MARUTI 931 879 -5.6% 943 / 393
BHARTI TELE 408 386 -5.5% 415 / 193
RANBAXY 436 419 -3.9% 568 / 339
DABUR 117 113 -2.8% 120 / 53
BPCL 425 415 -2.4% 471 / 339

Markets are full of surprises and this was proved once again this week. The strong buying that emerged during the week is indicative of the fancy for Indian stocks, even at the current valuation levels. This has led to investors lapping onto stocks at every (sometime small) correction in the markets. Further, with FII inflows showing no signs of tapering off, and domestic MFs garnering huge sums of money from local investors, which reportedly runs into a couple of billion dollars, the Indian stockmarkets could continue to remain in aberration until this liquidity factor shows signs of hardening.

To conclude, and at the risk of sounding repetitive, we continue to believe that the current market scenario is a challenge for 'value investors' as there is not much left worth its price. Most of the stocks are trading way above their justifiable valuations and have seemingly already factored in their growth prospects of the next couple of years! Thus, at almost 20 times trailing 12-months earnings for the Sensex, we continue to advocate strict caution to investors and urge them to invest only in fundamentally sound and well-researched companies with efficient managements with a long-term view. While the returns from these may not be as spectacular as those provided by the little-known stocks that the bulls fancy, investments in these would surely help you take a good night's sleep in times of heightened volatility. Happy and safe investing!

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