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Bears resurface - Views on News from Equitymaster
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  • Mar 13, 2004

    Bears resurface

    Displaying a sharp reversal to last week's trend, the indices nose-dived during the current week on the back of substantial selling across sectors. However, some value buying at lower levels on Friday helped the indices recover some ground. Finally, at the end of the week, while the BSE-Sensex lost 3.1%, the NSE-Nifty closed lower by 2.5%. With no apparent reason for the correction this week, lack of positive triggers seems to have given the investor optimism a setback.

    Last week's positivism on the bourses continued at the start of the current week with the indices closing Monday with gains. However, Tuesday onwards, things turned sour for the bulls as the bears became active, forcing the indices to almost a freefall over the next couple of days also i.e. Wednesday and Thursday. Including Tuesday's correction, the indices corrected almost 5%. Further, continuing with the trend, Friday also saw the indices open weak and continue to head lower, below the 5,600 levels on the Sensex. At this juncture, the Sensex had lost over 6%. However, bargain hunting at lower levels late on Friday saw the indices make a smart pullback. Further, while there was no apparent reason for the correction on the bourses, it must be noted that though Foreign Institutional Investors (FIIs) inflows during the week stayed positive, they were significantly lower compared to last week (see chart above), which seems to have affected the indices.

    Top 5 gainers over the week (NSE-50)
    COMPANY Price on March 5 (Rs) Price on March 12 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 5,880 5,700 -3.1% 6,250 / 2,904
    S&P CNX NIFTY 1,865 1,819 -2.5% 2,015 / 920
    ABB 709 758 7.0% 775 / 280
    GLAXO 601 632 5.1% 650 / 287
    GAIL 216 225 4.4% 312 / 73
    DR. REDDY 1,020 1,030 0.9% 1,471 / 805
    NALCO 181 181 0.2% 206 / 70

    Considering the list of the top gainers this week on the bourses amongst the index stocks, pharma major, Glaxo, managed to close the week with gains of almost 5%. The optimism towards the week during the week was owing to the announcement by the company that it had finally moved forward to merge its India business with Burroughs Wellcome. On the global scale, these two companies had already merged earlier. This merger, when it takes place, would prove to be beneficial for Glaxo in the long-term, as the company would then be able to realise benefits of synergies between the two entities.

    Top 5 losers over the week (NSE-50)
    COMPANY Price on March 5 (Rs) Price on March 12 (Rs) % CHANGE 52-WEEK H/L (Rs)
    HERO HONDA 534 475 -10.9% 544 / 180
    TATA MOTORS 533 489 -8.2% 570 / 148
    RELIANCE ENERGY 803 740 -7.8% 818 / 205
    GRASIM 1,184 1,094 -7.6% 1,235 / 325
    ZEE TELE 126 118 -6.3% 175 / 60

    While the week largely witnessed selling pressure across sectors, one sector came particularly under bear hammering i.e. the software sector. While the 4 days of continuous losses on tech heavy NASDAQ could have played some role in affecting investor sentiments towards the sector, the other concern playing at the top of investor minds could be the 60-odd Bills, which have been passed in the US Senate to date. These are aimed at curbing outsourcing of US work to developing economies like India, which is, to some extent, being cited as being responsible for the jobless recovery being witnessed by the US economy.

    Further, the concerns on the domestic front seem aggravated owing to the fact that Indian software companies have been rapidly ramping up their employee base since the last few quarters in anticipation of larger volumes from the US markets. However, the US outsourcing backlash has dampened the possibilities of higher volumes, at least in the near future, which has led to a re-alignment of sector valuations. Some key losers

    Going forward, while our view with regards to the long-term remains intact, lack of any positive triggers in the immediate term seem to be affecting market movements. With barely 3 weeks to go before we, once again, enter the results season and considering the fact that with a significant portion of the forward earnings having already been factored into the current valuations, the performance by India Inc. in 4QFY04 could determine the future direction of the bourses. Happy Investing!



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