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On higher ground!

Mar 18, 2006

Bulls firmed their grip further on the markets this week, as they pushed the indices into a higher orbit. Both the Sensex and the Nifty created new records. While the BSE-Sensex ended this holiday-shortened week with 1% gains, the NSE-Nifty managed to gain 1.6%. However, contrary to this, the buying interest was absent in mid-cap and small-cap stocks, as is evident from the movement of their respective indices. While the BSE Mid-cap index remained almost unchanged for the week, the BSE Small-cap index ended the week in the red, down about 2%. The markets began the week on a euphoric note, riding on the back of the strong gains garnered over the previous three weeks. However, the bulls were finding it a tad difficult to hold on to the gains, with strong profit booking emerging at higher levels. A similar trend characterised Tuesday's trading session. However, the intentions of the bulls did not falter, as they bounced back smartly during both these trading sessions from the lows of the day. It must be noted that the Sensex made new lifetime highs in both these trading sessions.

Wednesday was a holiday on account of Holi. Having seemingly renewed their vigour during this break, the bulls took total control of market proceedings over the next couple of days as their forward march continued, helping the Sensex breach the 10,950-level during Friday's trading session. However, the final hour of trade saw the bears strike back with substantial force, pulling the Sensex (and also the other indices) down from their lifetime highs and into the red. To put this into perspective, the Sensex fell over 100 points from its intra-day highs before finding some feet.

As far as institutional activity this week was concerned, they (institutions) continued to pump in a significant amount of money into Indian equities. To put this into perspective, in the first three trading sessions of the week, while the Foreign Institutional Investors (FIIs) net investment was at Rs 6 bn, domestic mutual funds (MFs), who have raised a significant amount of money through their new fund offerings over the last couple of months, also put in a significant Rs 5 bn.

New listings during the week
Company Allotment
Price on
Mar 17 (Rs)
Low (Rs)
Pratibha Industries 120 205 70.5% 213 / 135
IndoTech Transformers 130 211 62.7% 244 / 165
BL Kashyap 700 973 39.0% 1,037 / 750
M&M Financial 200 233 16.5% 250 / 205
VISA Steel 57 57 0.3% 62 / 50

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

  • The Zee Telefilms stock shot into the limelight this week, as the company announced that it would raise its advertising rates by 20% to 40% for FY07. Zee is India's first private TV channel covering nearly 30% of Indian television homes. Advertisement is one of its major sources of revenue and contributed to about 45% of the company's topline in 3QFY06. On the advertising front, the company had been witnessing good times since the last three quarters due to increased focus on Zee TV, the company's flagship channel, which, as per the company release, has clawed to the No. 2 spot in the general entertainment category. The company is planning to increase the rates due to the good economic growth and demand for content. The increase would apply to its flagship Hindi entertainment channel, Zee TV, as well as its English language entertainment channels and some regional language channels. The stock soared higher by as much as 25% this week. Other media stocks

    Top gainers over the week (NSE-50)
    Company Price on
    Mar 10 (Rs)
    Price on
    Mar 17 (Rs)
    H/L (Rs)
    BSE-SENSEX 10,765 10,860 0.9% 10,951 / 6,118
    S&P CNX NIFTY 3,184 3,234 1.6% 3,258 / 1,896
    ZEE TELE 185 233 25.6% 240 / 128
    VSNL 389 419 7.8% 445 / 161
    DABUR 113 121 6.5% 124 / 53
    ONGC 1,151 1,221 6.1% 1,298 / 806
    RELIANCE 731 775 6.0% 782 / 410

  • The Anil Ambani-controlled Reliance Communications Ventures Limited (RCoVL) will merge Reliance Infocomm Ltd (RIC) with itself. RCoVL will also hold 100% in the three principal operating subsidiaries - Reliance Telecom Limited (RTL), Reliance Communications Infrastructure Limited (RCIL) and FLAG Telecom. The re-organisation does not involve any cash outgo and will be achieved by a share swap only. RCoVL currently owns 45.3% of RIC, 45% in RCIL, 35.6% in RTL and 100% in FLAG Telecom. With this, all of RCoVL's communications services businesses - CDMA/GSM wireless, wireline, long distance voice, data and broadband services - would come under a single holding structure. On completion of the re-organisation, RCoVL will become a major operating company with over 19 m subscribers. The RCoVL stock ended the week higher by 7%. Other telecom stocks

  • Tata Motors, the largest commercial vehicle (CV) player in the country, is planning to invest Rs 25 bn in its plant in Uttaranchal wherein it can manufacture its fast-selling light CV (LCV), Ace, and possibly also its Rs 100,000 car. The plant will have a capacity to produce 350,000 to 400,000 vehicles a year. It can be recalled that Tata Motors had recently announced that it would double the production of Ace to 60,000 units a year. This is a positive move by the company, as demand is robust for 'Ace' and the success of this has the potential to alter the dynamics of the LCV industry (including three-wheelers). The Tata Motors stock ended the week with 5% gains. Other auto stocks

    Top losers over the week (NSE-50)
    Company Price on
    Mar 10 (Rs)
    Price on
    Mar 17 (Rs)
    H/L (Rs)
    NALCO 283 267 -5.7% 310 / 139
    TATA TEA 901 868 -3.7% 1,078 / 500
    SAIL 68 65 -3.6% 70 / 47
    RANBAXY 419 404 -3.6% 568 / 339
    L&T 2,516 2,468 -1.9% 2,615 / 920

  • ITC has increased prices of its 'Wills' brand of cigarettes. The tobacco major has increased prices from the current rate of Rs 3 per stick to Rs 3.5 per stick (17% hike), after the Finance Minister increased the excise on cigarettes by 5%. It must be noted that prices of its other cheaper mass-market brands have not been changed. Thus, overall, the 17% hike will dilute to around 5% as per rough calculations, in line with the excise hike. The 5% excise hike would have resulted in a Rs 3.5 bn hit to the cigarette industry, dominated by ITC, which owns 6 of the top 10 brands. With this move, ITC has passed the additional burden onto the consumer, thus protecting its margins. The stock ended the week down 1%. Other FMCG stocks

Going forward, our stance towards equities at current levels continues to remain cautious. We believe that considering the sharp rise in the value of equities in recent months, which has been driven largely by foreign money, the situation certainly warrants a much higher degree of caution. In light of the concerns with respect to rising US interest rates and FII flows reversing their direction, thus leaving local investors in the lurch, we suggest that investors should not base their decision on the trend in FII inflows alone. It is pertinent for investors to bear in mind the ‘fair-weather-friends' image of international investors. Thus, one of the best ways to deal with the situation of a possible correction in Indian stockmarkets (for whatever reason) is to invest in fundamentally strong companies' stocks, which are not at the mercy of anything, but their own performance. Happy investing!

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