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Clouded by concerns

Mar 19, 2005

After consolidating last week, the Indian indices showed a significant movement this week, albeit this time it was on the downside. Both the BSE-Sensex and the NSE-Nifty lost over 2% each as Foreign Institutional Investors (FIIs) inflows retreated somewhat during the middle of the week. However, there were various reasons, which were seemingly the cause for this lacklustre behaviour on the bourses this week. On the back of last week's cautious mood overhang, the indices opened on a weak footing at the start of trading this week. However, buying at lower levels soon pushed the indices into the positive territory. But the cheer on the bourses did not last long as a free-fall was witnessed in the markets in the closing of hours of trade on Monday. This was owing to investor sentiments that were shaken, as western India felt earthquake tremors late Monday afternoon, which measured 5.1 on the Richter scale dampening the already subdued mood of the markets.

However, it did not end there as the indices continued to slide lower until Friday noon. By this time, the markets had lost over 5% (if we consider the all-time highs of March 11 and the intra-day Friday lows of under 6,600). However, at this juncture, bulls struck back with renewed vigour. Intense buying at lower levels on Friday lifted the indices from the deep trough, as they made a smart comeback (intra-day) rally of sorts of over 100 points on the Sensex. But not much should be read into this strength, as the various concerns that have seemingly remained at the top of investors' minds during the week would resurface again next week. Amongst the various reasons are surging global crude oil prices, India Inc. paying a relatively lower advance tax in March compared to the same period last year, FIIs having shown little interest during the week and margin calls that have been triggered by brokers with the year end in consideration.

However, the biggest amongst all this, which would continue to keep investors on their toes, is the record high crude oil prices. These not only made new record highs this week of US$ 57.6 during the week but they continue to remain firm near the highs at almost US$ 56.5 per barrel and this is despite the OPEC nations deciding upon a 2% increase in production. The effect of this on India Inc. operating margins needs a close look at the current juncture. Further, as a country, with India importing nearly 70% of its oil requirement, the impact of this on the country's import bill could be severe, which in turn would put pressure on the country's fiscal position.

No let us consider some sector/stock specific developments during the week:

IPOs over the week (NSE-50)
Company Offer price (Rs) Price on Mar 18 (Rs) % Change High /Low (Rs)
Jet Airways 1,100 1,229 11.8% 1,339 / 1,115
UTV Software 130 158 21.3% 175 / 150

Two IPOs - Jet Airways and UTV Software Communications - made their debut on the Indian bourses this week. While the former opened with a premium of 10% on Monday, the latter's opening was much more impressive with the stock opening at a premium of about 27% on Thursday. Jet Airways is a leading private airline company in India, providing regular scheduled services on routes between all of India's major cities. It is the largest domestic airline in India in terms of passengers carried, both in FY04 as well as in 1HFY05. As far as UTV is concerned, it is an integrated entertainment company with interest in television content production and airtime sales, movie production and distribution, dubbing, ad-film making and post-production services. However, the core business has always been that of providing content for television. The company has to its credit the production of several popular shows in the hay days of the Indian cable & satellite industry and continues to deliver some sound programming quality. It has also co-produced several films that have done well at the box-office.

Key gainers over the week (NSE-50)
COMPANY Price on Mar 11 (Rs) Price on Mar 18 (Rs) % CHANGE 52-WEEK H/L (Rs)
BSE-SENSEX 6,854 6,700 -2.2% 6,955 / 4,228
S&P CNX NIFTY 2,154 2,109 -2.1% 2,183 / 1,292
ICICI BANK 391 413 5.8% 418 / 212
SAIL 66 68 3.3% 70 / 21
TCS 1,427 1,469 2.9% 1,474 / 959
HCL TECH 361 365 1.2% 407 / 234
RANBAXY 1,074 1,075 0.1% 1,279 / 867

Despite the bearish sentiments that prevailed in the markets, the ICICI Bank stock made new 52-week highs as it ended the week with gains of almost 6%. The optimism towards the stock could be attributed to the company fixing a price of over US$ 21 for its sponsored American Depository Share (ADS) issue, which was oversubscribed by about 4 times. This ADS price was at a premium of about 18% to the domestic stock price when the issue closed for subscription last week.

Key losers over the week (NSE-50)
COMPANY Price on Mar 11 (Rs) Price on Mar 18 (Rs) % CHANGE 52-WEEK H/L (Rs)
VSNL 222194 -12.4% 252 / 110
PNB 488434 -11.1% 520 / 212
MTNL 140128 -8.3%170 / 92
BHARTI TELE 224207 -7.4%250 / 114
HDFC BANK 610566 -7.2%629 / 256

Telecom stocks were under the bear baton this week. While there was no specific reason for this, we believe that telecom stocks, despite visibility and growth opportunity, are risky in nature owing to the highly capital-intensive nature of the sector along with significant competitive pressures. Investors have to ascertain whether telecom majors can sustain the current level of margins in an increasingly competitive market.

Going forward, crude prices are likely to stay at the top of investors' mind next week also, which could play on sentiments. Further, with the earnings season once again round the corner, investors might want to adopt a wait-and-watch approach rather than get caught on the wrong foot. However, we believe that rather than trying to time the markets, which is extremely difficult as even the most seasoned players get caught on the wrong foot, a systematic, staggered and long-term investment approach is a sure shot way to optimize your portfolio returns. Happy investing!

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