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Stocks staging a comeback?

Mar 21, 2009

The past week was a cheerful one for the Asia, as gains were seen in all the major markets, led by China (up 7.2%), Japan (up 5%), Hong Kong (up 2.5%) and Singapore (up 1.2%). India's benchmark index, the BSE-Sensex recorded a gain of 2.4%. The performance was mainly driven by positive global cues.As for other global markets, Europe ended the week on a firm note. France (up 3.2%), Germany (up 2.9%) and UK (up 2.4%) led the pack of gainers. However, the US (up 0.8%) also ended marginal gains as investors remained cautious after witnessing a positive run in the week before.

Coming to the performance of sectoral indices in India, stocks forming part of the realty and metal sectors emerged as the top gainers. During the week, the BSE-Realty and BSE-Metal indices recorded gains of 10.5% and 8.4% respectively. On the other hand, the BSE-Capital Goods Index (down 0.3%) and the BSE-Healthcare Index (up 0.6%) remained the lowest gainers.

Over the last one month, the stock of Tata Motors has gained nearly 20%. This makes it amongst the highest gainers from the BSE-Sensex pack. These gains can be attributed to the approaching official launch date (23rd March) of the Nano. As reported by Business Standard earlier this week, bookings for the car are expected to start by the end of March. Tata Motors has tied with a handful of PSU banks in order to provide financing services to customers. These include SBI, PNB, Union Bank of India and Andhra Bank. As these banks have a strong presence across India, it will benefit Tata Motors to reach out to more customers.

Most real estate players have announced price cuts in the range of nearly 30% to 40% in recent times. While it may impact their margins significantly, it will benefit the companies by reducing their inventory, bringing about much needed liquidity into the sector. It may be noted that a handful of realty players are sitting on a stock pile of projects that were launched a year back. The BSE- Realty Index has been amongst the worst performing sectors over the past fifteen months. In the year till date, the index is down by nearly 36%.

Recording gains of nearly 37% during the week, the stock of Akruti City remained the top gainer of the BSE A group for the second consecutive week. However, the stock tanked by 28% on Friday after the NSE barred the company from its futures and options segment. Over the past two weeks, the stock is up by nearly 65%. In fact, it is up by almost 146% since the beginning of this year. While there was no major reason for its share price to move in such a manner, especially in comparison with the BSE-Realty Index, it is believed to be driven by speculation amongst certain brokers. As per a leading business daily, the Securities and Exchange Board of India is probing three brokerages as part of an investigation into the abnormal rise.

As per a report issued by McKinsey & Company, India is likely to face a shortfall of nearly US$ 150 bn to US$ 190 bn in funding its infrastructure projects in the current five-year plan period (FY07 to FY12). It believes that the global economic slowdown and rising interest rates have made project financing expensive and financial closure difficult. It may be noted that the Planning Commission had earlier envisaged infrastructure investments to the tune of US$ 500 bn.

Foreign direct investment (FDI) into India increased by 55% YoY (to US$ 2.7 bn) during January 2009. This comes as good news considering that there was a three month slump in FDIs post October 2008. However, FDI inflows during the April 2008 to January 2009 period grew by 65% YoY to US$ 23.9 bn. Given the rate of inflows, India may miss its FY09 target of US$ 35 bn of FDI. But the fact that funds continue to flow in amidst an extremely weak global environment is some reason to cheer.

Source: Yahoo FinanceSource: Yahoo Finance

Source: SEBISource: BSE

Source: BSESource: BSE

Movers and shakers during the week
Company 13-Mar-09 20-Mar-09 Change 52-wk High/Low Change from 52-wk High
Top gainers during the week (BSE-A Group)
Akruti City 1,175 1,607 36.7% 2,012 /550 -20.1%
Welspun Guj. Stahl 54 70 30.1% 456 / 49 -84.6%
Aban Offshore 255 325 27.8% 4,190 / 224 -92.2%
Jet Airways 127 161 26.1% 585 / 115 -72.5%
Rolta India 43 53 24.8% 344 /41 -84.5%
Top losers during the week (BSE-A Group)
Spice Communications 66 60 -8.8% 84 / 23 -28.6%
GSK Pharma 1,170 1,075 -8.1% 1,214 / 930 -11.4%
India Cements 102 95 -7.3% 198 / 69 -52.2%
REI Agro Ltd 49 46 -7.1% 179 / 36 -74.6%
Power Fin. Corp. 138 129 -7.0% 189 / 86 -32.0%
Source: Equitymaster

Inflation, as measured by the wholesale price index (WPI), fell to 0.44% in the week ending March 7 as compared to 2.4% recorded a week ago. This is the lowest inflation recorded in nearly two decades. The decline is due to lower prices of food and fuel items. The sharp fall in inflation is also due to the high base effect as the number stood at 7.8% during the corresponding week last year. It may be noted that economists now believe that deflation is on the cards within the next two months.

During the week, the Fed announced that it would buy long term US Treasuries worth US$ 300 bn (apart from purchase of an additional US$ 750 bn worth of government-guaranteed mortgage-backed securities). This move is intended to lower long term interest rates and pump additional liquidity into the system. However, many experts are of the opinion that injecting cash directly into the system could catapult the US economy into a hyperinflation kind of a situation apart from weakening the dollar.

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