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Bear hug...

Mar 24, 2005

This is one hug, which no stock market investor looks forward to. But if only wishes were true! Coming to the markets, it was a week, which investors would want to get off their minds as soon as possible, as both the indices tumbled on the back of across the board selling. The weakness during the week was also characterized by two big falls on a couple of occasions. At final count, while the BSE-Sensex lost 3.8% during the week, the NSE-Nifty closed lower by 4.4%.

Key indices over the fortnight
Index As on March 11 (Rs) As on March 24 (Rs) % Change
BSE PSU 4,600 4,195 -8.8%
BSE BANKEX 4,147 3,802 -8.3%
BSE AUTO 2,816 2,597 -7.8%
BSE-500 2,907 2,697 -7.2%
BSE-200 922 857 -7.1%
BSE METAL 6,904 6,415 -7.1%
BSE OIL&GAS 3,289 3,078 -6.4%
Sensex 6,854 6,443 -6.0%
BSE IT 2,703 2,597 -3.9%
BSE FMCG 1,085 1,049 -3.3%

The mood seemed primarily a continuation from that of last week as Monday morning saw the markets open on a rather cautious note, despite the smart pullback witnessed in Friday's trade last week. After trading in a narrow range for almost the entire trading session on Monday, as the tussle between the bulls and the bears continued, the bears finally had the last laugh. Repeated attempts to bring the benchmark indices out of the trough were met by severe selling pressure at every rise.

This trend continued right through the next three trading sessions, including two big falls on Tuesday (120 points) and Wednesday (80 points), as repeated attempts by the indices to rise, ultimately proved vain. It must be noted that now, post two consecutive weeks of correction (over 7% since their all-time highs), the indices are well below the pre-budget levels. While there is no apparent reason as such for the markets to have faltered, as the India Inc. story remains largely intact, fiscal end blues in terms of tax adjustments, brokers' margin-calls, VAT concerns and 4QFY05 earnings season round the corner, seemed to have collectively led to the weakness.

Before we proceed, it must be noted that the US Federal Reserve has yet again affected a 0.25% hike in its overnight rates, which now stand at 2.75%. This is the seventh quarter percent hike since the Fed started raising rates last June in its pursuit of tiding over the rising inflation. However, while the central bank kept the 'measured' tone intact, it indicated that it is growing more concerned about the inflation. So, what should Indian investors do?

Key gainers over the week (NSE-50)
COMPANY Price on Mar 18 (Rs) Price on Mar 24 (Rs) % CHANGE 52-WEEK H/L (Rs)
BSE-SENSEX 6,700 6,443 -3.8% 6,955 / 4,228
S&P CNX NIFTY 2,109 2,015 -4.4% 2,183 / 1,292
DR. REDDY 719 751 4.5% 1,015 / 650
BHARTI TELE 207 212 2.4% 250 / 114
HERO HONDA 539 544 1.0% 616 / 320
ITC 1,311 1,322 0.8% 1,417 / 812
HLL 134 135 0.8% 170 / 101

Now let us consider some key sector/stock specific developments during the week:

  • Reliance Group stocks shot into the limelight during the latter half of the week, thus managing to recover some of their losses of the first two trading sessions. While Reliance Capital ended the week higher by 9%, Reliance Energy (down 1%), IPCL (down 5%) and Reliance Industries (down 2%) closed with relatively lesser losses. The cause for this optimism was the news in leading business dailies that the feud between the Ambani brothers is on the way to being sorted and they have reached a settlement. However, while there are various permutations and combinations floating in the market with respect to the possible settlement between the two brothers, investors must take a cautious approach and not invest solely on the basis of these rumours, which have done market rounds on previous occasions also.

Key losers over the week (NSE-50)
COMPANY Price on Mar 18 (Rs) Price on Mar 24 (Rs) % CHANGE 52-WEEK H/L (Rs)
TATA POWER 379 340 -10.3% 430 / 213
TATA MOTORS 461 416 -9.7% 528 / 300
HDFC 761 691 -9.2% 830 / 450
SBI 728 664 -8.7% 751 / 390
CIPLA 277 253 -8.4% 322 / 194
  • As per reports, commercial vehicle (CV) sales in the month of March are expected to be lower by about 20%. This is despite the fact that from the next fiscal, which is due to begin in a week from now, prices of CVs are expected to increase by about 2%-3% in order to meet the additional costs pertaining to the new emission norms. However, uncertainties related to VAT and also the possibility of the resale value of Euro 1 and Euro 2 CVs taking a hit, consumers seem to have preferred to postpone their purchases to the next fiscal. Further, the strength in crude oil prices, which would sooner or later be reflected on Indian petrol/diesel prices, has the potential to spoil the party for automakers. Auto stocks during the week

  • The SBI stock was another key loser amongst index heavyweights losing 9% during the week. India's largest bank appears to be facing the heat on the deposits front. Driven by a shift in preferences of some of its depositors, mainly towards mutual funds, the bank has now been forced to take on competition from MFs by hiking the interest rate on deposits to bulk depositors by 1.25% over the official rate for one-year maturity. Although the exact amount of 'bulk deposits' is not quantifiable, considering the fact that the bank has a majority of its exposure on the corporate side, the interest hike will most likely cause a further pressure on its NIM (at present 2.9%). Banking stocks during the week

To conclude, while the markets seem to have been in the profit booking mode, our advice to investors would be to rise above the short-term trading movements of the indices and focus on the long-term approach of building wealth. We believe that there are companies in India with very good managements' and robust business models. We also believe that over the long-term, money flow into equities will rise. However, investors must practice not giving into temptations like buying 'hot stocks' for a quick buck or 'buying at dips', etc. In fact, for optimum investment portfolio performance, investing at regular intervals over the long haul is a good option. Also remember, if you have not been fortunate enough to ride the bulls in this rally, do not regret. Markets will provide a second chance. Happy investing!

  • Kindly note markets will remain closed on Friday on account of Good Friday.

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