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Bulls fire all cylinders! - Views on News from Equitymaster
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  • Mar 24, 2007

    Bulls fire all cylinders!

    Bulls lorded over the markets in the week gone by and in the process, erased substantial deficits of the past few weeks. For the week ended March 23, 2007, both the 'BSE-Sensex' as well as 'NSE-Nifty' edged higher by 7% each.

    The benchmarks closed in the positive for four days out of five. Infact, even the decline that took place on Friday was marginal, indicating the kind of optimism that gripped the markets almost throughout the week. The volatility was also considerably lower as compared to the week before. As far as the pattern for each day is concerned, while the huge gains on Monday and Thursday were marked by consistent hour after hour gains, most of the gains that took place on Wednesday occurred during the final trading hours. On the two remaining days of the week, while the indices edged marginally higher on Tuesday, they ended marginally lower on Friday. Thus, it was the other three days of the week where the maximum gains came from. Major Asian indices also mirrored the same trend and ended the week on a positive note.

    As far as the institutional activity is concerned, while the domestic mutual funds turned out net sellers to the tune of Rs 201 m, Foreign Institutional Investors (FIIs) pumped in Rs 7 bn into the markets during the week.
    (Rs m) MFs FIIs Total
    16-Mar (2,239) 21 (2,218)
    19-Mar 331 (2,500) (2,169)
    20-Mar 1,402 1,363 2,765
    21-Mar (563) 1,645 1,082
    22-Mar 869 7,131 8,000
    Total (201) 7,660 7,459

    As far as the sectoral indices are concerned, after a long while, there was not a single coat of red, in other words, all the indices ended the week in the positive. Leaving everyone far behind though was the 'Bankex' that edged higher by an impressive 13% during the week. All the three heavyweights, viz. ICICI Bank, HDFC Bank and SBI inched significantly higher and in the process also pushed the index higher. Other key banks like PNB and OBC also edged substantially higher. The 'BSE Small Cap' last week's highest grosser witnessed a turnaround in fortunes, as it was last on this week's list. It nonetheless managed to end the week with gains of 3%.

    Index As on March 16 As on March 23 % Change
    BSE BANKEX 6,047 6,822 12.8%
    BSE PSU 5,444 5,879 8.0%
    BSE OIL AND GAS 6,049 6,434 6.4%
    BSE AUTO 4,795 5,040 5.1%
    BSE METAL 8,072 8,454 4.7%
    BSE FMCG 1,626 1,689 3.9%
    BSE IT 4,879 5,068 3.9%
    BSE HEALTHCARE 3,459 3,574 3.3%
    BSE MIDCAP 5,236 5,395 3.0%
    BSE SMALlCAP 6,275 6,457 2.9%

    Let us have a look at some key stock/sector specific development during the week:

    The Wadia family of Bombay Dyeing and France-based dairy product giant Groupe Danone, equal partners in the biscuit maker Britannia Industries are planning to part ways. The move will result in their two joint ventures in India, Britannia Industries and Wadia BSN, being dismantled and will help them pursue their ambitions separately in the growing Indian food and dairy sector. As reported in a leading business daily, Danone is planning to make a move to buy the Wadias out of Wadia BSN. The joint venture was formed to foray into dairy products whenever the opportunity presented itself. For Wadia-BSN, the fair market value, according to the agreement, will be the aggregate of the price resulting from a valuation on the date of the notice commencing the sale procedure made by a partner of an international auditing firm, chosen by an agreement between Danone and the Wadias. Britannia (down 1%) ended lower for the week while peer Nestle edged higher by 3%.

    COMPANY Price on Mar 16 (Rs) Price on Mar 23 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE Sensex 12,430 13,286 6.9% 14,691 / 8,799
    S&P CNX NIFTY 3,609 3,861 7.0% 4,232 / 2,596
    CORPN BANK 218 292 33.9% 435 / 205
    BOI 137 174 26.6% 210 / 80
    UTI BANK 449 532 18.5% 590 / 222
    HINDUJA TMT 515 605 17.5% 806 / 355
    WARTSILA INDIA 493 577 17.0% 541 / 246

    Bharti Airtel Ltd, India's biggest wireless company, plans to sign up as many as 90 m users in three years and is seeking to acquire companies in the South Asian region to fend off a challenge from Vodafone Group Plc. Bharti will invest US$ 8 bn (Rs 351 bn) in marketing, relay towers and network equipment to garner 25% of the Indian market. The company has 22% of the market at present. The Newbury, England-based company, Vodafone aims to take on Bharti in the world's fastest-growing mobile-phone market in three years after buying a US$ 11.1 billion controlling stake in Hutchison Essar Ltd, India's fourth-largest provider. While Bharti needs to move faster to add more value-added services to its portfolio to retain leadership, the company's network gives it an edge over Vodafone. Vodafone will first need to catch up with Bharti's monthly subscriber additions and for that it needs to invest in infrastructure, which Bharti already has in place. The stock closed 9% higher for the week, while its peer Reliance Communication ended the week with gains of 13%.

    COMPANY Price on Mar 16 (Rs) Price on Mar 23 (Rs) % CHANGE 52-WEEK H/L (Rs)
    MERCK LIMITED 440 405 -7.8% 625 / 403
    FINOLEX CABLES 89 85 -4.3% 109 / 44
    ESSEL PROPACK 72 69 -4.0% 94 / 61
    GSK PHARMA 1,174 1,128 -3.8% 1,550 / 891
    GUJARAT GAS 1,332 1,281 -3.8% 1,421 / 920

    As per a leading business daily, the country's ten largest banks have indicated to the RBI that the continued tightness in liquidity might compel them to slow down credit growth substantially in FY08. This outlook was manifested in the fact that the overnight call money rates rose to a decade's high of 75% last week, before closing at 40%. These highs follow the demand for funds to meet advance tax payments, government bond auctions and the impact of increases in the cash reserve ratio (CRR). To ease liquidity exigencies at some banks, the RBI has allowed banks with excess investment in government bonds (SLR) to borrow from it through the repo route. Although the RBI has been targeting a credit growth of 20% for FY07, the same has sustained at 29% YoY until February 2007. However, banking stocks across the board closed on a firm note with PNB (up as much as 15%) and OBC (up 16%).

    MNC pharma major, Pfizer India, announced mixed results for the first quarter ended February 2007 (November ending company). For 1QCY07, while topline has grown by 6% YoY, operating margins have declined marginally, led by an increase in raw material costs. Bottomline however, grew faster (bottomline grew by 14% YoY during the quarter) than the topline due to reduction in depreciation charges and extraordinary expenses. If one were to exclude the impact of the extraordinary item, the bottomline growth has been staid at 1% YoY. While the stock ended higher by 8%, its peer GSK Pharma (down 4%) ended weak.

    While the current rally would have definitely soothed some frayed nerves, it however, should not be construed as something that will continue to happen week after week. Though the long-term growth story is intact, valuations from a medium term perspective still look stretched for quite a few sectors and investors could do well to tone down their expectations a bit. It is not year after year that the indices would give returns in the region of 40% to 50%. A more realistic expectations should be somewhere in the region of 12% to 15% and that too in well managed companies with a strong track record and shareholder friendly management.



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