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Lifetime highs, again!

Mar 25, 2006

The BSE-Sensex managed to cross another landmark (11,000) this week but profit booking at higher levels restricted its weekly gains to less than 1%. The NSE-Nifty ended the week relatively stronger with gains of 1.4%. Further, while the BSE Mid-cap Index too gained 1%, it was the BSE Small-cap Index where the action was missing, as it remained unchanged. Incessant money flows, both from international and domestic players, have helped the markets to continue to gain ground.Riding strong on the back of the gains of the previous four weeks (Sensex up 9%), the Indian stock markets traded on an optimistic note on Monday. Though there was selling witnessed at higher levels, the bulls seemed adamant on marching ahead, especially when another milestone of 11,000 mark was within striking distance. Despite the tug-of-war, the Sensex managed to end the day strong with 80-points gain. This strength spilled over into Tuesday's trading session as well. Strong buying by local and foreigners, despite the sharp occasional bouts of profit booking, helped the Sensex breach the 11,000 mark a couple of times during the day. However, the final hour of trade saw the bulls just let go their hold and the bears took over, pulling the Sensex down by 154-points before some buying emerged at these levels.

However, the conviction of the bulls seemed to have wavered as profit booking exercise continued well into Wednesday's trade, bringing the Sensex back below 10,800 levels. Repeated attempts by the bulls to bring the markets out of the trough failed owing to the continued profit booking at every rise. A similar scenario prevailed during Thursday's trading session also. However, the bears could not sustain their pressure for long as the bulls came back with an equally strong vigour on Friday to end the week with about 1% gains and lifetime high closings for both the benchmark indices.

FIIs continued to pour in the big moolah with they being net buyers to the tune of Rs 7 bn in the first four trading sessions of the week. Further, as can be seen in the chart above, it is the revival of the domestic mutual fund flows in the last few weeks that have aided the rally. Domestic MFs bought equities worth Rs 4 bn in the current week, taking their net investments to Rs 32 bn in the last four weeks. This participation by the MF industry comes in wake of the huge amounts of money raised by them in 2006 to date through their new fund offerings.

Top gainers over the week (NSE-50)
CompanyPrice on
Mar 17 (Rs)
Price on
Mar 24 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 10,860 10,950 0.8% 11,017 / 6,118
S&P CNX NIFTY 3,234 3,280 1.4% 3,292 / 1,896
SAIL65 81 23.6% 82 / 47
MTNL164 182 11.0% 180 / 108
CIPLA580 627 8.1% 635 / 212
TATA STEEL462 493 6.7% 495 / 329
HINDALCO160 170 6.5% 171 / 107

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

  • MTNL (up 11%) was the sole gainer this week in the telecom pack with VSNL showing very little movement (up 0.2%). MTNL has, in fact, has led the sector stocks over the past month, recording gains of around 24%. Compared to this, Bharti Tele has managed only 6% gains and VSNL 12%. Buoyancy in the 2-metro (Delhi and Mumbai) PSU telecom company has seemingly been a result of positive vibes emanating from the company regarding ambitious plans for expansion. The 1.5 m mobile subscriber company had recently outlined its plans of entering into agreements with global services providers to expand roaming facility on its 'Dolphin' mobile service. Also, the company has recently awarded Rs 7.5 bn 2 m GSM lines order for expanding its Mumbai operations. These moves come in the wake of increased pressure on the company to improve its performance in both Delhi and Mumbai, where it is facing intense competition (even losing subscribers) from the private sector players. Other telecom stocks

  • Sanofi-Aventis and Bristol-Myers Squibb (BMS) have offered an out-of-court settlement to Dr.Reddy's for their blood-thinning drug 'Plavix'. 'Plavix' is currently the world's second largest drug after 'Lipitor' with revenues of US$ 6 bn per year. It must be noted that both Dr.Reddy's and Apotex had challenged the patents of this drug in 2002. Sanofi-Aventis and BMS have already entered into an agreement with Apotex. If the deal is successful, then the two innovator companies will be able to retain the patent protection on Plavix until 2011 and Dr. Reddy's would get a certain amount in lieu of the settlement. Dr. Reddy's ended the week higher with 6% gains. Other pharma stocks

  • Reliance Industries (RIL) is drawing up plans to invest in oil and gas exploration, production and refining in Sri Lanka. The country has potential reserves of 10 to 15 m barrels in the Gulf of Mannar and the Cauvery basin. The company is interested in entering Sri Lanka in the upstream and downstream sectors. RIL would invest about Rs 100 bn for setting up a greenfield refinery and another Rs 50 bn over three years for exploration and production, as the blocks were not developed. It is also keen on a joint venture with state-run Ceylon Petroleum Corporation for oil refining. The stock closed marginally (up 1%) this week. It has, however, gained over 11% in the last 1 month.


    CompanyPrice on
    Mar 17 (Rs)
    Price on
    Mar 24 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    REL. ENERGY641 608 -5.0% 707 / 473
    MARUTI877 838 -4.4% 943 / 393
    HDFC BANK764 735 -3.8% 776 / 448
    TATA MOTORS938 909 -3.1% 947 / 400
    ORIENTAL BANK240 235 -1.9% 327 / 229

  • Steel stocks were in the reckoning this week with SAIL and Tata Steel making it to the top gainers list. The announcement of record hot metal production by both these companies and with the fall in steel prices having been arrested in recent times has led to this optimism towards these and other steel stocks. Both these stocks made new 52-week highs during the week. It must be noted that a cloud of gloom had set over steel stocks as prices had corrected by almost 30% during 9mFY06 before these started to show signs of strengthening again in the current quarter. Other steel stocks

To conclude, while we concur with the fact that the fundamentals of India Inc. are strong after having improved considerably over the last 3 to 4 years, it is time for investors to start wondering if the recent leg of the rally, especially at the 11,000 levels is based on fundamentals or is it just liquidity. As far as our belief is concerned, we continue to subscribe to the view that the rally witnessed in the past couple of months has been defying fundamentals and has taken us aback and, as such, investors need to practice utmost caution. Though there still are stocks that are good investment options for the long-term, investors need to abstain from the herd mentality and not give in to temptations that rising markets like these bring. Happy and safe investing!


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