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Bulls trying a comeback...

Mar 27, 2004

After two consecutive weeks of profit booking on the bourses, the indices finally found some stability during this week's trading. The week was 'largely' characterized by consolidation with the indices trading in a range for 3 of the 5 trading days before breaking out on Friday smartly. Thanks to Friday's gains, the indices managed to end the week on a positive note with the BSE-Sensex and the NSE-Nifty gaining 1.6% and 1.3% respectively.After last weeks bear carnage (down about 5%) on the bourses, this week's opening on Monday was not much of a surprise, which was on a feeble note. With no specific reason for the sell-off being witnessed on the bourses over the last fortnight, it largely seemed that investors were struck by panic more than anything else during Monday's trade. Factors like liquidity crunch owing to financial year end commitments, caution prior to March quarter results and the soon to be held general elections continued to play on investor sentiments. Post Monday's weakness, the indices traded in a narrow range for the following 3 trading sessions as lack of news flows kept the indices' upside and downside capped. However, Friday's trade saw a reversal in the mood, as investors embarked on a buying spree across sectors. Apart from the smooth rollover of the derivatives positions on Thursday, there was no other news during the week and it largely seemed a case of bargain hunting at lower levels.

Now, considering some stock specific activity, Petronet LNG (PLL) debuted on the markets on Friday at a 7% premium (offer price Rs 15) on the bourses this week. The company is promoted by four Navratna PSUs, namely BPCL, ONGC, GAIL and IOC holding 12.5% stake each. The company has set up terminals for the import of liquefied natural gas (LNG) and has regasification facilities. PLL set up its first terminal with a capacity of 5 MMTPA (million metric tonnes per annum) at Dahej in Gujarat and plans another 2.5 MMTPA terminal in Kochi. The regasified natural gas shall then be sold to GAIL, IOC and BPCL in a 60:30:10 ratio, respectively. The stock however closed 2% below its offer price.

Top 5 gainers over the week (NSE-50)
COMPANY Price on March 19 (Rs)Price on March 26 (Rs)% CHANGE52-WEEK H/L (Rs)
BSE-SENSEX 5,443 5,529 1.6% 6,250 / 2,904
S&P CNX NIFTY 1,725 1,748 1.3% 2,015 / 920
TATA CHEM 110 120 8.8% 189 / 60
BHARTI TELE 136 147 8.3% 168 / 27
ZEE TELE 116 126 8.2% 175 / 60
DABUR 70 75 7.7% 98 / 34
REL. ENERGY 709 755 6.5% 818 / 205

While the indices traded in a narrow range for most part of the week, select activity was witnessed amongst the index stocks. Tata Chemicals (up 9%) was the biggest gainer amongst the Nifty stocks this week. Others among the top 5 included Bharti Tele (up 8%) and Reliance Energy (erstwhile BSES) (up 7%).

The gains in Bharti Tele was owing to the news that it would start operations in six new circles by mid-FY05, requiring investment of Rs 3.5 bn per circle. The company also plans to double its capacity from 2 bn call minutes to 4 bn call minutes in the next fiscal and further expand its subscriber base from 6.5 m to 11 m. Further, the news with respect to Reliance Energy this week was that it has received approval from RBI's empowered committee for the country's largest ever ECB (external commercial borrowing) of US$ 1.5 bn for the Rs 100 bn power project in UP. The power from the project shall be used partly by Reliance Energy's distribution companies in Delhi and Mumbai.

Top 5 losers over the week (NSE-50)
COMPANY Price on March 19 (Rs)Price on March 26 (Rs)% CHANGE52-WEEK H/L (Rs)
MTNL 130 123 -5.8% 158 / 75
SAIL 35 33 -5.5% 62 / 9
GLAXO 612 584 -4.6% 650 / 287
BRITANNIA 639 612 -4.3% 786 / 482
HINDALCO 1,266 1,217 -3.9% 1599 / 532

Coming to the losers' list now, MTNL topped the week with losses of 6%, followed by SAIL (down 6%) and Glaxo (5%). The outlook towards the SAIL stock turned weak on the back of the news that the company may have to import larger quantities of coke (one of the major raw materials for steel industry) or cut back production at some of its units because of TISCO (down 3%) deciding to cut the coke supply. As a result, SAIL will have to import higher quantity of coke from international markets. Now, since international prices of coke are on higher side, it may force SAIL to cut down production for sometime, which could affect its topline by Rs 500 m. Further, we would like to advise investors here that with concerns related to China's 'over-heated' economy going strong, utmost caution needs to be practiced as a slowdown in Chinese steel consumption could have a serious negative impact on international steel prices and consequently on steel stocks.

The indices had undergone a significant correction (approximately 14%) during the last couple of months. The reasons being cited for this included liquidity crunch created owing to the slew of IPOs (largely by the government) that hit the markets and financial year-end commitments by investors as they re-shuffle their investments. Uncertainty with respect to the general elections seemed to have also played a key role. However, going forward, such intermediate corrections, with no change in the underlying fundamentals, offer good opportunities to long-term investors for investing in stocks at attractive entry levels. Happy Investing!

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