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Up above the sky so high!

Apr 1, 2006

"The next Sensex target is 12,000!" Oh no, we are not saying this. But this is what you might here on Dalal Street these days with every man on the street predicting what the next level for the Sensex would be. And incidentally, these self-proclaimed 'market maestros' do not have to wait long to become heroes amongst their peers with 1,000 points rally on the Sensex now having reduced to a matter of a few weeks! Sheer euphoria is what has descended on the Indian stock markets. The markets made new lifetime highs yet again this week with the BSE-Sensex and the NSE-Nifty gaining 3% and 3.7% respectively. Continuing from where it left off on Friday, the Indian stock market indices opened the week on a strong footing and went on to achieve higher ground throughout Monday's trade with the Sensex ending the day with near 130 points gains, back above the 11,000 mark and ending the day at a lifetime high. This momentum continued even in the subsequent days trading session with the Sensex breaching the previous day's high to almost nudge 11,150! However, a strong bout of profit booking at these levels saw the markets lose most of their gains and close rather flat on Tuesday. However, the bulls were adamant on marching ahead, which saw the markets fire again on Wednesday. The Sensex again ended the day with almost 100-points rally and a record close.

The story on Thursday was no different as bears remained on the sidelines and the bull party continued with the Sensex well above the 11,300 mark! However, Friday saw the bulls surrender as the bears made their presence felt with profit booking taking centre stage. However, the damage done was negligible (Sensex down 27 points) considering the fact that the Sensex had witnessed a near 600-points rally in the past 7 to 8 sessions. Apart from this, there was ample buying witnessed in the non-large-cap segments too, which is evident from the gains witnessed in the BSE Mid-cap (4.7%) and BSE Small-cap (5.4%) indices.

As far as the institutional activity on the bourses was concerned, the first four trading sessions of the week saw the Foreign Institutional Investors (FIIs) invest Rs 15.2 bn while the domestic MF community provided ample support with its Rs 11.4 bn net investments. While global liquidity and the attractiveness of Indian equities as an asset class has encouraged investors across the globe to invest here, domestic mutual funds (MFs), which are flush with funds raised from the domestic markets, which run into a few billion dollars, are also finding Indian equities worth investing in.

Top gainers over the week (NSE-50)
Company Price on
Mar 24 (Rs)
Price on
Mar 31 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 10,950 11,280 3.0% 11,357 / 6,118
S&P CNX NIFTY 3,280 3,403 3.7% 3,434 / 1,896
VSNL 420 470 11.9% 494 / 161
GAIL 291 319 9.4% 326 / 199
TATA STEEL 493 537 8.7% 543 / 329
SHIP. CORP. 156 170 8.5% 172 / 136
BHARTI TELE 382 413 8.2% 429 / 193

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

  • HLL hiked prices of its detergents, soaps and skincare products. The company raised prices for the 4 kg pack of Surf Excel Blue (by 32%), Lifebuoy soap and the Fair and Lovely and Pears range. It can be recollected that the company had recently raised prices of its deodorants and Lakme cosmetics as well. Although a part of this hike could be attributed to the rise in prices of Linear Alkyl Benzene (LAB), a major chunk of it would add to the company's bottomline. This is a positive for the company as it indicates the return of the pricing power for FMCG companies. The stock was up 7% this week. Other FMCG stocks

  • Tata Steel has been finding considerable favour amongst investors since the last few weeks. This is evident from the fact that the stock has gained over 50% in the last 10-weeks, including the 9% gains this week. The optimism towards Tata Steel, and steel stocks in general, has been on account of the fact that the fall in steel prices that was witnessed in 9MFY06 has been arrested with a near 10% rise in recent times. In fact, reportedly, the company has raised steel prices by Rs 2,000 per tonne this week. The resurrection in steel prices augurs well for steel companies but investors must note that while steel prices are as yet about 20% below their peaks, the stock prices are already trading at their 52-week highs! Other steel stocks

    Top losers over the week (NSE-50)
    Company Price on
    Mar 24 (Rs)
    Price on
    Mar 31 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    HPCL 330 320 -3.2% 370 / 282
    ZEE TELE 245 239 -2.3% 259 / 128
    BPCL 435 425 -2.3% 471 / 339
    ABB 2,992 2,928 -2.2% 3,100 / 1,136
    TATA TEA 885 867 -2.0% 1,078 / 500

  • Zee Telefilms announced its restructuring plan this week. As per the plan, Zee would hive off its distribution and news businesses as separate entities. Zee Television will continue to be under Zee Telefilms. SitiCable and Zee News will be carved out of Zee Telefilms as separate companies. Currently, all aspects of the broadcasting business, like content generation, marketing, distribution and syndication, are carried out under the umbrella of Zee as different divisions. Dish TV, the DTH business of Zee Telefilms, is already being run and managed by another company, ASC Enterprise, which has a content supply agreement with Zee Telefilms. The DTH business will be merged with ASC. The said restructuring, which would eventually give birth to three new companies, is expected to help Zee Telefilms to unlock value for its shareholders and enhance transparency of its businesses. The stock, however, was down 2% this week, after having gained over 35% in the previous 3 weeks. Other media stocks

  • Oil refining majors, HPCL and BPCL, were among the losers list this week. Investor caution towards these stocks seemed to have stemmed from the fact that international crude oil prices have once again raised their head and are currently trading near the US$ 67 per barrel mark. It must be noted that crude oil being the input for oil refining companies would put pressure on their margins in the near-term. This is because domestic petroleum product prices are still regulated by the government, which is generally unable to pass the increased costs onto consumers owing to various political compulsions, thus forcing the oil majors to bear the burden. Other energy stocks

We continue to maintain our cautious stance towards Indian equities. While market players attribute the current rally on the bourses to various fundamental reasons, we believe that global liquidity (read FII money inflow) has been the key factor that has been driving valuations higher. With interest rates having increased substantially in key developed markets like the US, there are risks to this flow of money in the near-term. We suggest investors to book profit if the price target is achieved and not to wait for the 'next 100 points upside'. It is pertinent to look at both the upside and the downside from a fundamental viewpoint i.e., earnings growth and relative valuations. However, we continue to remain positive over the longer-term prospects and we believe that a selective and staggered investment approach is apt for investing into equities at the current juncture. Happy and safe investing!


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