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Gains amidst volatility... - Views on News from Equitymaster
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  • Apr 2, 2004

    Gains amidst volatility...

    While FY04 brought back smile to the faces of investors and brokers alike, ironically, the last month of the year ended on a losing note. Owing to profit booking, markets remained largely volatile for most part of the month and suffered a 1% decline. However, there were certain stocks that bucked the trend. Let us have a look at the five Sensex stocks that gained the most in the past one-month and try and analyse the reasons behind the same.

    Company 1-Mar-04 1-Apr-04 % Change
    Sensex 5823 5750 -1.3%
    HPCL 473 521 10.1%
    ONGC 760 830 9.2%
    ICICI Bank 282 301 6.7%
    Bhel 599 635 6.0%
    Tata Power 363 383 5.5%

    Energy stocks, HPCL and ONGC occupy the top two positions on the list with gains of 10% and 9% respectively. Since ONGC is allowed to sell its crude on an import parity basis, firming up of crude prices would mean higher profitability for the company. Further, with government allowing the company to auction its crude oil on the 'best price basis' from April 1 this year, this gives the company further leverage to sell its crude at a reasonably attractive price. However, despite higher crude prices, HPCL's gain has come as a surprise. With the elections round the corner, petroleum product prices are not likely to increase thus resulting in refining majors absorbing a large extent of escalation in input cost. Unless, petroleum product prices are revised upwards, HPCL could suffer.

    ICICI Bank, the second largest commercial bank in the country, gained nearly 7% over the last one month and occupied the third position on the list. The optimism towards the stock seems to be the result of the bank's decision to tap the equity markets and raise Rs 30-35 bn, the largest ever private sector equity offer in the country. The issue if successful, would increase the bank's capital adequacy ratio to 15% from the current 11% levels and would allow it expand the range of its business and develop further its retail finance, insurance, infrastructure and international operations. Although the issue is likely to dilute the current equity holding, it should be remembered it would also result into higher growth for the bank. While the bank has seen healthy growth in advances and deposits, relatively higher NPA remains a cause for concern.

    Power sector related stocks, Tata Power and BHEL, took the last two spot on the list and gained 6% each over the last one month. The power sector has been one of the best performers on the bourses in the last one year, gaining by as much as 243%. The incentives accruing as a result of the Electricity Act 2003 has helped build expectations. While higher capital spending in generation capacity is likely to result into gains for engineering companies such as BHEL, improvement in T&D segment (transmission and distribution) will help companies like Tata Power. However, it should be noted that the sector is capital intensive in nature and has longer gestation period. It therefore becomes imperative to remain patient in order to capitalize on the sector growth story.

    Where to from here? This would be the question that would be uppermost in the minds of the investors. While markets witnessed strong buying yesterday on account of robust GDP growth rate of 10% in the third quarter, we would like to reiterate that valuation for select sectors looked stretch from a one year perspective and investors would do well to steer clear from speculations of any kind. Long-term prospects of India Inc do hold promise but they need to tone down expectations from a near term perspective.



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