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Bulls strike back

Apr 2, 2005

This week was rather volatile as the tussle between the bears and the bulls continued this week also. However, since at the end of every week, one group has to be on top, this time it was the turn of the bulls. At close, both the BSE-Sensex and the NSE-Nifty ended with about 2.5% gains. While there was no specific reason for the rally this week, it seemed more of bottom fishing at lower levels and possible anticipation of good quarterly results, as investors reinstated their faith in Indian equities.

Key indices over the week
IndexAs on March 24 (Rs)As on Apr 1 (Rs)% Change
BSE IT2,597 2,719 4.7%
BSE AUTO2,597 2,696 3.8%
BSE BANKEX3,802 3,931 3.4%
BSE-5002,697 2,787 3.3%
BSE-200 857 883 3.1%
BSE PSU4,195 4,322 3.0%
Sensex 6,443 6,605 2.5%
BSE METAL6,415 6,540 1.9%
BSE OIL&GAS3,078 3,133 1.8%
BSE FMCG1,049 1,061 1.2%
BSE HEALTHCARE2,584 2,585 0.0%

Until last week, various reasons had clouded investor sentiments that had led to the huge correction on the bourses in the fortnight prior to this week. Reasons like year-end adjustments, margin calls by brokers, US Fed hinting at a faster rise in US interest rates that could retard FII inflows into emerging markets, rising crude oil prices, etc. all of which played on investors' minds. However, the current week began with a big bang opening with the Sensex gaining over 100 points at one point of time. However, nervous investors took advantage of the rise to book profits leading to pared gains for Monday. However, bears resurfaced again on Tuesday, which was technically speaking the last day for investors to give effect to their year end adjustments considering the T+2 settlement of the Indian bourses, leading to the big near 150 points fall on the Sensex. Wednesday was not much different as the markets consolidated in a range for most part of the day before a strong bout of buying gave a push to the markets.

Key gainers over the week (NSE-50)
CompanyPrice on
Mar 24 (Rs)
Price on
Apr 1 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 6,443 6,605 2.5% 6,955 / 4,228
S&P CNX NIFTY 2,015 2,068 2.6% 2,183 / 1,292
HCL TECH 350 384 9.7% 407 / 245
ABB1,107 1,207 9.0% 1,320 / 491
SATYAM 388 421 8.7% 442 / 230
BAJAJ AUTO1,021 1,089 6.7% 1,160 / 765
TATA POWER 340 362 6.5% 430 / 213

However, seemingly, while the seeds had been sown in the final hour of trade the previous day only, Thursday and Friday saw euphoric buying by investors taking advantage of the significantly corrected prices. Buying was broad based with index heavyweights providing ample support. Further, other reasons that seemingly worked in favour of the markets was the smooth expiry of the March derivatives series, optimism over the upcoming India Inc. results and the beginning of a new fiscal that encouraged investors to buy into equities. The pace of the recovery in the markets can be gauged from the fact that since the final hour of Wednesday's trade, the Sensex has gained nearly 300 points (or 5%) and is now perched above the 6,600 level once again.

Key losers over the week (NSE-50)
CompanyPrice on
Mar 24 (Rs)
Price on
Apr 1 (Rs)
%
Change
52-Week
H/L (Rs)
RANBAXY1,055 1,015 -3.8% 1,279 / 867
PNB 407 397 -2.5% 520 / 212
HLL 135 132 -1.9% 170 / 101
SUN PHARMA 473 465 -1.7% 575 / 278
BPCL 373 368 -1.3% 513 / 230

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

  • Satyam Computers, India's fourth-largest software services exporter, is planning a capital expenditure of US$ 40 m during the calendar year 2005 for its expansion activities, which includes construction of new facilities in its existing offshore centres, expansion of facilities in offshore centres in India and establishing new overseas offsite centres. The company has indicated that its existing funds generated from operations will be sufficient to meet the anticipated capex. Software stocks during the week

  • Indian Hotels is set to acquire a hotel in New York belonging to the Four Seasons Group, a major hotel chain in the US. The Taj Group of hotels, owned by Indian Hotels, is focusing on expanding its global footprint, having set up hotels in Seychelles, Mauritius and other countries. The company has also entered the budget hotels segment with its IndiOne brand, wherein it has already setup 1 hotel at Bangalore, which has achieved an average occupancy of 85% and 10 more such hotels are planned across key destinations in the country in FY06. Going forward, the budget hotels business is expected to contribute significantly to revenues. The stock lost about 1% this week.

  • The strength in ITC this week was largely a result of two factors. One, that the company plans to invest Rs 140 bn to expand its existing businesses, acquire suitable ventures and modernise its plants over the next 5 years. The company will invest across all its businesses - tobacco, FMCG, hotels, paperboards and packaging and farm business. Secondly, ITC has hiked prices of its select cigarette brands recently that will help it tide over the higher excise burden of FY06. The stock ended the week with about 3% gains. Other stocks in the sector

  • Steel companies have announced a price hike in the region of about 7% to 8% on the back of the increased costs of inputs. It must be noted that while iron prices for the coming year have been contracted at over 70% of that of last year, coking coal prices have also gained by as much as 125%. It must be noted that Tisco has already announced a 20% hike for its long-term buyers. We believe that while the short-term momentum could continue in steel stocks, the risk-reward ratio does not favour an investment in these at the current juncture. Barring Tisco (down 1%), other stocks in the sector ended firm for the week.

To conclude, while investors must have heaved a sigh of relief this week, we feel that in such kind of volatility, retail investors are the ones who are at utmost risk. Going forward, while we believe that the long-term Indian equity story remains intact, it is time that investors sit back and re-think their investment strategy considering the various global risks prevalent.

Investors must recognise the fact that a faster rise in US interest rates will retard FII inflows into emerging markets (including India) and strong crude oil prices does have the potential to affect profitability. It must be noted that as of now, owing to various political compulsions, the exact quantum of petroleum product price hikes have not been passed onto the consumers/corporates. This once done would not only put inflationary pressures on the economy thus threatening an interest rate hike, it would also affect India Inc. profitability. We suggest investors to ascertain the downside risk before making investment decisions at the current juncture. If you have three to five-year view on stocks, there are enough opportunities available. Happy investing!


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