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GDP growth steroid - Views on News from Equitymaster
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  • Apr 3, 2004

    GDP growth steroid

    Markets had a roaring week with the indices delivering a blistering performance, similar to the strong GDP numbers that were declared this week. Well, don't take that literally! The point here is that the Indian bourses managed to gain almost 5% during the week on the back of the news of an impressive 10.4% GDP growth numbers for the third quarter (December quarter) of the current fiscal (FY04). Buying was witnessed across the board as investors lapped up stocks owing to the continuation of the domestic feel-good factor with India out-pacing the Chinese GDP growth numbers.

    The indices had a firm start to the week on the back of the strength seen on the bourses last week. However, the optimism could not last long as the following day witnessed a bout of profit booking as investors took some cash off the table. With the absence of any adverse news, which could have had affected market sentiments, year-end squaring up of positions seemed largely the reason for Tuesday's weakness. However, Wednesday onwards, it was a totally different ball game on the bourses. Wednesday saw the indices open on a lacklustre note but soon all round buying pushed the indices to higher levels. With the ruling government releasing its vision document the previous day, wherein the government promised the continuation of the economic reforms process, investors found enough reasons to buy into stocks, which had already corrected significantly over the past few weeks.

    However, the biggest trigger for the indices came on Thursday when the morning newspapers flashed the headlines of the Indian GDP growth in the December 2003 quarter being 10.4%. This came as a dose of steroids for the largely directionless indices, as they marched ahead in full steam gaining nearly 3% in a single trading session. Buying was witnessed across sectors and stocks, with the mid-cap indices also gaining substantial ground. With 10.4% GDP growth in 3QFY04, India emerged as the fastest growing Asian economy, beating China, which grew by 9.9%! The growth was contributed by practically all the sectors of the economy with agriculture achieving the highest growth during the quarter (17%) and manufacturing growing by 7.4%. With this, during the nine-months ending December 2003, the Indian economy has grown by a remarkable 8.2%! However, it must be noted that the numbers this fiscal are somewhat inflated owing to the downward revision of certain numbers in the previous fiscal. Irrespective, the indices continued their good run even on Friday.

    Top 5 gainers over the week (NSE-50)
    COMPANY Price on March 26 (Rs) Price on April 2 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 5,529 5,788 4.7% 6,250 / 2,904
    S&P CNX NIFTY 1,748 1,841 5.4% 2,015 / 920
    BHARTI TELE 147 172 17.3% 174 / 29
    ORIENTAL BANK 287 334 16.5% 338 / 67
    MTNL 123 141 14.8% 158 / 75
    GAIL 207 234 13.1% 312 / 75
    BHEL 564 625 10.7% 644 / 220

    PSU stocks had a fantastic run on the bourses this week aided by the optimistic winds of the continuance of the divestment process by the government. The divestment minister expressed optimism of raising up to Rs 1 trillion (Rs 1,000 bn) from the equity markets 'every year' by divesting government's holdings in various companies. Confident, post the successful completion of the divestments (including that of ONGC) in FY04, wherein the government managed to raise over Rs 150 bn, the government indicated that there is significant appetite for Indian paper, both in the domestic and the international markets. Further, it was indicated that the monies raised through disinvestments could be used for 'worthwhile' projects. It must be noted that the government is currently on an infrastructure development drive and is also aiming at reducing the fiscal deficit.

    Top 5 losers over the week (NSE-50)
    COMPANY Price on March 26 (Rs) Price on April 2 (Rs) % CHANGE 52-WEEK H/L (Rs)
    INFOSYS 5,310 5,000 -5.8% 6,100 / 2,300
    WIPRO 1,428 1,349 -5.5% 1,870 / 797
    HCL TECH 268 253 -5.3% 345 / 118
    SATYAM 321 307 -4.4% 425 / 127

    With fiscal FY04 ending on a euphoric note considering that the domestic indices gained almost 83% during the year on the back of an estimated 8% (with an upward bias) GDP growth, investors should now be considering the future growth prospects of the economy, especially keeping in mind the high base effect of FY04, which the FY05 numbers will have to combat. However, if FII inflows are any indication, it must be noted that Foreign Institutional Investors (FIIs) have continued to pump in money into Indian stock markets. Just to put things in perspective, during the March 2004 quarter, FIIs brought in almost US$ 3.2 bn. However, it must be noted that almost 60% of this came in, in the month of March, thanks to the government's successful divestment programme.

    Further, while we continue to remain bullish on the prospects of the Indian economy going forward, we would advise caution with respect to investment in stocks on an ad-hoc basis at the current juncture, as the current valuations of many sectors and stocks are looking stretched. It must be noted that now the under-valuation story will take a back seat and the growth story will be the driving factor for the domestic bourses in FY05 and beyond. Going forward, 'pick-and-choose' should be the preferred style of investing. Happy Investing!



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