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Results spoil the RBI party!

Apr 28, 2007

Markets blew both hot and cold in an eventful week on the bourses and in the process, led the benchmark indices to end at almost last week’s levels. This week’s activity was all about the strong gains on Tuesday and the huge decline on Friday. The markets chose to remain subdued on the remaining three days of the week. The strong gains on Tuesday were a result of the RBI’s decision to leave rates unchanged for the time being and this led investors to buy into banking and other interest rate sensitive sectors. Friday’s plunge on the other hand, was seemingly a consequence of lower than expected results of heavyweights like Reliance and Bharti and hence, the selling that ensued in these counters alone, shaved off more than 100 points from the benchmark Sensex. Thus, the steep fall on Friday completely wiped off the gains of the past four days and ensured that the benchmark indices close at last week’s levels.

As far as the institutional activity is concerned, while the MFs remained net buyers to the tune of Rs 10.7 bn, FIIs bought equities worth Rs 25 bn during the week.

Markets blew both hot and cold in an eventful week on the bourses and in the process, led the benchmark indices to end at almost last week's levels.

This week's activity was all about the strong gains on Tuesday and the huge decline on Friday. The markets chose to remain subdued on the remaining three days of the week. The strong gains on Tuesday were a result of the RBI's decision to leave rates unchanged for the time being and this led investors to buy into banking and other interest rate sensitive sectors. Friday's plunge on the other hand, was seemingly a consequence of lower than expected results of heavyweights like Reliance and Bharti and hence, the selling that ensued in these counters alone, shaved off more than 100 points from the benchmark Sensex. Thus, the steep fall on Friday completely wiped off the gains of the past four days and ensured that the benchmark indices close at last week's levels.

As far as the institutional activity is concerned, while the mutual funds remained net buyers to the tune of Rs 10.7 bn, Foreign Institutional Investors (FIIs) bought equities worth Rs 25 bn during the week.

(Rs m)MFs FIIs Total
20-Apr1,908 7,487 9,395
23-Apr2,526 (685)1,841
24-Apr3,611 5,015 8,626
25-Apr25189,615 12,133
26-Apr178 3,598 3,776
Total 10,741 25,030 35,771

On the performance of the sectoral indices over the week, barring small cap, IT and health care index, all the other major indices ended in the positive. Top gainers though were the bankex and the auto index, as they edged higher by 2.5% and 2.3% during the week. Gains in the bankex were a consequence of gains in behemoths like SBI, ICICI and HDFC Bank, which together account for more than 70% of the sector weightage. RBI's stance with respect to status quo on interest rates led to the positive performance of these companies on the bourses. As far as losers are concerned, the healthcare index emerged as the biggest loser, as it lost 3% during the week. The decline was led largely by Cipla, which edged lower by 8% and ended up as the highest loser on the Sensex.

Key indices over the week
IndexAs on April 20As on April 27% Change
BSE BANKEX6,914 7,087 2.5%
BSE AUTO4,831 4,945 2.3%
BSE PSU6,353 6,420 1.1%
BSE MIDCAP5,699 5,734 0.6%
BSE FMCG1,812 1,821 0.5%
BSE OIL AND GAS7,052 7,078 0.4%
BSE METAL9,702 9,726 0.2%
BSE SMLCAP6,974 6,941 -0.5%
BSE IT5,055 4,954 -2.0%
BSE HEALTHCARE3,793 3,696 -2.6%

Let us have a look at some of the key company/industry specific developments during the week:

Reliance Industries (RIL), the private sector refining behemoth, announced its 4QFY07 and FY07 results during the week. The company, yet again delivered good set of numbers, which were largely driven by record high GRMs (Gross refining margins). For 4QFY07, the topline and the bottomline registered a growth of 6% YoY and 14% YoY respectively. On a full year basis, the growth in topline and bottomline was even higher at 30% YoY and 20% YoY respectively. While the operating margins expanded by 170 basis points for the quarter, the same were lower by 30 basis points for the complete year. The stock was down marginally during the week, while peer ONGC edged 1% higher.

Top gainers during the week (BSE A)
COMPANY Price on April 20 (Rs)Price on April 27 (Rs)% CHANGE52-WEEK H/L (Rs)
BSE SENSEX 13,897 13,909 0.1% 14,724 / 8,799
S&P CNX NIFTY 4,084 4,084 0.0% 4,245 / 2,596
SYNGENTA IND 521 708 35.9% 720 / 250
RAMCO SYSTEMS 126 158 25.5% 255 / 119
SHIP.CORP 174 206 18.6% 216 / 118
TATA TEA 676 771 14.0% 894 / 558
VIJAYA BANK 44 49 11.9% 59 / 33

Ranbaxy announced its 1QCY07 results during the week. It has put up a strong performance. Europe (including Terapia), CIS and the emerging markets have contributed to the healthy double-digit growth in the topline. Operating margins have improved due to lower SG&A costs and R&D expenditure (both as percentage of sales). The company's bottomline has grown at a faster clip than the topline and the operating profits owing to a steep increase in other income backed by forex gains. The bottomline growth has come about despite the higher tax outgo. The stock edged higher by 8% while peer Cipla was down by the same margin during the week.

Top losers during the week (BSE A)
COMPANY Price on April 20 (Rs)Price on April 27 (Rs)% CHANGE52-WEEK H/L (Rs)
GODREJ CONSUMER 164 139 -15.0% 194 / 122
SUN PHARMA 1,180 1,036 -12.2% 1,196 / 640
MTNL 163 151 -7.7% 226 / 124
CIPLA 235 217 -7.6% 280 / 178
POLARIS SOFTWARE 202 187 -7.6% 237 / 52

Bharti Airtel, India's largest cellular services provider was among the other heavyweights to announce its results during the week. The company has put up another strong performance. Led by strong accretion in the subscriber base (77% YoY), the company has recorded a robust 59% YoY growth in topline (as per US GAAP financials) during FY07. Over that, the company has reported a strong expansion in its operating margins, which when combined with a substantial rise in other income, has propelled the bottomline to 89% YoY growth during the fiscal. Analysts seemed to have been expecting an even better performance as the stock edged lower by 2% during the week while peer Reliance Communications edged higher by 1%.

Results will continue full steam in the coming week and expectations will be revised upwards or downwards based on how the concerned firm has performed. Such occasions can throw up opportunities to take long-term position in fundamentally strong companies as investors usually have the habit of over reacting to one bad quarterly performance. The important thing is to find out if the problems are indeed temporary or are here to stay. If mastered, this art can unlock the key to consistently superior returns over the long-term. Happy investing!

(Rs m)MFs FIIs Total
20-Apr 1,908 7,487 9,395
23-Apr 2,526 (685) 1,841
24-Apr 3,611 5,015 8,626
25-Apr2518 9,615 12,133
26-Apr 178 3,598 3,776
Total 10,741 25,030 35,771

On the performance of the sectoral indices over the week, barring small cap, IT and health care index, all the other major indices ended in the positive. Top gainers though were the bankex and the auto index, as they edged higher by 2.5% and 2.3% during the week. Gains in the bankex were a consequence of gains in behemoths like SBI, ICICI and HDFC Bank, which together account for more than 70% of the sector weightage. RBI’s stance with respect to status quo on interest rates led to the positive performance of these companies on the bourses. As far as losers are concerned, the healthcare index emerged as the biggest loser, as it lost 3% during the week. The decline was led largely by Cipla, which edged lower by 8% and ended up as the highest loser on the Sensex.

Key indices over the week
IndexAs on April 20As on April 27% Change
BSE BANKEX 6,914 7,087 2.5%
BSE AUTO 4,831 4,945 2.3%
BSE PSU 6,353 6,420 1.1%
BSE MIDCAP 5,699 5,734 0.6%
BSE FMCG 1,812 1,821 0.5%
BSE OIL AND GAS 7,052 7,078 0.4%
BSE METAL 9,702 9,726 0.2%
BSE SMLCAP 6,974 6,941 -0.5%
BSE IT 5,055 4,954 -2.0%
BSE HEALTHCARE 3,793 3,696 -2.6%

Let us have a look at some of the key company/industry specific developments during the week:

Reliance Industries (RIL), the private sector refining behemoth, announced its 4QFY07 and FY07 results during the week. The company, yet again delivered good set of numbers, which were largely driven by record high GRMs (Gross refining margins). For 4QFY07, the topline and the bottomline registered a growth of 6% YoY and 14% YoY respectively. On a full year basis, the growth in topline and bottomline was even higher at 30% YoY and 20% YoY respectively. While the operating margins expanded by 170 basis points for the quarter, the same were lower by 30 basis points for the complete year. The stock was down marginally during the week, while peer ONGC edged 1% higher.

Top gainers during the week (BSE A)
COMPANY Price on April 20 (Rs)Price on April 27 (Rs)% CHANGE52-WEEK H/L (Rs)
BSE SENSEX 13,897 13,909 0.1% 14,724 / 8,799
S&P CNX NIFTY 4,084 4,084 0.0% 4,245 / 2,596
SYNGENTA IND 521 708 35.9% 720 / 250
RAMCO SYSTEMS 126 158 25.5% 255 / 119
SHIP.CORP 174 206 18.6% 216 / 118
TATA TEA 676 771 14.0% 894 / 558
VIJAYA BANK 44 49 11.9% 59 / 33

Ranbaxy announced its 1QCY07 results during the week. It has put up a strong performance. Europe (including Terapia), CIS and the emerging markets have contributed to the healthy double-digit growth in the topline. Operating margins have improved due to lower SG&A costs and R&D expenditure (both as percentage of sales). The company’s bottomline has grown at a faster clip than the topline and the operating profits owing to a steep increase in other income backed by forex gains. The bottomline growth has come about despite the higher tax outgo. The stock edged higher by 8% while peer Cipla was down by the same margin during the week.

Top losers during the week (BSE A)
COMPANY Price on April 20 (Rs)Price on April 27 (Rs)% CHANGE52-WEEK H/L (Rs)
GODREJ CONSUMER 164 139 -15.0% 194 / 122
SUN PHARMA 1,180 1,036 -12.2% 1,196 / 640
MTNL 163 151 -7.7% 226 / 124
CIPLA 235 217 -7.6% 280 / 178
POLARIS SOFTWARE 202 187 -7.6% 237 / 52

Bharti Airtel, India’s largest cellular services provider was among the other heavyweights to announce its results during the week. The company has put up another strong performance. Led by strong accretion in the subscriber base (77% YoY), the company has recorded a robust 59% YoY growth in topline (as per US GAAP financials) during FY07. Over that, the company has reported a strong expansion in its operating margins, which when combined with a substantial rise in other income, has propelled the bottomline to 89% YoY growth during the fiscal. Analysts seemed to have been expecting an even better performance as the stock edged lower by 2% during the week while peer Reliance Communications edged higher by 1%.

Results will continue full steam in the coming week and expectations will be revised upwards or downwards based on how the concerned firm has performed. Such occasions can throw up opportunities to take long-term position in fundamentally strong companies as investors usually have the habit of over reacting to one bad quarterly performance. The important thing is to find out if the problems are indeed temporary or are here to stay. If mastered, this art can unlock the key to consistently superior returns over the long-term. Happy investing!

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