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Bull march continues…

May 6, 2006

The euphoria on the bourses just refuses to die down, with the Indian stock markets scaling new peaks yet again this week. On the back of the consistent inflows of money into Indian equities from both the fronts - institutions and retailers - the BSE-Sensex gained another 2.6% this week. The NSE-Nifty ended the week 3.0% higher. However, relatively, the mid-cap and small-cap segments of the market under-performed, with the BSE Mid Cap and the BSE Small Cap indices gaining 1.5% and 1.8% respectively. The markets began the week on Tuesday (Monday being a holiday) from where they left off in the truncated trading session on Saturday, as they opened strong and held onto their gains right until the end of the trading session. Barring some profit booking witnessed towards the end of the session, the major indices managed to close with substantial gains and of course, at new lifetime highs. The bullishness spilled over into Wednesday's trade as well. However, the trading session began with significant volatility, with profit booking in index heavyweights almost having nullified early morning gains. Nonetheless, a resurgent stance taken by the bulls in the late noon session helped the indices stage a smart recovery, back above lifetime highs.

Thursday was no different, as the bulls maintained their dominance on the bourses until noon. Post that, the indices lost ground on account of profit booking at higher levels. However, prior to this, at their peak in early noon, the Sensex hovered fairly close to the 12,500-mark (12,483). On Friday, the markets remained rather volatile, with selling pressure being witnessed at higher levels. While the bulls held onto their gains, the bear pressure continued to rise, finally forcing the bulls to give way, as the markets plunged into the red. However, the bulls remained adamant and finally managed a small positive close in the end. Prior to the profit booking, all the major indices, barring the Sensex, made new lifetime highs. Nonetheless, at the end of it all, the Indian stockmarkets closed at their lifetime highs on a weekly basis.

As far as the institutional activity on the bourses this week was concerned, it remained as strong as ever. In the three days of trading (Tuesday to Thursday), for which the data is available, Foreign Institutional Investors (FIIs) invested Rs 14.4 bn (approx. US$ 322 m) and domestic mutual funds (MFs) chipped in with nearly Rs 3 bn (US$ 66 m). Strong global and domestic liquidity has been helping these large investors to continue to pump money into Indian equities.

Top gainers over the week (NSE-50)
Company Price on
Apr 29 (Rs)
Price on
May 5 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 12,043 12,360 2.6% 12,483 / 6,322
S&P CNX NIFTY 3,558 3,664 3.0% 3,677 / 1,942
DR. REDDY 1,432 1,680 17.3% 1725 / 605
VSNL 441 489 10.9% 516 / 202
HPCL 320 354 10.6% 370 / 282
BPCL 438 484 10.6% 505 / 339
RANBAXY 473 511 8.2% 568 / 339

Now let us consider some sector/stock specific developments:

  • Domestic pharma major, Ranbaxy, and Israeli major, Teva Pharmaceuticals' Ivax unit, won a US court ruling this week, whereby both the companies are likely to be awarded the 180-day exclusivity on Merck's blockbuster statin 'Simvastatin' (brand name 'Zocor'). It must be noted that the US FDA had previously rejected a bid by Ivax and Ranbaxy to get exclusivity on the drug. It must further be noted that Merck had entered into an authorised generics deal with Dr. Reddy's in the event that exclusivity is granted on 'Simvastatin'. Therefore this news is a positive for both Ranbaxy and Dr. Reddy's, which was reflected in their stock prices, up 8% and 17% respectively. Other pharma stocks

  • Cement companies were witness to mixed news this week. On the positive side, they have reportedly hiked prices in the southern region by Rs 5 to Rs 20 per bag in the wake of the continuing strong demand for the commodity. India Cements, Grasim Industries, UltraTech Cement, Madras Cements and Chettinad Cement are some of the companies that have raised prices. At the same time, the government has intervened to check the upward spiraling cement prices, asking companies to lower the same otherwise face a possible ban on cement exports to ease the supply. Thus, while cement stocks were in the limelight at the start of week, post the latter news, most of them went into a lull. Cement stock this week

  • Telecom services major, Bharti Airtel, gained 3% this week. The optimism towards the stock could be attributed to the news that it is contemplating launching cellular services under the 'Airtel' brand in major overseas markets. This is a positive move by the company, considering that venturing into international markets will provide the company greater opportunities to expand its subscriber base. However, it must be noted that the company is yet to acquire mobile licenses in other countries. Other telecom stocks

  • There was good news for domestic oil marketing majors this week, with the government having indicated that oil (petrol/diesel) prices will be hiked soon. This is good news for oil marketing majors like HPCL, BPCL (up nearly 11% each) and IOC (up 5%), which have had to bear the brunt of rising crude oil prices that have been trading near historic highs. It must be noted that owing to political compulsions (the government denies so), these companies have been unable to increase oil prices in tandem with global crude oil prices, the effect of which has been seen in the erosion of their net worth over the past few quarters. However, while the possible price hike news is a positive, it is pertinent to consider the statement of the Iranian Deputy Oil Minister that crude oil prices could touch US$ 100 per barrel within FY07. This, if it happens, would not only cloud the prospects of oil marketing companies considering past trends, but would also threaten the strong growth of world economies, including India. Other energy stocks

Top losers over the week (NSE-50)
Company Price on
Apr 29 (Rs)
Price on
May 5 (Rs)
%
Change
52-Week
H/L (Rs)
GUJ. AMBUJA 124 118 -5.2% 128 / 49
GRASIM 2,517 2,418 -3.9% 2609 / 1010
A.C.C. 1,014 988 -2.6% 1063 / 354
HDFC 1,312 1,287 -1.9% 1420 / 728
DABUR 159 156 -1.8% 167 / 60

To conclude, the Indian stock markets have continued to exhibit exceptional strength on the back of strong global and domestic liquidity, and this irrational exuberance may continue until the situation remains so. Thus, such a scenario calls for more 'portfolio safety measures' (discussed time and again by us) to be implemented on the part of investors, especially retail, as they are always the worst hit lot amongst all the investor classes. It is probably for scenarios like the current one (euphoric bullrun) that phrases such as 'it is better to be safe than sorry' and 'a stitch in time saves nine' were coined. Happy and safe investing!


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