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News driven - Views on News from Equitymaster
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  • May 8, 2004

    News driven

    Indian stock markets were characterized by volatility this week, as investors seemed unable to take a definitive call on the future course of direction. This was evident from the almost flattish closing of the indices that ended the week with approximate gains of a mere 0.3%. Market sentiment was primarily led by political uncertainties for major part of the week before some global developments seemingly overshadowed this.

    Markets continued this week from where they left off last week i.e. in the negative. A slew of bad news could have collectively played their part in leading to Monday's (May 3) weakness. With the third phase of elections (May 5th) looming large, investors seemed to have had taken a precautionary stance. Earlier the possibility of a hung parliament had already caught investors on the wrong foot and as such, they did not seem to want to take any more risks. In other unpleasant news, the slowing down of the Chinese economy, which could spoil the party for many sectors including steel, aluminium and shipping saw the selling pressure intensifying in commodity stocks. Another news that could have played its role in worsening the situation was the chances of US interest rates firming up in the near future, which could affect the flow of foreign money into India. The collective effect of all of the above was witnessed in key index stocks that put pressure on the indices.

    Key gainers over the week (NSE-50)
    COMPANY Price on
    April 30 (Rs)
    Price on
    May 7 (Rs)
    H/L (Rs)
    BSE-SENSEX 5,655 5,670 0.3% 6,250 / 2,904
    S&P CNX NIFTY 1,796 1,804 0.5% 2,015 / 920
    HDFC 595 644 8.4% 700 / 323
    DR. REDDY 869 911 4.8% 1,471 / 805
    TATA CHEM 139 145 4.6% 189 / 66
    GLAXO 667 698 4.6% 709 / 325
    ZEE TELE 127 133 4.2% 175 / 74

    However, the next three days was a different game altogether. With some opinion polls indicating on Tuesday that the ruling government would come back to power, investor interest was revived as they lapped up stocks in anticipation of a stable government and the continuance of the on-going reforms. Further, as various states in the country went to polls on Wednesday, the buying interest continued, this time expecting favorable exit poll results. And this is precisely what happened! The exit poll results of the 3rd phase of elections, once again, indicated a positive equation for the ruling coalition, providing investors with enough reason to increase their equity exposure.

    Key losers over the week (NSE-50)
    COMPANY Price on
    April 30 (Rs)
    Price on
    May 7 (Rs)
    H/L (Rs)
    IPCL 189 181 -4.5% 240 / 80
    ITC 1,077 1,030 -4.3% 1,199 / 660
    ICICI BANK 315 303 -3.9% 352 / 119
    MARUTI 545 526 -3.4% 602 / 156
    TISCO 358 346 -3.3% 490 / 131

    However, Friday's sharp correction saw the indices give up most of the gains garnered during the previous three trading sessions. While, once again, the possibility of investors taking a cautious approach before the final phase of elections on May 10 cannot be ruled out, some concerning global developments could have also encouraged investors to pare their exposure. Strengthening crude prices, expectations of hardening of interest rates in key economies and the weakening commodity cycle, all created enough uncertainty in the minds of the investors - both retail and institutional. As can be seen in the chart above, the FII community seemed to have taken a cautious approach towards India in recent times, which is evident from the subdued activity.

    Among other corporate news during the week:

    • Cement prices in Mumbai, which is India's largest cement market, are likely to rise by around Rs 8 to Rs 10 per 50 kg bag in the non-trade segment. It is interesting to note that the price hike comes in days after elections in the state. The same was being witnessed in Gujarat, when the prices were hiked the next day after the polls. Gainers over the week

    • Maruti, the country's largest auto manufacturer, has continued its splendid growth in FY05. Buoyed by a strong 100% YoY growth in its compact cars, Alto, Wagon R and Zen, the company's sales for the month of April have surged 38% on a YoY basis. Similarly, the country's largest CV (Commercial Vehicles) producer, Tata Motors, has put up a splendid performance for April 2005. Its total vehicles (cars, utility vehicles and CVs) sold by the company during April FY05 have increased by 58% on a YoY basis, the charge being led by CVs (up 71%). Gainers over the week

    • Commodity stocks continued to witness profit booking this week as their future prospects appear to be in a state of limbo following reports that Chinese policy makers are contemplating taking measures to cool down their heated economy. With the country accounting for almost 25% of the world GDP growth in recent years, any such measure is likely to have an impact on the demand for most goods, metals and shipping included. Moreover, since most of these stocks were trading at the higher end of their valuation spectrum, the correction has been sharper. Losers during the week: Aluminium, Steel , Shipping.

    • The noises against outsourcing that were till now reverberating mainly across the US, seem to be finding their way to the European Union (EU) as well. The Committee of European Banking Supervisors (CEBS), has proposed a total ban on strategic or core outsourcing activities. However, we feel that over the long term, economic factors shall prevail given that the companies shall find it cheaper to outsource the projects to countries like India.

    To conclude, we continue to remain positive of the Indian growth story over the longer-term, irrespective of the government coming to power. We feel that from hereon, the story on the Indian bourses would be different in the sense that it would now be more stock specific rather than the across the board gains, akin to 2003. With this in mind, it is advisable to invest in strong managements, business fundamentals and finally relatively attractive valuations. Though there may be short-term volatility (the final phase of polling is still due), hold on to fundamentally sound companies. They are the most likely to reap rewards in the long run. Happy Investing!



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