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Bulls go on a vacation!

May 12, 2007

Bears ruled the roost in the markets during the week gone by and eventually came out on top. To put it numerically, for the week ended May 11, 2007, both the benchmark indices, the BSE-Sensex and the NSE-Nifty edged lower by 1% each.After maintaining a rather low profile for the past few weeks, the bears sent out some clear signals this week and in the process, bought both the benchmark indices down. The maximum damage was done in the first two trading sessions, where the Sensex lost nearly 170 points and was not able to recover from the setback. Although the markets did end in the positive for two days out of five, the gains on each of those days were marginal. Infact, on all the days of the week, the markets closed in exactly the opposite fashion to how they had started the day. This is likely an indicator of the gross uncertainty prevailing in the markets, whereby people are opting to invest on a day-by-day basis and are not willing to take really substantial long-term positions.

As far as the institutional activity is concerned, both the domestic mutual funds as well as Foreign Institutional Investors (FIIs) emerged as net buyers during the week, buying equities worth Rs 2 bn and Rs 3 bn respectively.

(Rs m)MFs FIIs Total
4-May1,090 2,120 3,210
7-May217 967 1,184
8-May (188) (2,221)(2,409)
9-May(1,242) 233 (1,009)
10-May2,266 1,915 4,181
Total2,143 3,014 5,157

On the sectoral indices front, save for two, all the other indices ended the week with a coat of red. The two indices that avoided the fall were the 'Metal' and the 'Bank' indices, as they edged higher by 0.7% and 0.4% respectively. With majors like NALCO, Tata Steel, Sterlite Industries and SAIL, all ending the week with gains, the rise in the metal index has not come as a surprise. As far as losers are concerned, with Infosys, Wipro, TCS and Satyam, facing the investor fury, the IT index has suffered badly and with losses of 3%, has emerged as the biggest loser.

IndexAs on May 4As on May 11% Change
BSE METAL9,997 10,066 0.7%
BSE BANKEX6,874 6,905 0.4%
BSE MIDCAP5,863 5,851 -0.2%
BSE SMLCAP7,032 6,984 -0.7%
BSE FMCG1,812 1,799 -0.7%
BSE OIL AND GAS7,245 7,189 -0.8%
BSE AUTO5,064 5,023 -0.8%
BSE PSU6,483 6,395 -1.4%
BSE HEALTHCARE3,745 3,680 -1.7%
BSE IT5,082 4,924 -3.1%

Let us have a look at key some key sector/stock specific development during the week:

Hero Honda, India's largest two-wheeler manufacturer announced its 4QFY07 and full year FY07 results post the markets yesterday and it does not make for a good sight. Facing pressure from all corners, the company's bottomline has dropped 27% YoY during the quarter, led largely by a huge 590 basis points drop in operating margins. Performance for the full year has also been disappointing, as despite the 14% YoY jump in topline, the bottomline has fallen by 12% YoY. Here too, it is the 390 basis points fall in operating margins that has acted as the wrecker-in-chief. The stock however, ended higher by 1% for the week.

Top gainers during the week (BSE A)
CompanyPrice on
May 4 (Rs)
Price on
May 11 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX13,934 13,796 -1.0% 14,724 / 8,799
S&P CNX NIFTY 4,117 4,077 -1.0% 4,245 / 2,596
BRITANNIA 1,319 1,519 15.1%1,750/ 1,025
THOMAS COOK INDIA 514 590 14.8%747 / 411
NIIT 760 842 10.7%854 / 267
FACT 22 24 8.8%33 / 19
BALAJI TELEFILMS 165 179 8.4% 190 / 95

Telecom stocks closed mixed with Bharti Airtel and MTNL edging marginally lower while Reliance Communications and VSNL edging higher by 2% and 1% respectively. According to a leading business daily, leading Indian telecom service providers like Tata Teleservices, Reliance Communication, Bharti Airtel and BSNL are in the fray to build a special mobile network for the Indian Railways' own requirements. The abovementioned companies have submitted expression of interest to set up a network spanning 63,000 kilometers, covering over two lakh employees and overlaying the existing network offered by these operators. In the first year of operation, the operator will have to cover 16,000 kms connecting important stations with the remaining area being covered in the next couple of years. The railways will offer their 30,000 km of optic fiber cable and 2,700 stations across India to the selected operator to facilitate coverage along the railway tracks. The operator will be expected to tweak his network to set up additional switches and erect towers besides railway tracks to offer seamless connectivity. While no financial details have been divulged for this technology heavy project, it is expected that the cost of the same could run into several hundred corers. This will garner well for the winning company, as it will rake in huge revenues.

Top losers during the week (BSE A)
CompanyPrice on
May 4 (Rs)
Price on
May 11 (Rs)
%
Change
52-Week
H/L (Rs)
GSFC180160-11.3%251 / 145
GAIL310278-10.2%319 / 210
M&M790721-8.7%1,002 / 488
JINDAL STAINLESS163149-8.1%165 / 63
CHAMBAL FERT3734-7.5%47 / 27

With gains of 6%, Bajaj Auto was among the top gainers on the Nifty during the week. As per a leading business daily, Bajaj Auto will consider the proposal to split the company in its board meeting later this month. The company had first contemplated the demerger in 2003. The proposal is to split Bajaj Auto into a manufacturing company and a finance entity that would include the financial investments and the insurance businesses of the company. A part of the large cash reserves of Bajaj Auto is expected to be transferred to the new company, for investment in the finance and insurance businesses. The split is intended to enhance shareholder value, and the management has indicated that the extra funds of the company could be put to more productive use to fetch better returns than from earnings on equity and investments. Bajaj Auto owns 74% stake each in unlisted Bajaj Allianz Life Insurance Company and Bajaj Allianz General Insurance Company besides 50% stake in Bajaj Auto Finance.

Markets have been placed precariously for quite some time now and while a section of the investing community is waiting for some positive catalysts to take it higher further, another section is waiting for some correction so as to take fresh exposure. As far as we are concerned, unless one is a truly long-term investor, we would support the latter camp, as currently, we believe that the risk reward ratio is skewed more towards risk than rewards from a medium term perspective. This is not to say that it is not worth entering at these levels at all, we just mean to say that finding stocks that scream out Buy! Buy! Buy! at you is getting increasingly difficult.


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