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Mid-caps bonanza! - Views on News from Equitymaster
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  • May 14, 2005

    Mid-caps bonanza!

    It was a rather muted week for the Indian markets when compared to the euphoria of last week. After registering near 4% gains in the previous week, the gains this week were relatively tepid at about 1% for the BSE-Sensex and 0.6% for the NSE-Nifty. However, the true action was in the mid-cap segment with the CNX Mid-cap Index registering gains of about 3.5%.

    The indices opened on an ecstatic note this week, which was largely an overhang of last week's bull party. The markets saw the continuation of the rally on Monday helping the Sensex notch gains of near 100 points. However, this 6-day rally, which saw the indices gain more than 5%, snapped on Tuesday as higher levels saw the indices open in the negative territory. Though the bulls tried to make a comeback throughout the session by slowly and steadily getting the markets out of the trough, the efforts ultimately yielded no result.

    The following three trading sessions were largely in the nature of consolidation as alternate bouts of buying and selling restricted the indices within a certain range. Nonetheless, at the end of the week, the strong gains on Monday acted as saviours for the markets, helping them to close in the positive. As far as the Foreign Institutional Investors (FIIs) activity during the week (first 4 trading sessions) was concerned, they were net sellers to the tune of Rs 2.8 bn. However, the support provided by domestic mutual funds (net buys of Rs 6.6 bn), which are sitting on significant cash owing to the recent spate of MF IPOs, prevented the markets from incurring losses this week.

    Our only concern at the current juncture is the unprecedented rise being witnessed in mid and small-cap stocks. The inclination towards mid-cap stocks could also be gauged from the fact that while the benchmark indices i.e. BSE Sensex and NSE Nifty have still some ground to cover (8% and 10% respectively) before they breach their respective all-time highs, the CNX Mid-cap 200 is already within striking distance (another 0.3%) of its all-time highs. We believe, while many of these stocks would surely be supported by fundamentals, an equal number of them belong in the 'me-too' category. Investors should strictly steer clear of such stocks, which are not backed by thorough research.

    In another development pertaining to the markets this week, India's MSCI weight in Emerging Markets Asia has been increased marginally to 5.42% from 5.41%. The MSCI India Index additions include Arvind Mills, BEL, Bharat Forge, Biocon, M&M, Glenmark, Jet Airways, Nicholas Piramal, UTI Bank, Reliance Energy, Kotak Mahindra Bank, JSPL and Matrix Labs. However, Punjab Tractors has been removed from MSCI India Index. It must be noted that the index weightage attaches significance, as FIIs tend to benchmark their portfolio allocation to countries by taking the MSCI index weightage into consideration.

    Key gainers over the week (NSE-50)
    Company Price on
    May 6 (Rs)
    Price on
    May 13 (Rs)
    H/L (Rs)
    BSE-SENSEX 6,388 6,452 1.0% 6,955 / 4,228
    S&P CNX NIFTY 1,978 1,988 0.5% 2,183 / 1,292
    ZEE TELE 150 158 4.8% 189 / 100
    CIPLA 271 283 4.2% 322 / 194
    COLGATE 204 213 4.2% 221 / 102
    ICICI BANK 378 392 3.8% 430 / 212
    ACC 378 391 3.6% 411 / 221

    Now let us consider some sector/stock specific developments this week:

    • In another setback for Zee, the Supreme Court on Friday dismissed the company's petition seeking telecast rights for international cricket matches till 2008. Nonetheless, Zee was the biggest gainer amongst the index stocks this week. While there was no apparent reason that could have warranted such a sharp move by the stock, the long-term prospects for the company remain promising. The stock has been gaining ground ever since it declared its results wherein it registered a mere 3% topline growth for FY05. But led by a significant margin improvement, the bottomline grew by 16% YoY. Media stocks during the week

    • The petroleum ministry is all set to distribute the under-recovery burden of oil marketing companies (OMCS) on LPG and kerosene in a proportion of 1:1:1 among upstream companies, OMCs (oil marketing companies) and refineries. At present, only upstream companies and the OMCs are sharing the burden. The new mechanism, likely to be implemented from the current quarter, would impact refineries significantly. Energy stocks during the week

    • Top international garment makers are planning to enter the Indian market by setting tie-ups with Indian companies like Arvind Mills, Raymond and Madura Garments (owned by Indian Rayon). Certain international brands have already made a presence in India. It must be noted that the regulatory environment in the country prohibits international brands from setting up their own shop in India. Going forward, as Indian consumers are becoming more brand conscious and moving up the value chain, we expect the demand for branded apparel to remain strong. Textile stocks during the week

      Key losers over the week (NSE-50)
      Company Price on
      May 6 (Rs)
      Price on
      May 13 (Rs)
      H/L (Rs)
      OBC 269 257 -4.5% 382 / 149
      RELIANCE 549 536 -2.3% 601 / 382
      M&M 471 461 -2.1% 574 / 360
      SAIL 54 53 -1.9% 70 / 21
      HLL 134 132 -1.9% 170 / 101

    • Godrej Consumer Products announced another buy back of shares through an open offer this week at a maximum of Rs 400 a share. This saw the stock price register smart gains during the week (up 16%) and it was amongst the top gainers in the BSE 'A' group stocks. It must be noted that the company closed its FY05books with a 15% topline and 38% bottomline growth. FMCG stocks during the week

    Going by the market behaviour this week, investors seem to have adopted a wait-and-watch approach for the time being, seemingly owing to the lack of any 'trigger' with much of the good news already having been factored into stock prices. While a faction of the market seems to have now started focusing on the timely arrival of monsoons (in June) and the meteorogical departments' forecasts thereafter, we believe that for investors with a long-term investment approach, there is no dearth of investment ideas. Happy investing!



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