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Old economy dominates - Views on News from Equitymaster
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  • May 17, 2003

    Old economy dominates

    It was a good week for the stock markets, which closed on positive grounds. Though the indices closed in the red on the first trading day, buying seen in index heavyweights pushed the Sensex above the crucial 3,000 mark as the week progressed. The Sensex managed to close higher by 3.6% while the Nifty gained 3.8% during the week. It must be noted here that unlike majority of the previous rallies wherein new economy stocks played a crucial role (software in particular), this time around it was the old economy stocks that led the charge.

    Top 5 gainers over the week
    COMPANY Price on May 9 (Rs) Price on May 16 (Rs) %CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 2,950 3,057 3.6% 3,417 / 2,828
    S&P CNX NFTY 938 973 3.8% 1,111 / 920
    ADANI EXPORT 123 177 44.3% 202 / 118
    NOCIL 5 7 41.7% 14 / 5
    ARVIND MILLS 27 35 30.8% 36 / 15
    TATA FINANCE 15 19 26.5% 35 / 14
    DSQ SOFTWARE 8 10 26.4% 35 / 7

    Monday saw a firm opening but poor investor sentiment dragged the Sensex lower to close the day in the red. However, on Tuesday, industrial output figures were declared and the numbers indicated that the Indian industry might be on a revival path. The index of industrial production (IIP) registered a growth of 5.8% for FY03. The healthy growth seen in the IIP was primarily contributed by manufacturing (6% growth) and the mining (3%) sectors. This is commendable against the backdrop of poor monsoons.

    Top 5 losers over the week
    COMPANY Price on May 9 (Rs) Price on May 16 (Rs) %CHANGE 52-WEEK H/L (Rs)
    MTNL 101 96 -4.5% 156 / 81
    CORPORTION BANK 165 160 -2.9% 179 / 97
    ASHOK LEYLAND FIN. 54 52 -2.3% 56 / 35
    BAJAJ AUTO 477 467 -2.1% 565 / 361
    SHIPPING CORP. 71 70 -1.8% 112 / 50

    The government has planned to prepay another US$ 1 bn foreign loans soon. This pre-payment is part of the US$ 9 bn loans, which the government has tentatively targeted to prepay in the current fiscal. The government prepaid US$ 3 bn in FY03. The government has managed to plan this on the back of comfort derived from factors like huge forex reserves and the prevalence of low interest rates. This will help the government to keep a check on its interest outgo, which forms a huge (over 25%) component of its total expenditure. This would help maintain, if not improve, the fiscal situation.

    The banking sector, especially PSUs ended the week with strong gains. Though there are positives like the government buyback programme and the passing of the Securitisation Bill, investors should exercise caution at the current juncture. It remains to be seen how these issues unfold and translate into higher profitability. As if taking a cue from the aforesaid concerns, PSU banks fell on Friday, in first signs that the rally may be in for a reality check.

    In another development, the rollback in fixed line tariffs has put a dampener on telecom PSU MTNL’s fortunes. It was expected that after a continuous loss in tariffs and market share, the company's earnings would get a much-needed boost from the hike in basic tariffs.

    For markets going forward, we continue to advocate the fact that the current juncture is an appropriate opportunity for an investor to build up his portfolio from a long-term perspective. Sticking to quality companies with sound business models and trustworthy management will give the investor the peace of mind that speculation cannot offer.



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