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MFs act as saviors

May 21, 2005

It was an important week that just ended considering that some important resultswere announced during the week, which included Tisco, BPCL, SBI and Tata Motors. However, considering that the markets were sitting comfortably on gains of about 5% garnered during the previous fortnight, this week's trading remained largely rangebound. By the close of the week, the indices managed gains of about 0.5%. The gains came by this week despite the fact that akin to the recent past, Foreign Institutional Investors (FIIs) continued their selling spree.On the back of the near 5% gains witnessed by the indices over the last fortnight, markets witnessed a rather cautious opening on Monday. After proceeding to trade rather lacklustre and rangebound until noon, they began their slow and steady upward journey as buying emerged across sectors. Sustained buying momentum until close of trade saw the Sensex breach and close well above the 6,500 levels. However, the real newsmaker was the CNX Mid-cap 200 index, which continued on its record-breaking journey. However, the following two trading sessions were marred by profit booking, which was largely on the back of the news of Sebi's crackdown on one of the 12 entities accused in the market crash of 17th May 2004.

Certain restrictions put by Securities and Exchange Board of India (SEBI) on the entity led the markets to expect harsher moves by the market regulator. However, SEBI's clarification that they do not intend to ban the issuance of Participatory Notes (PNs) to FIIs, put investor apprehensions to rest, which helped revive market sentiments in Thursday's trade. Though this led to the re-emergence of buying, profit booking continued at every rise, thus restricting the indices movement within a specific range. Friday's trade was no different as alternate bouts of buying and selling characterised the market movement.

One trend that has emerged over the past few weeks is that the FIIs, which until FY05 fancied Indian equities, have suddenly orphaned the Indian markets. This does not come as a surprise to us, as we had anticipated this lacklustre FII behaviour in wake of rising US interest rates. The chart above clearly depicts the negative stance adopted by FIIs towards Indian equities in FY06, wherein their cumulative sales total to over Rs 16 bn until May 19, 2005. However, despite this, the Indian bourses have managed to hold ground, as the onus of sustaining the momentum has shifted onto the other key pillar of the Indian stockmarkets MFs. MFs have pumped in over Rs 39 bn since the beginning of the current financial year, thus protecting the downside for the markets.

Key gainers over the week (NSE-50)
CompanyPrice on
May 13 (Rs)
Price on
May 20 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 6,452 6,500 0.7% 6,955 / 4,228
S&P CNX NIFTY 1,988 1,992 0.2% 2,183 / 1,292
BAJAJ AUTO1,140 1,216 6.7% 1,240 / 795
INFOSYS2,033 2,141 5.5% 2,423 / 1,214
L&T1,021 1,077 5.3% 1,150 / 432
SBI619 649 4.8% 751 / 390
SATYAM423 443 4.6% 491 / 256

Now let us consider some other sector/stock specific developments during the week:

  • Two-wheelers major, Bajaj Auto, was amongst the top gainers (up 6%) in the index stocks this week. A slew of announcements by the company during the week seemed to have aided sentiments towards the stock. The company has decided to shift its focus from the Chinese market to South and South East Asian markets as its preferred export destination, mainly due to the fragmented nature of the Chinese local market. The ASEAN market, excluding China, is estimated at 4 m-5 m units annually. It is also planning to enter Iran and Nigeria through partnerships. Bajaj Auto is currently the export market leader with a 43% YoY increase in exports in FY05. Also, the company intends to invest approximately Rs 2 bn over the next 18 months towards capacity expansion, R&D and launch of new products. The management is of the opinion that the decline in scooter sales has bottomed out. In the motorcycle segment, Bajaj Auto expects to clock a 25% to 30% growth in the current fiscal. Others auto stocks

  • L&T is expecting to make China its manufacturing base for exports to its major global customers. As a step towards this objective, the company opened its second representative office in Beijing (first being in Shanghai). In the near future, it is also planning to set up a software development centre in China. It should be noted that since September 2004, the company has won orders worth US$ 30 m from Chinese hydrocarbon industry. The stock was amongst the key index gainers this week, up 6%. Other engineering stocks

    Key losers over the week (NSE-50)
    CompanyPrice on
    May 13 (Rs)
    Price on
    May 20 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    ZEE TELE158 149 -5.3% 189 / 117
    SAIL53 50 -4.8% 70 / 22
    REL. ENERGY500 477 -4.5% 690 / 436
    HINDALCO1,211 1,161 -4.1% 1,500 / 896
    ONGC880 848 -3.6% 1,000 / 608
  • NDTV (down 3%) is planning to launch another news channel - the fourth in its bouquet. The company has filed an application with the I&B ministry for permission to uplink the news channel. The proposed news channel will be bi-lingual, offering news in English and Hindi about the entertainment and lifestyle segments.This move by the company, and with many more channels likely to come up in the future, would heat up the competition further in the television space as all players vie for a pie of the huge TV advertising market. Other media stocks

    With most of the key India Inc. results out of the way, investors now have a clearer picture of things going forward. They would now paint a picture of India Inc.'s future performance with an impending fuel price hike, hardening interest rates and firm commodity prices. Further, another important parameter that would now take centre stage would be the onset of normal monsoons in about a fortnights time from now, which could set/spoil the stage for the markets, depending on the pattern of monsoons. However, we continue to believe that the India story is not over yet and staggered investments with 3 to 5 years investment horizon is a sound approach to mitigate the impact of most risks. If the fundamentals and performance of the company are strong, markets will acknowledge the same in due course of time. Happy investing!


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