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Bulls win a close game!

May 26, 2007

Thanks mainly to a sharp turnaround on Friday, both the benchmark indices ended the week with modest gains. For the week ended May 25, 2007, while the BSE-Sensex edged higher marginally, gains in NSE-Nifty were a tad below 1%.It was a week that will mostly be remembered for the yet another all time high attained by the Nifty. The feat was achieved on Tuesday, a day when both the benchmark indices closed higher for the second day in a row. However, it was all downhill from there on as profit booking took its toll on the indices and made them end in the red for two consecutive days. While the trend continued for most part of Friday, pointing to yet another negative ending for the week, markets took a U-turn during the later part of the day, resulting in a positive ending for the day as well as for the week. In the end, it turned out to be a narrow escape for bulls.

As far as the institutional activity is concerned, FIIs bought heavily into the Indian markets, taking net positions worth an impressive Rs 30 bn, domestic mutual funds however, turned out to be net sellers to the tune of Rs 2.6 bn.

(Rs m)MFs FIIs Total
18-May(1,350) 12,603 11,253
21-May3,130 4,776 7,906
22-May(475) 4,508 4,033
23-May 162 4,460 4,622
24-May(4,101) 3,195 (906)
Total(2,634)29,542 26,908

On the sectoral indices front, while all the indices, save for a couple, ended the week with gains, it was the metal index that took away the top honours with gains of 2%. With steel stocks like Tata Steel and SAIL in fine form, the index was able to post good gains. Not far behind was the FMCG index, boosted by gains in HLL and smaller players like Dabur and Tata Tea. After having posted huge gains in the last week, it comes as no surprise that the Bankex took a bit of a breather this week as investors chose to book profits, thus taking it to the bottom of the list.

IndexAs on May 18As on May 25% Change
BSE METAL10,242 10,473 2.3%
BSE FMCG1,873 1,912 2.1%
BSE OIL AND GAS7,603 7,685 1.1%
BSE MIDCAP6,090 6,143 0.9%
BSE IT4,923 4,959 0.7%
BSE SMLCAP/A>7,220 7,266 0.6%
BSE PSU6,699 6,734 0.5%
BSE HEALTHCARE3,734 3,746 0.3%
BSE AUTO4,910 4,860 -1.0%
BSE BANKEX7,604 7,467 -1.8%

Sun Pharma closed 5% higher for the week. As per a leading business daily, the company, in partnership with its subsidiaries, has signed definitive agreements for the acquisition of Taro Pharmaceuticals Industries, a multinational generic manufacturer. The nature of the deal is an all cash one and the size is estimated to be in the region of US$ 454 m (approx Rs 18 bn). The company intends to fund the acquisition through internal accruals and the proceeds from its US$ 350 m FCCB. Taro has established subsidiaries, manufacturing and products across North America, Canada and Israel, with the US being a dominant market, accounting for more than 90% of its sales. Its forte includes dermatology and topical products, apart from cardio vascular, neuropsychiatric and anti-inflammatory therapeutic categories. As regards its peers, GSK Pharma also edged higher by 1% during the week.

Top gainers during the week (BSE A)
CompanyPrice on
May 18 (Rs)
Price on
May 25 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX14,303 14,338 0.2% 14,724 / 8,799
S&P CNX NIFTY4,215 4,248 0.8% 4,291 / 2,596
TORRENT PHARMA195 253 29.3%> 253 / 158
SUZLON ENERGY1,132 1,378 21.8%> 1,510 / 769
SKF INDIA412 498 20.9%> 513 / 209
ING VYSYA BANK237 266 12.0% 275 / 82
FINOLEX INDUSTRIES 74 82 11.1% 103 / 65

Tata Motors, India's largest manufacturer of commercial vehicles has announced its fourth quarter and full year FY07 results. Despite little pressure on margins, the company has managed to close the year on a high. On a standalone basis, while the topline has grown by 20% YoY for the final quarter, bottomline growth has come in at a slightly higher 28% YoY. Operating margins have however shrunk by 90 basis points. For the full year, the topline growth stood at 34%, while the bottomline has managed to grow by 25%, both on a YoY basis. Operating margins have shrunk here as well, registering a decline of 50 basis points (0.5%). As far as the consolidated performance for the full year is concerned, while revenues (net of excise) have grown by 36% YoY, net profit growth has stood at a lower 26% YoY. The stock of Tata Motors, however, closed 2% lower for the week, along with M&M (down marginally).

Top losers during the week (BSE A)
CompanyPrice on
May 18 (Rs)
Price on
May 25 (Rs)
%
Change
52-Week
H/L (Rs)
BIRLA CORP259238-8.1%375 / 164
HEXAWARE TECH172160-7.3%205 / 110
HPCL300280-6.7%337 / 206
J B CHEMICALS7974-6.6%113 / 72
DENA BANK4744-6.6%48 / 20

Wind power equipment major, Suzlon Energy closed the week with solid gains of 22%. The optimism was fueled by the fact that the company has won the race for German counterpart REpower. As per a leading business daily, Suzlon Energy and Areva have signed a binding agreement governing a framework regarding the company and Areva's shareholding in REpower Systems AG, Germany. Areva has agreed to vote in accordance with Suzlon's proposals, subject to protection of minority shareholders and is guaranteed an exit route for its 30% holding in Repower. With this, the bidding contest between the company and Areva comes to an end and means that Suzlon has effectively won the bid for the German company. The agreement also signifies that Suzlon gets control of REpower at approximately US$ 1.3 bn purchase price. Control over REpower will give Suzlon a foothold in the European wind power market-the world's largest. Suzlon expects 60% of its FY08 revenues to come from non-Indian markets. The move is in line with the company's plans to mark a larger global footprint. Among its peers, ABB was up 4%, L&T edged marginally higher.

While the Nifty has already crossed the all time high, Sensex is circling around the same territory. Although nothing much as changed fundamentally over the past few months, the current buying interest seems more a consequence of money being cheap than stocks. Hence, caution with respect to valuations need to be exercised. Further, while we believe that a broad based rally is a thing of the past, there are still good quality stocks out there, especially in the mid cap and the small cap category. However, investment in these companies with a near term time horizon could be fraught with risk, as these stories usually play out in the longer term. Hence, patience should be the buzzword here.

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