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MFs up their ante

May 28, 2005

The simplest way to describe the action on the bourses this week is - 5 consecutive days of gains. The BSE-Sensex gained over 200 points (3%+) and the NSE-Nifty over 80 points (4%+). Just to add a bit more spice to this, it is now 4 consecutive positive trading weeks for the Indian bourses, which has helped the Sensex and the Nifty gain near 9% in the month of May 2005 alone. It has been a robust performance from almost every aspect, except one - Foreign Institutional Investors (FIIs) inflows, which have yet failed to revive. However, mutual funds (MFs) seem to have handled the situation pretty well currently, which has provided the much needed support to the markets.

With over 5% gains behind their back, the Indian stock markets started on a cautious note this week. Though, it seemed that all was fine during the week, it was not really exactly so. This can be gauged from the fact that consistent bouts of profit booking were witnessed at every rise depicting the underlying apprehensions in the market. However, MFs seemed in no mood to give up so easily as they continued their buying spree at every weakness taking their total tally of equity investments in the current fiscal to over Rs 47 bn (US$ 1 bn). Contrary to this, FIIs continued to withdraw money from Indian equities even during this week (Rs 3 bn until May 26, 2005), taking their total withdrawals to near Rs 19 bn in the current fiscal (FY06). The smooth passage of the derivatives settlement seemed to have also aided sentiments. However, the real action was in the mid-cap segment as the CNX Mid-cap 200 index scaled new all-time highs during the week before a strong wave of profit booking in the closing hours of Friday eroded almost all the gains garnered during the week. The index finally ended the week with only 0.4% gains.

Now let us consider some other sector/stock specific news this week.

  • The big news this week was the Cabinet Committee on Economic Affairs' (CCEA) decision to divest 10 per cent government holding in the engineering major, BHEL. A stock split has also been proposed. Currently, the government holds 67.7% stake in the company. The stock, which saw a huge surge post the announcement and made a new all-time high (Rs 950), settled rather subdued at the end of the week (up 2%) as heavy profit booking took toll on the stock price of the company. Other engineering stocks

  • Ranbaxy has launched its approved generic formulation of Clarithromycin immediate release (IR) tablets in the US market, which according to the USFDA, is expected to have the same therapeutic effect as an equivalent dose of Abbott's Biaxin Filmtab. The total US market for this drug is an annual US$ 204 m. Going forward, keeping in mind that US is the largest market for generics, this is a positive move by the company, which is looking to generate significant revenues in the generics business. The stock was the biggest gainer this week. Other pharma stocks

    Key gainers over the week (NSE-50)
    Company Price on
    May 20 (Rs)
    Price on
    May 27 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    BSE-SENSEX 6,500 6,708 3.2% 6,955 / 4,228
    S&P CNX NIFTY 1,992 2,076 4.2% 2,183 / 1,292
    RANBAXY 980 1,102 12.5% 1,279 / 867
    WIPRO 663 724 9.2% 775 / 470
    TCS 1,170 1,269 8.5% 1,475 / 959
    SAIL 50 54 7.7% 70 / 22
    TATA CHEM 163 175 7.6% 181 / 110

  • Tata Chemicals, through its subsidiary, Homefield Intl., is reported to have made an open offer to acquire Egyptian Fertiliser Company, owned by the Government of Egypt, for a consideration of US$ 450 m. A mixture of recently concluded FCCB issue, internal accruals and bridge loan will finance the acquisition. The Egyptian company manufactures urea and ammonia and enjoys a tax break for 25 years. It has a state-of-art plant to manufacture about 0.4 m tonnes of ammonia and 0.65 m tonnes of urea. The company is in process of doubling its capacity by 2006. The stock ended the week with near 8% gains. Other fertilizer stocks

  • The stock of India's largest steel company, SAIL, was also in the limelight this week having gained near 8%. The gains could be attributed to the fact that the company declared market-expectations-beating 4QFY05 results on Wednesday. The company reported a 164% YoY jump in bottomline on the back of a 38% YoY growth in topline. The big surprise was delivered at the operating level, which improved from 22% in 4QFY04 to over 42% in 4QFY05. Strong realisations and strict control over costs, especially staff costs, helped the company dole out this magnificent performance. Other steel stocks

    Key losers over the week (NSE-50)
    Company Price on
    May 20 (Rs)
    Price on
    May 27 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    ZEE TELE 149 138 -7.3% 189 / 120
    OBC 267 264 -1.1% 382 / 200
    ABB 1,293 1,284 -0.7% 1,349 / 565
    PNB 385 383 -0.5% 520 / 220

  • Shoppers Stop got listed on the bourses this week and hit a high of Rs 421 (on the NSE), translating into a premium of 77% over the offer price of Rs 238. The price band for the issue was Rs 210 to Rs 250 per share. Shoppers Stop Limited (SSL) is one of India's major retailers and is part of the K Raheja Corp. Group, one of the leading real estate development and hotels groups in the country. It operates a chain of department stores in India and currently has 15 such stores across the country. SSL is amongst the pioneers in setting up a nation-wide chain of large format department stores in India with a professional management. We had suggested investors to invest in this issue, as we believe the future of the company is promising. The stock ended the week with 55% gains over its offer price. For a detailed analysis, click here.

Going forward, while the markets would continue to see volatility as further news flows in regarding the monsoons, we would advise investors to look at their equity investments as partnership with India Inc. Look at the management vision of the companies you wish to buy into. Take a long-term view, research and buy into the company you like. If your target price is achieved earlier, be disciplined and exit. Market shocks will keep streaming in as years go by. Make sure you are not caught on the wrong side by ensuring you buy fundamentally strong companies, who stand tough in the face of irrational market behaviour by recovering their looses quickly, for their inherent value is strong.

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