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Markets rise unabated - Views on News from Equitymaster
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  • Jun 7, 2003

    Markets rise unabated

    The markets remained buoyant throughout the week, barring a blip on Tuesday. The under current always remained positive and investors went for a buying spree across sectors. Markets closed with substantial gains for the second week in a row, with the BSE Sensex and NSE Nifty closing higher by 3.9% each. With further gains this week, indices have managed to gain about 12% since the beginning of May. It must be noted here that investors have been finding value across various sectors, an indication of which is evident from the gains witnessed in the broader indices like the BSE-100 (17%) and the BSE-200 (14%).

    Top 5 gainers over the week
    COMPANY Price on May 30 (Rs) Price on June 6 (Rs) %CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 3,181 3,303 3.9% 3,417 / 2,828
    S&P CNX NFTY 1,007 1,046 3.9% 1,106 / 920
    HCL INFOSYS 96 134 39.0% 135 / 72
    PENTAMEDIA 9 12 35.9% 35 / 7
    SILVERLINE TECH 6 9 35.7% 45 / 5
    EIH ASSO. HOT. 10 13 33.0% 16 / 7
    SSI LTD. 63 83 30.5% 179 / 54

    Software stocks gained substantial ground this week. After witnessing significant battering over the previous weeks, software stocks made a smart comeback on the bourses. Rising optimism towards this sector could primarily be stemming from the fact that the Mecca of technology stocks, Nasdaq, continued to display significant strength in the last few trading sessions. Moreover, with the Fed Chairman, Alan Greenspan, stating that the US economy had stopped deteriorating and glimpses of a turnaround are visible, lifted investor sentiments. The advantage to the Indian counterparts would be that with the US economy growing, IT spending would also show an upward trend, which would be beneficial to India. Moreover, in a bid to control costs in a recovering economy, US companies would further outsource their work from ‘cost and intellect’ efficient countries like India.

    However, markets saw profit booking in some sectors. The case in point is the auto ancillary and textile sectors. While there was mixed activity in auto ancillary stocks, textile stocks saw broad based weakness. Both these sectors have seen strong gains in the last few months on account of investor optimism regarding the prospects of these sectors going forward. Auto ancillary companies have seen strong growth in export business and this has buoyed sentiments. On the other hand, textile stocks have been gaining ground due to expectations that Indian companies are likely to benefit post 2005 when import quota restrictions are removed across the globe. This means that Indian companies may be in a better position to export their goods. However, one must also bear in mind that the removal of import quotas in India will mean that there will be higher imports into the country, which could give domestic textile companies a run for their monies.

    Top 5 losers over the week
    COMPANY Price on May 30 (Rs) Price on June 6 (Rs) %CHANGE 52-WEEK H/L (Rs)
    MRF LTD. 1295 1160 -10.4% 1,339 / 780
    BANK OF BARODA 117 106 -9.0% 141 / 44
    BOI 55 50 -8.5% 58 / 25
    POLARIS 117 108 -7.8% 282 / 99
    BOMBAY DYEING 67 63 -6.7% 71 / 41

    On the other hand, banking stocks, which were the darling of markets till last week, reversed gears and majority of the stocks registered losses for the week. A couple of them, in fact, made it to the top 5 losers over the week list (above). Banking stocks bore the brunt of investors primarily due to the uncertainty created over the issue of return of capital to the government. While the government is still undecided whether it will accept the return of capital from banks at par or at a premium, investors seem to be taking every caution for any untoward news that might affect the valuations of banking stocks. This is because, if the government decides to charge a premium for return of capital, then banks will have to dip in to their reserves thus affecting their valuations. Moreover, these stocks have already had a smart run-up in the last one-year. Hence, caution needs to be exercised while investing in banking stocks at such high valuations.

    Another encouraging factor for Indian equities is the FII investments, who poured in Rs 6 bn last week, with over Rs 2 bn coming on Friday alone. This again should be taken as a good indicator of the value existing in Indian equities over a long-term horizon. Moreover, interestingly, sectors other than the large-cap sectors also gained ground. We had always maintained the stand that Indian markets are attractively valued (now at 12x), and at the current juncture also, we continue to stand by the same. However, investors should not expect gains in the short-term as near term concerns could well overshadow the underlying positives. Remember, it pays to invest for a longer term in fundamentally sound companies rather than speculating on penny stocks for a quick buck.



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