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The bear downpour! - Views on News from Equitymaster
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  • Jun 9, 2007

    The bear downpour!

    The monsoon season has arrived and while it didn't exactly rain cats and dogs in most parts of the country, it did rain bears on the bourses in the week gone by. For the week ended June 8, 2007, both the key benchmark indices, the BSE-Sensex and the NSE-Nifty edged lower by 3.5% each.

    The markets ended in the red for four days out of five, the sole exception being Tuesday, when it edged slightly higher. Infact, even the muted gains on Tuesday were due to fag end buying, thus indicating the kind of pessimism that gripped the markets the entire week. While weakness in global markets did affect the sentiments, the decline was also a result of domestic factors like the huge line up of big ticket IPOs, which often tends to drain liquidity from the system. Besides, the prospect of another round of rate hikes is also looming large. The fact that the markets seem overbought currently is also not helping matters. Led by all these factors, the benchmark indices slid for the week, a fall that was further aggravated by three straight declines in the last three days.

    (Rs m) MFs FIIs Total
    1-Jun 3,017 4,824 7,841
    4-Jun (369) 2,221 1,852
    5-Jun 391 (378) 13
    6-Jun (1,927) (696) (2,623)
    7-Jun (870) (2,228) (3,098)
    Total 242 3,743 3,985

    On the institutional activity front, while the domestic mutual funds bought equities worth Rs 242 m during the week, buying for Foreign Institutional Investors (FIIs) was a lot higher at Rs 3.7 bn.

    Index As on June 1 As on June 8 % Change
    BSE IT 4,908 4,987 1.6%
    BSE MIDCAP 6,264 6,156 -1.7%
    BSE SMLCAP 7,474 7,343 -1.8%
    BSE METAL 10,468 10,243 -2.2%
    BSE HEALTHCARE 3,852 3,741 -2.9%
    BSE BANKEX 7,683 7,441 -3.1%
    BSE PSU 6,773 6,444 -4.9%
    BSE OIL AND GAS 7,780 7,372 -5.2%
    BSE FMCG 1,891 1,779 -5.9%
    BSE AUTO 5,030 4,701 -6.6%

    On the key indices front, save for the IT index, all the other major indices were in a sea of red at the end of the week. The worst hit was the auto index, last week's top gainers, as it slid by a huge 7% in just one week. With majors like Tata Motors and Maruti losing in the region of 10%-12%, the index also bore the brunt of the same. On the other hand, all the four IT majors viz. Infosys, Satyam, TCS and Wipro edged higher for the week and consequently, helped the IT index to stay afloat.

    Let us have a look at some of the key company/sector specific development during the week:

    Telecom stocks closed mixed for the week. While Reliance Communication found favour (up 2%), Bharti Airtel closed 3% lower. As per a leading business daily, Reliance Communications' undersea cable arm FLAG Telecom has entered into an alliance with a global submarine cable operator, which will enable it to enhance the reach of network to both South America and Australia. The alliance will give Flag Telecom access to over 2,00,000 km of fully IP-enabled optic fibre of multiple undersea cable owners, long distance and access providers across six continents on routes where it does not have a presence. The deal will not only give it additional routes to carry traffic for its existing and potential customers, but also increase the utilisation of its existing network considerably. The move would enable Flag to cater to 1,250 plus Indian and global enterprises, ISP and carrier customers for connecting to Australia and the fast developing countries in Latin America.

    Top gainers during the week (BSE A)
    Company Price on
    June 1 (Rs)
    Price on
    June 8 (Rs)
    H/L (Rs)
    BSE SENSEX 14,571 14,064 -3.5% 14,724 / 8,799
    S&P CNX NIFTY 4,297 4,145 -3.5% 4,363 / 2,596
    HINDALCO 141 158 11.8% 193 / 125
    IPCA LABS 630 690 9.5% 705 / 235
    AUROBINDO PHARMA 698 757 8.6% 765 / 468
    DENA BANK 45 48 6.4% 48 / 20
    I-FLEX SOLUTIONS 2,247 2,367 5.3% 2,549 / 840

    Engineering stocks also closed a mixed bag for the week. While Suzlon Energy (4%) found favour, L&T (down 6%) and BHEL (down 8%) closed into the red. As per a leading business daily, Suzlon Energy, a wind-turbine maker, is planning to borrow US$ 1.75 bn to fund acquisition of 25% stake in Germany's Repower Systems. India's biggest wind-turbine maker last month won a bidding war against France's Areva 25% stake with an offer that valued Repower at US $1.6 bn. Governments worldwide are turning to wind power for their energy needs to cut carbon emissions and reduce dependence on coal and crude oil. Post the acquisition of REpower, Suzlon's share of the global wind power market will go up to a little over 14%, from the existing 11% level and the company will also get a foothold globally besides an entry into the offshore market for wind turbines.

    Top losers during the week (BSE A)
    Company Price on
    June 1 (Rs)
    Price on
    June 8 (Rs)
    H/L (Rs)
    TATA TEA 952 830 -12.8% 990 / 558
    HINDUJA TMT 600 524 -12.7% 890 / 355
    TATA MOTORS 747 654 -12.5% 975 / 650
    ESCORTS 125 110 -11.8% 157 / 53
    BIRLA CORP 246 218 -11.4% 375 / 164

    Auto stocks were the among the worst hit during the week. Majors like Tata Motors and Maruti ended lower by 13% and 9% respectively during the week. Two-wheelers also didn't do well with majors like Hero Honda and Bajaj Auto losing in the region of 5%-6%. The weakness was attributed to sluggish volumes being reported by almost all the companies. While two-wheeler players recorded negative growth rates, growth in passenger cars also came in much lower as compared to same period last year. With interest rates on the rise, looks like customers seem to be deferring their purchases and this is having an impact on sales. Further, with quite a few players announcing production cuts, it is adding further fuel to the fire of a sales slowdown.

    With the results season mostly behind us, the markets would surely be looking for new catalysts to take them higher further. The huge line up of IPOs may well prove to be one and it is the success or lack of it of these offerings that would be crucial to which way the markets move next. As far as we are concerned, we would not worry about the market movements too much and instead continue to focus on finding stocks that are fundamentally sound and continue to look attractive from a medium to long-term perspective.



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