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Domestic strength continues - Views on News from Equitymaster
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  • Jun 14, 2003

    Domestic strength continues

    There seems to be no sign of fatigue on the indices, which continued their upward journey even in the week just ended. While the BSE Sensex ended the week with gains of 1.5%, the NSE Nifty also closed higher by 1%. With the gains this week, the indices have, thus, risen by over 14% in the last 7 trading weeks alone. For a weekly movement of the indices, see the table below, which shows that barring two minor blips, the indices have registered handsome gains every week.

    Weekly movement of indices
    Week ending BSE SENSEX S&P CNX NIFTY
    May 3, 2003 1.5% 1.5%
    May 10, 2003 -0.6% 0.0%
    May 17, 2003 3.6% 3.8%
    May 24, 2003 -0.2% -0.5%
    May 31, 2003 4.3% 4.0%
    June 7, 2003 3.9% 3.9%
    June 14, 2003 1.5% 0.9%

    Coming back, barring Tuesday, the indices managed to close on positive ground on all other trading days of the week. But this time around, unlike the trend seen in the month of May, stocks other than the index heavyweights were the front-runners. Broad based buying was, once again, seen across sectors. However, one should not conclude that the index heavyweights were out of favour. Amongst the heavyweights, the key gainers over the week were HDFC (6%), Ranbaxy (5%) and HLL (5%).

    Top 5 gainers over the week
    COMPANY Price on June 6 (Rs) Price on June 13 (Rs) %CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 3,303 3,354 1.5% 3,417†/†2,828
    S&P CNX NIFTY 1,046 1,056 0.9% 1,106†/†920
    EIH ASSO. HOT. 13 17 30.9% 18 / 7
    BSES 219 262 19.6% 273 / 190
    UNITED PHOSPHORUS 161 191 18.5% 192 / 96
    IND. RESORT 49 56 14.0% 57 / 35
    EXIDE INDUSTRIES 125 141 13.3% 143 / 69

    One of the key gainers on the bourses this week was the power major, BSES (Reliance Energy), which is now a Reliance subsidiary. Subsequent to increasing its stake in the company to 58%, the new management is planning to enter into two new areas of the power business i.e. power trading and transmission. This decision comes on the back of the passage of the Electricity Bill, which encourages private players to venture into transmission and distribution. Moreover, with BSES Chairman, Mr. Anil Ambani, indicating that BSES will not infuse more funds into its three loss making subsidiaries (total accumulated loss of Rs 9 bn), seems to have had a positive impact on the stock. Moreover, the company is in talks with the Orissa government to arrive at a comprehensive restructuring proposal, in order to make its operations viable and sustainable.

    Top 5 losers over the week
    COMPANY Price on June 6 (Rs) Price on June 13 (Rs) %CHANGE 52-WEEK H/L (Rs)
    DIGITAL GLOBAL 500 385 -23.0% 714 / 330
    KOCHI REFINERIES 83 70 -15.8% 86 / 36
    SHIPPING CORPORATION 78 71 -9.8% 105 / 50
    APOLLO TYRES 164 150 -8.3% 168 / 91
    COLGATE 148 136 -8.1% 154 / 120

    Another top story for the week was the Digital-HP ISO merger. According to the merger plans, HP will increase its stake in Digital from 51% to 76% (including the preference shares issue). The major effect of this increase in stake will be the dilution of Digitalís earnings. As far as retail investors are concerned, apart from dilution in earnings, the price Digital is paying to HP seems to be unjustified.

    Oral care major, Colgate, that moved up sharply on the back of buyback expectations ahead of the results, saw significant profit booking in the latter half of the week. The company posted a 9% dip in topline, while its bottomline improved by 27% in FY03. But this was owing to cut in ad spends. The denial of the buyback plan combined with the poor results resulted in a sharp fall in the stock later.

    While the markets have gained strongly in the last two months, there have been concerns regarding the sustainability of the bull run. However, from a long-term perspective we believe that there is still steam left in the same. Improvements in the countryís infrastructure (highway projects) and falling dependency on monsoons will be the long-term drivers of the Indian stocks markets. Apart from these fundamental economic reasons, sentiments too are likely to get a fillip due to the speeding up of the governmentís disinvestment drive.



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