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Bulls scale a volatile summit!

Jun 16, 2007

Volatility ruled the roost in the markets during the week gone by as global factors continued to cast their spell. For the week ended June 15, 2007, both the benchmark indices edged higher by a little less than 1%.Markets edged higher for three days out of five, an improvement from last week where the tally stood at a much lower one out of five. Shrugging off a four-day losing streak, markets opened the week on a firm note but the gallop soon turned into a whimper as profit booking towards the fag end took its toll. Markets behaved in exactly the opposite fashion on Tuesday, as buying towards the end helped them close in the positive. Wednesday however, emerged as the day where the indices took the most severe beating of the week, influenced by a weak US market where bond yields rose rather alarmingly. US markets once again influenced the Indian indices on Thursday, but this time in a positive manner as strong economic news flow led to the Sensex edging higher by more than 200 points and in the process, wiping off all the previous day’s losses. Although, the markets also remained volatile on the last trading day of the week and edged lower, Thursday’s gains and the gains on the first two days ensured that bulls prevail in a rather tense battle.

(Rs m)MFs FIIs Total
8-Jun 2,267 (9,362) (7,095)
11-Jun (248) (546) (794)
12-Jun (3,398) 5,453 2,055
13-Jun (697) (3,078) (3,775)
14-Jun (331) 2,118 1,787
Total (2,407) (5,415) (7,822)

As far as the institutional activity is concerned, both the domestic mutual funds as well as the FIIs remained net sellers to the tune of Rs 2.4 bn and Rs 5.4 bn respectively in the week gone by.

IndexAs on June 8As on June 15% Change
BSE METAL 10,243 10,496 2.5%
BSE HEALTHCARE 3,741 3,795 1.4%
BSE OIL AND GAS 7,372 7,457 1.2%
BSE PSU 6,444 6,500 0.9%
BSE FMCG 1,779 1,789 0.5%
BSE MIDCAP 6,156 6,181 0.4%
BSE BANKEX 7,441 7,462 0.3%
BSE IT 4,987 4,996 0.2%
BSE SMLCAP 7,343 7,350 0.1%
BSE AUTO 4,701 4,675 -0.6%

On the sectoral indices front, aided by rise in heavyweights like SAIL, Tata Steel and HINDALCO, the metal index emerged as the top gainer with gains of 3%. On the other hand, weakness in majors like Tata Motors, M&M and Hero Honda persisted and this led to the auto index emerging as the worst performer for the second week in a row. This time however, the damage was restricted to a small 1%.

Let us have a look at some of the important sector/stock specific news during the week:

Energy stocks closed firm for the week with HPCL (up 5%), ONGC (2%) and BPCL (1%) being the key gainers. HPCL is in talks with Total of France and Kuwait Petroleum International (KPI) to set up a new US$ 3 bn refinery at Vizag instead of expanding its existing plant. The state-run petroleum major has been in talks with Total, KPI and Oil India over taking a stake in a planned doubling of the capacity at its Vizag refinery for more than six months and had hoped to clinch a deal in April 2007. However, the company is now in favour of a new greenfield project at Vizag. The proposed refinery would have a capacity of at least 180,000 barrels per day. The refinery will be completed by 2011. HPCL is also considering setting up an aromatics petrochemical plant along with the refinery.

Top gainers during the week (BSE A)
CompanyPrice on
June 8 (Rs)
Price on
June 15 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX 14,064 14,163 0.7% 14,724 / 9,092
S&P CNX NIFTY 4,145 4,171 0.6% 4,363 / 2,634
UNITED PHOSPHOROUS 273 313 14.8% 314 / 162
NICHOLAS PIRAMAL 269 301 11.8% 255 / 92
STERLITE OPTICAL 221 246 11.5% 1,154 / 534
TITAN IND 1,013 1,127 11.2% 275 / 85
ING VYSYA BANK 230 253 10.0% 192 / 120

ICICI Holdings (renamed as ICICI Financial Services), which is a 100% subsidiary of ICICI Bank, and owns its insurance and asset management businesses, is set to offload 5.9% stake to five investors for Rs 26.5 bn. At the said price, ICICI Financial Services is valued at Rs 446 bn on a post-issue basis. The private equity investors likely to buy the stakes are General Atlantic, Government of Singapore Investment Corporation (GIC), Temasek and Crown Capital. ICICI Financial Services headed by Ms. Kalpana Morparia is also planning to list its equity shares at an appropriate time to meet a part of its further capital requirements for ICICI Life and ICICI General. However, ICICI Bank intends to retain the majority ownership in ICICI Financial Services. In a related development, the RBI has directed ICICI Bank to repay or prepay overseas loans guaranteed by it or arrange for alternative guarantees. These loans and bonds were raised or issued by the erstwhile ICICI, a development finance institution (DFI), which was not allowed to raise deposits as its primary source of funding. The bank had government-guaranteed loans and bonds worth Rs 34 bn outstanding as on March 31, 2007. This constituted around 4.8% of the total borrowings (including subordinated debt) of ICICI Bank at the end of FY07. The stock of ICICI Bank (1%), along with its peers HDFC Bank (2%) closed higher for the week.

Top losers during the week (BSE A)
CompanyPrice on
June 8 (Rs)
Price on
June 15 (Rs)
%
Change
52-Week
H/L (Rs)
PUNJAB TRACTORS322291-9.6%359 / 191
APOLLO TYRES349322-7.9%387 / 200
MOSER-BAER INDIA454425-6.6%472 / 168
CENTURY ENKA140131-6.4%164 / 114
ROLTA INDIA450422-6.2%510 / 133

Auto stocks closed mostly lower during the week. While M&M lost 2%, Tata Motors was marginally down. According to a leading business daily, Maruti Udyog has substantially increased discounts on models such as the 800, Alto, Zen Estilo and the Esteem. While it has increased discounts on Esteem to Rs 35,000 from Rs 25,000 last month, that on the Zen Estilo has been hiked from Rs 10,000 to Rs 15,000 this month. The discount on the popular Alto, with sales of nearly 20,000 units per month, has been doubled to Rs 10,000. Customer preference for the Alto over the 800 in the entry-level segment and new competition from the Renault Logan and Tata Indigo in the sedan segment could also be possible reasons behind Maruti increasing discounts on its own models. The company will keep all its plants shut for maintenance from June 17-24, but the dealer despatches is not expected to be affected by the same. The stock however, bucked the general sector trend and closed higher by 1%.

Specter of rising interest rates is looming large globally and this usually does not bode well for the stock markets as they share an inverse relationship. The risk increases all the more in the case of developing markets like India, which are perceived to be more susceptible to fund outflows during such times. Further, the fact that the valuations are not compelling enough, do not help matters either. However, this could provide an ideal opportunity for a long-term investor to take positions in fundamentally strong stocks, especially the ones that will be beaten down to disproportionate levels. This will make sure that the downside risk is limited while handsome gains could await them on the upside.


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