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No stopping!

Jun 18, 2005

It was yet another good week for the Indian stock markets - seventh to be precise. The BSE-Sensex and the NSE-Nifty gained 1.8% and 1.6% respectively during the week thus taking the final tally to 12% for the Sensex and 11% for the Nifty. This is no small rise by any standards considering that this leg of the rally started at a much higher base (from about 6,150 on the Sensex). However, apart from the 'reasonable' valuations of the Indian markets, the other pillars supporting this rally are positive investor sentiment and strong liquidity to give effect to these sentiments.The week began on a rather cautious note for the Indian stock markets as investors had 6 weeks of gains behind them and seemed a little jittery during Monday's trade. However, though profit booking was witnessed in the early hours of trade, sentiments soon took a u-turn around noon and the markets went into forward gear, closing with significant gains. Tuesday's trading pattern was no different as the markets once again opened rather subdued but proceeded to trade higher through the day. Wednesday marked another strong day for the Indian benchmark indices and the Sensex breached the 6,900 level. However, post that, the following two days were testing times for the markets. The Sensex (also the Nifty) faced substantial selling pressure every time it attempted to get closer to its all-time highs. However, repeated attempts to create a new record failed this week.

While there was considerable action being witnessed amongst the index stocks and other large cap stocks, it was the (until this week) darling of the bourses - the mid-cap segment - that bore the brunt of the bears. It must be noted that the CNX Mid-cap 200 index closed opposite to the benchmark indices with losses of about 1.9% for the week. On the institutional front, while FIIs continued to be net buyers for the week (until Thursday's trade), mutual funds (MFs) continued to be on the selling spree, seemingly booking profits at these higher levels. It must be noted here that MFs were the torchbearers of the current leg of the rally, as they were responsible for taking the Sensex from 6,150 levels to over 6,700. From thereon, it is the FIIs that have been investing into Indian equities while MFs have been net sellers (see chart above).

Top gainers over the week (NSE-50)
CompanyPrice on
June 10 (Rs)
Price on
June 17 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 6,782 6,907 1.8% 6,955 / 4,228
S&P CNX NIFTY 2,091 2,123 1.6% 2,183 / 1,292
BHARTI TELE220 234 6.2% 250 / 124
RELIANCE567 600 5.9% 606 / 400
SATYAM464 487 4.9% 491 / 256
M&M531 557 4.8% 574 / 406
GAIL211 220 4.4% 270 / 159

Now let us consider some sector/stock specific developments during the week.

  • Media stocks shot into the limelight on Thursday as news flowed in about the cabinet's approval to FII investments in the print media and also in TV channels. It must be noted that FII and FDI together would now come under the 26% limit permitted. Further, the cabinet has also allowed facsimile editions of foreign newspapers though Indian editions of foreign newspapers have not been approved. This news led to a buying frenzy in media stocks with the key gainers over the week being Deccan Chronicle (8%), Mid-day (8%), TV Today (6%), Cybermedia (24%) and NDTV (11%).

  • The telecom ministry is contemplating lifting the FDI cap on the sector from 49% to 74%. Taking the reforms forward, the ministry is also in talks with players in the industry for implementing 'uniform telephony rates' throughout the country wherein there would seemingly be no distinction between STD and local call rates. Further, as far as Bharti Tele was concerned, it entered into a contract with Ericsson to set up and maintain Airtel's GSM cellular network in across 2,000 towns in India. It must be noted that the two companies had entered into a similar deal last year for supply of GSM network and this deal is a step taken by Bharti to provide a kicker to its bottomline. The stock was the biggest gainer this week on the bourses (up 6%).Other telecom stocks

  • Two of the largest mortgage lenders in the country, ICICI Bank (market share 31%) and HDFC (market share 27%) have increased their home loan lending rates by 50 basis points. The companies have justified the move by stating that their funds (liabilities) have got re-priced at higher rates and the lending rate hike was pertinent to sustain margins. It, however, remains to be seen whether the companies can sustain their credit growth at the higher rates. Both these stocks ended the week with 2% gains.Other banking stocks

  • Amongst the other top gainers this week was M&M. Sentiment towards the stocks was aided by the announcement by the company that it is contemplating a bonus issue. Further, gains in Reliance could be attributed to the easing of investor concerns towards the Reliance Group companies, as the two Ambani brothers are reportedly close to a settlement.


    Top losers over the week (NSE-50)
    CompanyPrice on
    June 10 (Rs)
    Price on
    June 17 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    SHIP. CORP.161 144 -10.4% 188 / 86
    TATA CHEM182 171 -6.0% 189 / 110
    ZEE TELE149 142 -4.4% 189 / 120
    NALCO150 144 -3.6% 209 / 120
    MTNL124 121 -2.9% 170 / 110

  • Geometric Software's stock witnessed a hammering this week and was down almost 8% this week. This was on the back of the company reporting a downward revision to its FY06 revenue and net profit guidance. This is taking into consideration that several projects, which were scheduled to commence in the first quarter, have now been shifted to the next quarter, i.e., 2QFY06. The revenue and profit growth guidance for the full year FY06 has been, thus, revised downwards by 5% to 8% each.Other software stocks

Going forward, with the markets seemingly determined to test their previous all-time highs, increased volatility is imminent. Further, next week onwards could see investors getting a bit restless if the already delayed monsoons fail to appear. It must be noted that though the government may not be worried as yet but any deficiency on the monsoons front or unevenly spread rainfalls does have the potential to spoil the Indian stockmarket party. Also, it must be noted that a valuation of 14 times earnings for the Sensex is by no means 'attractive'. Any shock on the monsoons front could make this valuation look expensive. However, though we believe that monsoons would play a critical role in deciding whether the current rally would sustain or not, investors could continue to invest in fundamentally strong companies, albeit in a staggered manner, so as to take the utmost advantage of market irrationalities. Happy investing!


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