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Nowhere to hide…

Jun 19, 2004

The atmosphere in the Indian stock markets does not seem to be very encouraging considering its performance in recent times. Once again, the indices closed lower (down over 1% each) in the red, for the second consecutive week. The picture becomes bleaker when seen over a little longer period. During the last 8 weeks, the indices have closed with gains only twice and the gains were marginal when compared to the level of falls that have been witnessed on numerous occasions. Lack of any trigger along with the prevailing global uncertainties, continues to bog down investor sentiments. The opening session of the current week was marked by weakness on the bourses as the overhang of last Friday’s 100-point Sensex fall was spilt over to Monday’s trade. Every effort by the bulls to stage some recovery was met by stiff resistance from the bears who kept the pressure on consistently by selling at the slightest sign of recovery. The fall was aggravated owing to continuing weak global sentiments with respect to apprehensions regarding firm crude prices, inflation, impact of rising interest rates on stock markets, and terrorism, which have been raising their head time and again in the recent past.

Key gainers over the week (NSE-50)
COMPANY Price on
June 11 (Rs)
Price on
June 18 (Rs)
H/L (Rs)
BSE-SENSEX 4,833 4,770 -1.3% 6,250 / 3,418
S&P CNX NIFTY 1,508 1,491 -1.1% 2,015 / 1,079
BHEL 456 488 7.2% 685 / 220
OBC 216 228 5.6% 367 / 125
ZEE TELE 125 132 5.5% 175 / 83
HDFC BANK 360 375 4.1% 407 / 235
RELIANCE 432 445 3.0% 650 / 301

Tuesday saw investors, once again, jump onto the value buying bandwagon, taking advantage of the over 200-points fall during the previous three trading sessions. The optimism was also seemingly temporarily aided by certain clarifications with respect to no changes in the Electricity Act and the non-appointment of a steel regulatory body. Then, the following three trading sessions witnessed alternate bouts of selling and buying, as investors seemed largely in favour of adopting a wait and watch approach before making any long-term commitments. However, it must be noted that the FII community has continued to be net buyers for the third consecutive week now with net investments of over Rs 2 bn in the first 4 trading sessions of the current week. Thus, since the week after the carnage of May 17, 2004, FIIs have pumped in close to Rs 10 bn into Indian equities.

Key losers over the week (NSE-50)
COMPANY Price on
June 11 (Rs)
Price on
June 18 (Rs)
H/L (Rs)
DABUR 83 68 -18.0% 98 / 46
SAIL 29 25 -13.8% 62 / 14
RANBAXY 1,001 909 -9.2% 1,171 / 704
GRASIM 996 915 -8.1% 1,317 / 419
GUJARAT AMBUJA 284 261 -8.1% 347 / 189

Let us now consider some news pertaining to India Inc. during the week:

  • The above table shows Dabur as the biggest loser during the week, down 18%. It must be noted here that during the week, the Dabur Ltd has gone ex-pharma. For two shares of Dabur Ltd, shareholders in the company will get one share of the de-merged company Dabur Pharma. Dabur Ltd is an ayurvedic products company and has de-merged its pharma business in order to focus more on its pharma business. The pharma company is a strong player in the oncology segment.

  • Cement and steel stocks lost substantial ground during the week. It was because of the 17% hike in coal prices affected by Coal India Ltd. recently, which is likely to put pressure on the operating margins of many players in these sectors. This is because this spike in coal prices is likely to increase the cost of producing steel by about Rs 300-500 per tonne and cement by about Rs 5 per bag. However, since the manufacturers would largely be absorbing the increased costs, their margins would come under pressure.

  • The week saw intense selling pressure in pharma stocks on concerns regarding the growth opportunities in the generic market. However, we believe that this concern has been overplayed. While competition is imminent in any sector, Indian pharma companies do not have presence only in the generics market but also in the R&D segment. Over the long-term, this effort is likely to bear fruit, albeit with large extent of uncertainty.

Going forward, we feel that until the various macro-economic policy issues do not get resolved and the government's stand clarified, the volatility on the bourses would continue as roumour mills, owned by vested factions in the markets, would continue to take advantage of the fickle mindedness of ignorant investors. Thus, at the current juncture, our advise to investors would be to invest with a longer-term perspective in fundamentally sound companies with good management and strictly avoid playing the markets, which could be detrimental to the health of their portfolio.

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