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No stopping!

Jun 21, 2003

What can we say about the markets – they seem to be heading only in one direction and that is up! It was yet another week of handsome gains on the bourses. The BSE Sensex closed with week-on-week gains of 4.3% while the NSE Nifty also notched up similar gains (4.2%). With this, markets have registered gains of over 19% in the last 9 trading weeks. The chart below shows the movement of the indices over the last couple of months.

To begin with, one of the most important factors contributing to the rise in the indices seems to be the FII inflow into the Indian markets (Read more). They have invested over Rs 50 bn in 2003 (to date), which is more than double the net investment in the corresponding period last year. Moreover, gains are higher in the months of May and June (to date), as almost 60% of the FII money has come in these two months alone. This further reiterates our stand that Indian equities are relatively undervalued considering the growth prospects of the Indian economy (Read more).

Top 5 gainers over the week
COMPANY Price on June 13 (Rs)Price on June 20 (Rs)%CHANGE52-WEEK H/L (Rs)
BSE-SENSEX 3,3543,5004.3%3503 / 2828
S&P CNX NIFTY 1,0561,1004.2%1,106 / 920
APOLLO TYRES15017718.0%179 / 91
SUPREME INDUSTRIES11213217.4%134 / 75
LIC HSG. FIN.10812717.3%139 / 57
AMARA RAJA BATTERIES708217.1%102 / 48
GRASIM39045516.6%478 / 280

The story of the week was the demerger of L&T’s cement plant in favour of Grasim. It seems to be a win-win situation for both the parties involved. Post the open offer by Grasim for L&T shareholders, the former will have a majority control over the demerged cement entity (to be called CemCo). As far as the advantages for companies are concerned, Grasim gets control over a huge cement capacity (combined capacity at 31 MT represents 23% of domestic capacity). Also for L&T, with the cement division demerged, it is now a pure EPC business. The cement division has been a drain on L&T’s profitability over the years. The demerger therefore, could improve valuations of the company.

  • Read more on L&T demerger

    Top 5 losers over the week
    COMPANY Price on June 13 (Rs)Price on June 20 (Rs)%CHANGE52-WEEK H/L (Rs)
    EIH ASSO. HOT.1714-17.6%19 / 7
    NOCIL98-8.6%13 / 5
    UNITED PHOSPHORUS191176-8.1%196 / 96
    DSQ SOFTWARE1110-8.0%30 / 7
    ZEE TELE9083-7.7%134 / 60

    Among other stories of the week, public sector banking behemoth, State Bank of India (SBI) declared its FY03 results. The bank reported a 28% bottomline growth on the back of a marginal 4% rise in topline. SBI's strong bottomline performance for FY03 was led by improvement in net interest income, strong growth in other income and marginal improvement in operating margins. The stock gained 4% over the week. Reliance, another index heavyweight, was also in the limelight throughout the week. The company announced that it has plans to expand its petrochemical capacity by 2 MT (10% of its current capacity, including IPCL). With the petrochemical cycle in an upturn, the company is well poised to capitalize on the same. Reliance gained 8% over the week.

    Having rallied 20% in the last two months, where is the market headed from the current levels? Are fundamental triggers in place to warrant further rise from 3,500 levels? Whether indices will see profit booking pressure from the current levels is anybody’s guess. For a long-term investor, ideally speaking, it should not matter if ‘experts’ feel that the Sensex may touch 3,300-3,400, before gaining ground again. We believe that there is a lot of steam left in the Indian stock markets. Fundamental factors like strong growth prospects supported by attractive valuations (even at the current juncture) are in place. But it is just a matter of looking beyond six months or one year, as the case may be. As always, pick and choose.

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