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Sensex: Movers and shakers!

Jun 22, 2005

The BSE-Sensex is once again at its all-time highs, as it cruised rather comfortably into the 7,000+ zone. Of course, due credit must be given to Reliance Group stocks, which led the gains on Monday, June 20, 2005, the day when the Sensex breached the coveted 7,000 levels. However, though the credit to provide the 'final nudge' to the Sensex could be attributed to the Reliance Group stocks, in this article we look at which were the sectors/stocks that build the base for this day - another day that goes down in history.

Investors must note that this leg of the rally began from May 2005 as the Sensex gained near 920 points (15%) from its April 2005 end closing. However, unlike the past, mutual funds (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, the Foreign Institutional Investors (FIIs) that have been driving Indian equities (Sensex now close to 7,100) while mutual funds (MFs) have gone on the backseat.

Sensex: Top 10 index contributors
  Price on
April 29, 2005
Price on
June 21, 2005
%
change
Contribution
to Sensex
% of
contribution
BSE-Sensex 6,154 7,077 15.0% - -
ONGC 811 945 16.5% 175.1 18.3%
RELIANCE 528 646 22.4% 158.5 16.6%
WIPRO 632 757 19.8% 82.7 8.7%
TCS LTD. 1,130 1,304 15.4% 75.2 7.9%
BHARTI TELE 207 237 14.4% 49.9 5.2%
INFOSYS 2,201 2,392 8.7% 43.7 4.6%
ICICI BANK 360 418 16.2% 39.0 4.1%
SBI 585 666 13.8% 38.1 4.0%
RELIANCE ENERGY 480 655 36.5% 36.2 3.8%
SATYAM 399 507 27.0% 34.4 3.6%
Note: Kindly note that though NTPC and TCS were included in the Sensex only on June 6, 2005, the above is largely to give a macro picture

Now coming back to the Sensex gains, as can be seen in the table above, the top 5 stocks contributed to nearly 57% of this! Further, if we extend this to the top 10 stocks, the contribution zooms to about 77%! Thus, this makes one thing for certain that the bull-run has not been witnessed across index stocks. However, while there largely have been reasons for these stocks to move up, it is the quantum of gains that we would be unable to justify, as it has taken us by surprise. However, this is precisely what the markets are, full of surprises.

Coming to the reasoning for the top contributors to the Sensex, gains in ONGC could be attributed to the sustained strong crude oil prices, which have continued to make new all-time highs. As far as the next best contributor to the Sensex is concerned (Reliance), the optimism towards it was led by the expectations of an amicable settlement between the Ambani brothers. The two together - Reliance and Reliance Energy - contributed over 20% to the Sensex gains. However, the surge in these two stocks was witnessed since the last couple of weeks only when winds of the settlement began to do market rounds, which got confirmed on June 18, 2005, setting the stocks on fire later when markets opened.

Going further down the line, it must be noted that 4 of the top 10 contributors included software stocks with these contributing over 27% of the Sensex gains. While there has been no specific reason for this, seemingly, most of it was a revival from the troughs of April 2005 when technology stocks came under the bear hammering owing to poor guidance by Infosys and below than expected numbers delivered by TCS. However, since fundamentally there was nothing wrong with these companies, the stocks bounced back smartly. The next in line is Bharti Tele, which too was in the reckoning in the said period. The reason for this is the raising of FDI limit in the telecom sector from 49% to 74% recently. Further, the strong growth momentum being witnessed in the telecom sector also aided sentiment.

The movers…
Energy/Petrochem 34.9%
Software 24.7%
Banking/FI 12.3%
FMCG 5.5%
Telecom 5.2%
Pharma 4.8%
The laggards…
Power 4.7%
Auto 3.9%
Engineering 3.3%
Steel 0.8%
Cement 0.0%
Aluminium -0.1%

As far as the sectoral contribution to the Sensex gains is concerned, while energy/petrochemicals and software were the biggest contributors followed by banking/FIs. However, steel and aluminium were among the laggards. In the case of these, the collapse of metal prices over the last 2 to 3 months on the back of slowdown in Chinese consumption led to the pessimism towards the sector.

To conclude, while the above exercise was largely to bring to the fore the 'green' and the 'grey' areas beneath the Sensex gains, investors must note that the Sensex should not be used as the benchmark for making long-term investment decisions. Even now, we believe that there are good companies to invest with a two to three year time horizon. Having said that, we believe that the mid-cap madness will be tested going forward.


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