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Bulls gain upper hand! - Views on News from Equitymaster
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  • Jun 23, 2007

    Bulls gain upper hand!

    Despite the volatility witnessed on Friday, the benchmark indices managed to close the week with decent gains. For the week ended June 22, 2007, both the Sensex and the Nifty gained higher by 2%. Shrugging off the volatility that marked trading last week, the markets fared much better during the week gone by with the indices closing into the positive for three days out of five.

    While markets opened the week on a firm note, the trend reversed as the day progressed with the indices shedding all its gains at the fag end of the day. Tuesday saw the bulls once again come at the forefront and this time maintain the momentum right throughout the trading session notching gains of around 200 points at the close of the session. This optimism spilled over to the next two trading days as well. Friday, however, was a different picture with the indices oscillating to either side of breakeven before finally closing into the red.

    (Rs m) MFs FIIs Total
    15-Jun 2,027 (32) 1,995
    18-Jun (339) (71) (410)
    19-Jun 1,493 1,601 3,094
    20-Jun 1,493 (287) 1,206
    Total 4,674 1,211 5,885

    As far as the institutional activity is concerned, both the domestic mutual funds as well as the FIIs were net buyers to the tune of Rs 4.7 bn and Rs 5.2 bn respectively in the week gone by.

    Key indices over the week
    Index As on
    June 15
    As on
    June 22
    BSE BANKEX 7,462 7,835 5.0%
    BSE PSU 6,500 6,720 3.4%
    BSE MIDCAP 6,181 6,374 3.1%
    BSE AUTO 4,675 4,805 2.8%
    BSE METAL 10,496 10,745 2.4%
    BSE SMLCAP 7,350 7,513 2.2%
    BSE OIL AND GAS 7,457 7,594 1.8%
    BSE FMCG 1,789 1,818 1.6%
    BSE HEALTHCARE 3,795 3,824 0.8%
    BSE IT 4,996 4,858 -2.8%

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

    GE Shipping signed a contract to buy a 0.15 m dwt (dead weight tonne), modern (double hull) Suezmax crude tanker. The ship built in 2000 is expected to join the company's fleet in 2QFY08. The decision to induct the vessel is with the objective of modernising the tanker tonnage and to enhance the Suezmax fleet. The company's current fleet of 46 ships with an average age of 12.2 years aggregating 3.22 m dwt comprises 34 tankers (13 crude tankers, 19 product carriers and 2 lpg gas carriers) and 12 dry bulk carriers. The already outstanding new building order of GE Shipping of US$ 239 m constitutes 5 product tankers, aggregating 0.33 m dwt to be delivered at intervals during the next 2 years. The stock of G.E. Shipping (up 15%), along with its peer SCI (up marginally) closed higher for the week.

    Top gainers during the week (BSE-A)
    Company Price on
    June 15 (Rs)
    Price on
    June 22 (Rs)
    H/L (Rs)
    BSE SENSEX 14,163 14,467 2.1% 14,724 / 9,875
    S&P CNX NIFTY 4,171 4,252 1.9% 4,363 / 2,878
    ALSTOM PROJECTS 596 724 21.4% 743 / 197
    BOI 191 224 17.3% 225 / 80
    G.E. SHIPPING 298 342 14.8% 346 / 129
    VOLTAS 94 106 13.6% 121 / 64
    BIRLA CORP 216 244 12.9% 375 / 180

    Pharma stocks closed a mixed bag during the week. While Dr. Reddy’s (up 2%) and Cipla (up marginally) closed firm, Ranbaxy ended lower by 5%. Weakness in Ranbaxy was despite the fact that the company received tentative approval from the U.S. Food and Drug Administration (US FDA) to manufacture and market two drugs namely ‘Amlodipine Besylate’ and 'Tamsulosin Hydrochloride Capsules' during the week. While the former is the generic version of Pfizer’s anti-hypertension drug ‘Norvasc’, the latter is the generic version of Boehringer Ingelheim’s ‘Flomax’, which is used for treating benign prostatic hyperplasia. The total market size has been pegged at US$ 2.8 bn for ‘Norvasc’ and US$ 1.1 bn for ‘Flomax’. Both these drugs will be launched once the company receives the final approval. This is a positive for Ranbaxy and will add to its product pipeline, thereby helping the company increase revenues from the highly competitive US market.

    Top losers during the week (BSE-A)
    Company Price on
    June 15 (Rs)
    Price on
    June 22 (Rs)
    H/L (Rs)
    IGATE GLOBAL 333 316 -5.2% 432 / 145
    CMC LTD 1,191 1,131 -5.0% 1429 / 383
    RANBAXY 374 355 -4.9% 445 / 306
    GILLETTE INDIA 943 901 -4.5% 1020 / 685
    HINDUJA TMT 505 483 -4.4% 890 / 450

    Banking stocks closed strong during the week, with SBI and ICICI Bank notching gains of 10% and 5% respectively. The RBI has asked nine banks, including SBI and PNB, to transfer their investments in non-SLR (statutory liquidity ratio) bonds issued by the development finance institution, IFCI, to available-for-sale (AFS) category from held-to-maturity (HTM) by the end of June 2007. This move will entail a hit of around Rs 7 bn on the bottomline, as the banks will now have to provide for depreciation in the value of these bonds. When the IFCI debt restructuring exercise was undertaken in FY03, the central bank had allowed banks to hold non-SLR bonds issued by IFCI in the HTM category to avoid mark-to-market losses. However, in May 2007, the central bank told the banks to transfer their exposure in the non-SLR bonds and debentures to the AFS category. According to RBI guidelines, only SLR bonds can be held in HTM category. Bank of Baroda, Corporation Bank and OBC are amongst the banks that hold the IFCI non-SLR bonds. Corporation Bank and Bank of Baroda have already transferred their bond investments to AFS category. The RBI had given the special concession to the banks when the debt of IFCI was restructured and now wants to withdraw it, since time has lapsed and IFCI's repayment capacity has improved.

    While the markets continue to grope for direction waiting for triggers to determine which way they will move next, we are not too concerned about the movement in the indices. In fact, despite increased bouts of volatility witnessed in recent times and rising valuations, we nevertheless believe that investors need to lay increased emphasis on identifying fundamentally good companies to invest in from a long-term perspective. These are companies with strong management and healthy earnings visibililty, which will continue to reward shareholders despite the volatility in the broader markets.



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