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Volatile week!

Jun 30, 2007

After the strength displayed on the bourses last week, the benchmark indices managed to close this week on strong note despite the volatile movements witnessed during the larger part of the week. For the week ended June 29, 2007, while the BSE-Sensex closed 1% higher, the NSE-Nifty gained 2%. Also, both smallcaps and midcaps were on the investors' radar as the BSE Small Cap and the BSE Mid Cap closed higher by 3% and 2% respectively.

Volatility characterised the trading session this week, as the bulls and the bears played tug-of-war. While the bulls seemed adamant to prevent any fall in the markets, the bears pressed the 'sell' button every time the indices notched gains and this trend was witnessed for the larger part of the week. Monday's session began on a jittery note and while the indices scaled higher during the earlier part of the day, profit booking ensued in the later hours dragging the indices into the red, before the bulls once gain regained control. While the bulls had the upper hand on Tuesday, the bears took the center stage on Wednesday. Both Thursday and Friday saw the indices trade into the positive. However, while on Thursday the movement of the indices was restricted within a range, Friday saw the indices gain momentum to close the week on a firm footing.

Key indices over the week

Index As on
June 22
As on
June 29
% Change
BSE SMLCAP 7,513 7,730 2.9%
BSE MIDCAP 6,374 6,527 2.4%
BSE BANKEX 7,835 8,010 2.2%
BSE PSU 6,720 6,802 1.2%
BSE FMCG 1,818 1,829 0.6%
BSE OIL AND GAS 7,594 7,627 0.4%
BSE IT 4,858 4,871 0.3%
BSE HEALTHCARE 3,824 3,806 -0.5%
BSE METAL 10,745 10,605 -1.3%
BSE AUTO 4,805 4,740 -1.4%

On the sectoral indices front, aided by rise in heavyweights like HDFC and SBI, the BSE Bankex once again emerged as the top gainer, ending the week 2% up. On the other hand, weakness in Tata Motors, Maruti and Bajaj Auto led the auto index to emerge as the worst performer for the week with losses of 1.4%.

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

Banking stocks closed mixed during the week. While OBC (up 6%), SBI (5%), HDFC Bank (4%) and Bank of Baroda (2%) found favour, UTI Bank closed 2% lower. Besides planning a follow-on public offer for raising capital and forming a holding company for its subsidiaries, the largest bank in the country, SBI, has also decided to increase the equated monthly instalments (EMIs) on floating rate home loans for the first time after it raised interest rates over the past one year. Even though the bank expects the decision to result in higher defaults (NPAs), it is planning to increase the EMIs by around 10%. The bank had hitherto resorted to prolonging the repayment tenure by up to 25 years as the interest rates on housing loans went up by 2% over the last year The bank's housing loans portfolio (grew by 18% in FY07) accounted for 51.6% of its retail advances in FY07. The possibility of higher delinquency thus evinces higher provisioning, which along with the AS-15 provisioning are expected to weigh heavy on the bank's bottomline this fiscal.

Top gainers during the week (BSE-A)

Company Price on
June 22 (Rs)
Price on
June 29 (Rs)
% Change 52-Week
H/L (Rs)
BSE SENSEX 14,467 14,651 1.3% 14,724 / 9,875
CNX NIFTY 4,252 4,318 1.6% 4,363 / 2,878
ABB 946 1,095 15.8% 1,099 / 449
TITAN INDUSTRIES 1,177 1,339 13.8% 1,365 / 537
ADANI EXPORT 243 274 13.0% 282 / 102
INDUSIND BANK 48 54 12.7% 63 / 30
SUPREME INDUSTRIES 209 233 11.4% 245 / 132

As per a leading business daily, Satyam has bagged a three-year contract extension from food and beverage company Nestle Corporation. Satyam is working with Nestle to establish global business practices based on a common technology platform, wherein it would provide services such software development, maintenance and infrastructure management. As a result of this agreement, the number of the company consultants working for Nestle is expected to grow close to 500 over the next year. Satyam has entered into many strategic alliances in the recent past and these will help the company in improving its operating margins. Its alliances with Northrop Grumman, 7hills, Temenos and Hawker Beechcraft are expected to be a major revenue booster in the future. Satyam closed 1% higher during the week. Its peers Mphasis (up 6%), HCL tech (4%), TCS (1%) and Wipro (up marginally) also closed firm.

Top losers during the week (BSE-A)

Company Price on
June 22 (Rs)
Price on
June 29 (Rs)
% Change 52-Week
H/L (Rs)
PUNJAB TRACTORS 298 273 -8.2% 359 / 198
MICO 4,785 4,482 -6.3% 4,830 / 2,500
TVS MOTOR 65 61 -5.9% 130 / 53
HINDALCO 170 160 -5.8% 193 / 125
FINOLEX INDUSTRIES 86 81 -5.8% 103 / 65

Auto stocks closed lower during the week with Maruti (down 3%), Tata Motors and Bajaj Auto (each 2% down) featuring among the key losers. TVS Motor announced relatively subdued results for the fourth quarter and full year ended 31st March 2007. While the total income rose by 10% in 4QFY07 when compared with 4QFY06, the net profits declined by 69% during the same period. On YoY basis while the total income rose by 19%, the net profits dipped by 43%. While the profits may have taken a hit, the company has delivered on the topline and the volumes front. Infact, the company achieved its best ever turnover in FY07. The 19% YoY growth in topline was powered by the 14% growth in total volumes. This growth was higher than the two-wheeler industry growth rate of 12%, thus enabling the company to improve its market share. Motorcycles, the main contributor to volumes witnessed growth of nearly 15% YoY, which was in line with the industry growth rate. TVS Motor closed lower by 6% during the week.

Going forward, while the progress of the monsoons will be critical in backing the India growth story, the announcement of the June quarter results next month is also likely to determine which way the markets move next. Having said that, we reiterate our view that investors not get swayed away by the volatility in the markets and infact adopt a disciplined approach while investing in equities. Any dip in the markets can be looked upon as an opportunity to invest in good fundamentally strong companies, which will report good results even during difficult times and thus ensure strong returns to shareholders in the long term.

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