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Almost there... - Views on News from Equitymaster
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  • Jul 3, 2004

    Almost there...

    Volatile! Just this one word can describe the behaviour of the Indian stock markets this week. Buying at lower levels and profit booking at every rise was the investor practice this week also indicating caution on their part. However, this was not a surprise considering that the budget is round the corner (July 8) and with the new government's first budget in this term, markets await a direction or some cues from the same. However, despite the volatility, the indices kept inching northward to close the week in the positive. The BSE-Sensex closed the week with 2.4% gains while the NSE-Nifty closed higher by 3.3%.

    Key index heavyweight gainers over the week
    COMPANY Price on
    June 25 (Rs)
    Price on
    July 1 (Rs)
    BSE-SENSEX 4,756 4,871 2.4%
    BHARTI 134 144 7.5%
    ONGC 634 676 6.5%
    SBI 419 445 6.2%
    ITC 867 909 4.8%
    INFOSYS 1,371 1,423 3.8%

    Continuing with the same vigour seen during the second half of last week's trade, markets opened Monday on a firm note and continued to gain ground throughout the day's trade. While there was no market specific news that could have provided strength to the indices, the optimism largely stemmed from the budget expectations. It must be noted that there are expectations from the Finance Minister (FM) making stock market friendly announcements in the budget. Further, while Tuesday's trade saw some initial strength, investors opted to take some money off the table taking advantage of the near 5% gains witnessed over the previous 3 trading sessions, forcing the index to close almost flat.

    Recent months have been testing times for Indian stock markets with the investors being rather apprehensive about their commitment to equities for a long-term period owing to the (now soon-to-be-ended) uncertainties with respect to the Budget. This has prevented the indices from making any serious headway onto higher ground as every rise has been countered with selling pressure. Going ahead into Wednesday's trade, after yo-yoing between the positive and the negative territories throughout the trading day, bears took over the charge. This was despite the news that India's GDP had surged by 8.2% during the March quarter. Thursday, however, saw the bulls back in action, only to be sidelined again during Friday's trade.

    Key gainers over the week (NSE-50)
    COMPANY Price on
    June 25 (Rs)
    Price on
    July 1 (Rs)
    H/L (Rs)
    BSE-SENSEX 4,756 4,871 2.4% 6,250 / 3,457
    S&P CNX NIFTY 1,489 1,538 3.3% 2,015 / 1,084
    SCI 91 107 17.4% 203 / 61
    COLGATE 112 130 16.0% 175 / 102
    ABB 629 704 11.8% 850 / 320
    VSNL 156 172 10.9% 210 / 109
    GRASIM 945 1,037 9.8% 1,317 / 440

    Now, considering some stock specific corporate announcements and developments that affected stock price movements during the week:

    • SCI and Colgate both announced their March quarter ending results this week, which helped them to the top of the table (above). SCI reported doubling its profits in the March quarter over the same period last year on the back of a 28% growth in topline. Insatiable Chinese demand for commodities coupled with the recovery in global economies created a demand-supply mismatch in the shipping industry, consequently pushing up freight rates into a higher orbit. This phenomenon helped shipping companies record windfall gains, which naturally proved beneficial for their stock prices.

    • Oral care major, Colgate, reported a marginal dip in both the March quarter, as well as FY04 topline. However, stronger operating margins and lower tax burden saw the company finishing with over 20% bottomline growth in March quarter and also the full year. One of the key reasons for the improvement in operating margins was cost cutting on the advertising front.

    • Steel Ministry is mulling over the merger of Indian Iron & Steel Co. (IISCO) with SAIL. This decision has seemingly come in wake of the fact that the former has, after nearly three decades, posted a profit in the previous fiscal (FY04). The Centre had recently approved the Rs 3.4 bn revival package for the company. Further, the move is advantageous for SAIL as it is currently facing iron ore shortage and has shown interest in the acquisition of IISCO's iron ore mines. SAIL closed the week with over 8% gains.

    • The financial institution turned bank, IDBI, closed with gains of nearly 43% during the week. It must be noted that the Ministry of Finance recently allowed IDBI to convert itself into a full-fledged bank from July 1. The bank is seemingly planning an aggressive foray into retail banking and is likely to consider the merger of a large PSU bank with itself. This would provide it with not only the reach but also the financial size. IDBI is looking at disbursing loans to the tune of Rs 150 bn in the current fiscal, up from Rs 40 bn last year. Further, it is also planning an entry into the Gulf and South East Asian nations to grow its business.

    Key losers over the week (NSE-50)
    COMPANY Price on
    June 25 (Rs)
    Price on
    July 1 (Rs)
    H/L (Rs)
    HDFC 552 532 -3.7% 700 / 384
    ICICI BANK 251 245 -2.3% 352 / 144
    BRITANNIA 630 621 -1.3% 786 / 515
    WIPRO 533 528 -1.0% 623 / 280
    HLL 128 127 -0.9% 245 / 115

    It must be noted that we are once again in the results season (the month of July), the importance of which seems to have been over-shadowed at the moment owing to the budget. However, we continue to remain positive over the long-term growth prospects of our economy, India Inc. and the stock markets. Also, while we are 'almost there' as far as the budget is concerned, and markets will probably soon be able to decide upon a definitive course of movement post the FMs announcements, we continue to believe that this is an appropriate time to build one's portfolio. Also, our advice to investors would be to strictly avoid playing the markets and rather invest only with a long-term perspective and not to heed to speculative stories and risk their capital.



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