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Another summit scaled! - Views on News from Equitymaster
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  • Jul 7, 2007

    Another summit scaled!

    It was a landmark week on the bourses as both the Sensex as well as the Nifty reached yet another highs. For the week ended July 6, 2007, the Sensex edged higher by 2%, while the gains in Nifty were a tad lower at 1.5%.

    With the rain gods smiling and inflation receding, markets were in a mood to oblige and they did that in a rather grand manner. The benchmark indices edged higher for four days out of five and even on the day they declined, the losses were rather marginal. The week’s proceedings commenced on a rather firm note as last Friday’s buoyancy spilled over to this week. However, late afternoon selling took away most of the gains. There were no such fears on the next two days as bulls managed a vice like grip throughout and in the process, enabled the indices to notch up sizeable gains. After taking a bit of a breather on Thursday, bulls were back in the reckoning on the last trading day of the week, helped in no small measure by the IT heavyweights that propped up, courtesy some bargain hunting. Icing on the cake though came midway through the trading session when the Sensex, the BSE benchmark kissed the elusive 15k mark briefly and settled at agonizingly close levels. What more, the Nifty too, crossed the 4,400 mark.

    As far as the institutional activity is concerned, both the domestic mutual funds as well as FIIs emerged as heavy buyers and bought into equities worth Rs 33 bn and Rs 85 bn respectively.

    (Rs m) MFs FIIs Total
    29-Jun 1,509 58,371 59,880
    2-Jul 6,442 2,007 8,449
    3-Jul 6,570 4,100 10,670
    4-Jul 9,570 8,248 17,818
    5-Jul 8,993 12,750 21,743
    Total 33,084 85,476 118,560

    On the sectoral indices front, barring the PSU and the oil and gas index, all the other indices edged higher for the week. The honours though went to the auto index, as its gains of 3.4% were highest amongst all the other sectoral indices. This gain was the consequence of a strong run up in stocks like M&M, Maruti and Tata Motors. On the other hand, with majors like ONGC, BPCL and HPCL coming under selling pressure, the oil and gas index edged marginally lower.

    Index As on June 29 As on July 6 % Change
    BSE AUTO 4,740 4,903 3.4%
    BSE SMLCAP 7,730 7,904 2.3%
    BSE IT 4,871 4,951 1.6%
    BSE METAL 10,605 10,775 1.6%
    BSE FMCG 1,829 1,856 1.5%
    BSE MIDCAP 6,527 6,621 1.4%
    BSE BANKEX 8,010 8,124 1.4%
    BSE HEALTHCARE 3,806 3,821 0.4%
    BSE PSU 6,802 6,800 0.0%
    BSE OIL AND GAS 7,627 7,621 -0.1%

    Let us have a look at some of the key sector/stock specific development during the week:

    Auto major, Maruti reported its sales figures for the June quarter. The company's volume sales were up 24% YoY as compared to that in June 2006. The company sold 56,000 units in the domestic market, up 25.5% YoY from 44,626 units in June 2006. It exported around 3,917 units in June, which were up 3% YoY. The company had ramped its presence in the non-European countries leading to the rise in exports. TVS Motor, India's third-biggest motorbike maker, too reported its sales figures with volume sales declining by 15% YoY. An ugly price war between the company and Hero Honda is having an adverse impact on its sales, especially given the fact that it has consciously chosen to stay out of it. Motorcycles sales fell 39% YoY, while scooterettes sales rose 3% YoY. However, with interest costs rising, the sales would not witness the same growth as was witnessed last year. Quite surprisingly though, the stock edged higher by 2% during the week. Maruti also gained 8% in the same period.

    Top gainers during the week (BSE A)
    Company Price on
    June 29 (Rs)
    Price on
    July 6 (Rs)
    H/L (Rs)
    BSE SENSEX 14,651 14,964 2.1% 15,007 / 9,875
    S&P CNX NIFTY 4,318 4,385 1.5% 4,411 / 2,878
    NIIT 1,003 1,119 11.5% 1,149 / 299
    ACC LIMITED 934 1,041 11.4% 1,192 / 680
    APOLLO TYRES 319 354 10.9% 387 / 226
    BHARAT EARTH MOVERS 1,155 1,281 10.9% 1,290 / 772
    THERMAX 505 552 9.3% 574 / 232

    As per a leading business daily, engineering major Larsen & Toubro (L&T) is planning to set up separate companies to pursue its shipbuilding and power equipment manufacturing businesses. L&T aims at generating Rs 80 bn in five years from these businesses and will also contemplate unlocking value for shareholders from these ventures by listing them. It has short-listed sites for the project, which is expected to go on stream by March 2010. The capital investment for the project is estimated to be around Rs 20 bn. The company has targeted to generate Rs 40 bn from the shipbuilding business in five years and another Rs 40 bn is to be generated from the power equipment manufacturing business in the same period. The stock (up 8%) closed firm for the week. Its peers ABB (up 4%) and BHEL (up 1%) also found favour.

    Top losers during the week (BSE A)
    Company Price on
    June 29 (Rs)
    Price on
    July 6 (Rs)
    H/L (Rs)
    IGATE GLOBAL 315 291 -7.5% 432 / 145
    THOMAS COOK INDIA 63 59 -6.4% 72 / 44
    AUROBINDO PHARMA 809 759 -6.1% 820 / 552
    HDFC 2,030 1,916 -5.6% 2,043 / 1,040
    ENGINEERS INDIA 507 479 -5.5% 610 / 405

    Cement stocks such as ACC (up 11%), Ambuja Cements and Grasim (up 5% each) closed strongly for the week. As per a leading business daily, cement companies have hiked prices by Rs 3 to Rs 5 per bag in Maharashtra and southern India, taking the price per 50 kg bag to Rs 270 in Maharashtra and Rs 250 in the South. Cement carries 1.73% weight in the wholesale price index (WPI). The government has taken a number of steps to keep its prices under check such as, in January it abolished the 12.5% customs duty on cement and in May rolled back the dual excise duty and introduced an ad-valorem duty, which induced a price cut of Rs 3 to Rs 7 per bag. In April, it withdrew the countervailing duty (CVD) on the product. However, the sustained demand even during monsoon season and steep decline in inflation from 6.7% to just above 4% has encouraged the current move. Further, the hike in prices may be in tune with the increased operating costs in terms of manpower costs, hike in fright rate and hike in royalty on coal.

    Real Estate major, DLF listed at a near 11% premium at Rs 582 as against the issue price of Rs 525. The stock touched a high of Rs 714 on the BSE. DLF had priced its initial public offer at Rs 525 a share, a discount of 4.5% to the higher end of the price band of Rs 500 to Rs 550. The Indian real estate market is estimated to grow to US$ 70 bn by 2015. DLF would be using one third of the issue proceeds to buy land for its upcoming projects, while the balance money would be used in the development of these projects and paying off some of its debts. The stock eventually closed 9% higher for the week.

    First quarter results will start streaming in from next week onwards and these in all probability will determine which way the market move next. While the 15k mark is obviously a time to rejoice and is a fitting tribute to the India growth story, please bear in mind that in equities, the higher the demand, the greater the risk and hence in times such as these, when the demand is at its highest, please guard against the risk of overvaluation. Do not pay too much, no matter how good the company is, for returns are only made when good quality businesses are available at attractive prices.



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    Aug 24, 2017 03:36 PM