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Markets resilient to terror! - Views on News from Equitymaster
 
 
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  • Jul 15, 2006

    Markets resilient to terror!

    After the wrath of the rain Gods, yet another catastrophe struck Mumbai last week. The serial bomb blasts in the city' lifeline (railways) that were intended to paralyse the city, could not, however, douse the spirit of the 'Mumbaikars'.

    The spirit of the 'Mumbaikars', were also manifested at the Indian bourses, which despite such major blasts, ended positive. The 'BSE-Sensex' shot up by 316 points or 3% on a single day. Many fund managers, corporate and brokers were of the view that markets shot up because of the good results announced by the Infosys. They were of this view that had Infosys not announced the results, Sensex might not have shot up. But this is not all true, if we peep into the past then we will found that such type of terrorist attack or even other natural calamities cannot hold the Sensex from going up. The very best example from the past was of September 11 2001 attack. After the attack the Sensex plunged to 2600 in eight trading session but rose to 2943 on October 11. Another fact from the history where we can look into the Sensex movement was at the time of Kargil war in May99 where the Sensex lost heavily to go down to 3373 on May 28, from 4060 on May 25, but by the first week of June it was back over 4000 and rose futher to 5000 in October 99.

    The overall movement of the Sensex during the week was volatile. Beside the above factors the global factor that had made the market trade in a range bound was the announcement made by the Bank of Japan. For the first time over the last 6 years the Bank of Japan had raised its interest rates by 0.25% from almost zero, thereby ending the 'Zero Interest' rate policy. Moreover weak global markets and crude oil price touching a record high of above US$ 78 a barrel lead the Sensex to settle at 10678.

    As compare to the last week the WPI rose to 4.96% higher then 4.84% a week earlier, largely due to higher manufactured product prices, and not crossed the expected range of 5.17%, and thereby made a favour in the interest of the investors.

    As far as the institutional activity on the bourses is concerned, as compared to the last week, Foreign Institutional Investors (FIIs) were net selers this week to the tune of Rs 2.3 bn. This week, domestic mutual funds (MFs) also turned out to be the net selers (Rs 5 bn).

    Net investments
    (Rs m) FIIs MFs Total
    6-Jul-06 91 (2,134) (2,043)
    7-Jul-06 (4,359) (4,163) (8,522)
    10-Jul-06 (474) 622 148
    11-Jul-06 (1,335) (161) (1,496)
    12-Jul-06 3,753 1,323 5,076
    Total (2,324) (4,513) (6,837)

    The benchmark BSE Sensex gained during the last week by1.6%. Amongst sectoral indices, almost all the stocks were up. Result of Infosys had made the IT stocks to trade in a higher range through out the week. While BSE Auto index was down by 2%, and the BSE Bankex Index down by 2.2 % thereby trading out of favour.

    Key indices over the week
    Index Price on
    July 7(Rs)
    Price on
    July 14(Rs)
    %
    Change
    BSE Small-cap 5,239 5,291 1.0%
    BSE Mid-cap 4,328 4,354 0.6%
    BSE METAL 8,294 8,309 0.2%
    BSE HEALTHCARE 3,098 3,118 0.7%
    BSE PSU 4,902 4,914 0.2%
    BSE IT 3,702 3,935 6.3%
    BSE AUTO 4,643 4,540 -2.2%
    BSE OIL&GAS 5,175 5,270 1.8%
    BSE BANKEX 4,368 4,264 -2.4%
    BSE FMCG 1,941 1,965 1.3%

    The last week was also witness to some leading corporates announcing their first quarter ended June 2006 results. Infosys, HDFC Bank and UTI Bank all the three had surprised the stock market with its strong results. Infosys showed strong volume growth, during 1QFY07, while its topline powered ahead by an impressive 14.9% QoQ. This growth has been the strongest sequential growth since 2QFY05, and was driven primarily by strong volume growth. While revenues in dollar terms (onsite + offshore) grew at 10.4% QoQ, rupee revenues were up by 14.9% QoQ. At the same time, private sector banking major, HDFC Bank, has witnessed a robust 67% YoY growth in advances in 1QFY07. In absolute terms the growth in retail credit was also impressive, bringing the proportion of retail credit to total credit to 56%. Even the UTI bank showed strong results.

    Top gainers during the week (BSE-A)
    Company Price on
    July 7(Rs)
    Price on
    July 14(Rs)
    %
    Change
    52-Week
    H/L (Rs)
    BSE-SENSEX 10,510 10,678 1.6% 12,671 / 7,164
    S&P CNX NIFTY 3,076 3,123 1.5% 3,774 / 2,179
    POLARIS SOFTWARE 71 91 28.7% 158 / 52
    D-LINK INDIA 71 90 27.3% 185 / 64
    ESCORTS 66 76 16.4% 117 / 53
    I-FLEX SOLUTIONS 1,137 1,319 16.0% 1,475 / 750
    GEOMETRIC SOFT 85 99 15.4% 135 / 73

    Having looked the institutional activity and select corporate result announcements in the last one-week, let us consider some sector/stock specific developments:

    • Diversified auto major, Mahindra & Mahindra (M&M), plans to roll out a sub-30 horsepower (hp) tractor in India from China's Jiangling Tractor, in which it had acquired an 80% stake two years ago. The market for sub-30 hp tractors in India is estimated at around 15% to 16% of the total annual volume. Although the 0.28 m units per annum Indian tractor market is dominated by the 30-40 hp range tractors, M&M, with a 55% market share, plans to consolidate its presence by spreading its portfolio to low-powered tractors. The company already has a 27% market share in the sub-30 hp model segment. The farm equipments division played a major role in M&M's FY06 performance, both on the volumes and profitability fronts. Even as the total UV (utility vehicle) volume sales increased marginally by 3% YoY, tractor volumes grew by 30% YoY. The stock closed 1.9% lower week-on-week. Other Auto Stocks.

    • Exploration and production major, ONGC is contemplating picking up a stake in Russia's OAO Rosneft. The investment will be through OVL, the overseas arm of ONGC. OVL is looking to invest US$ 3 bn to pick up a 5% stake in OAO Rosneft, which is a Russian state oil firm. OVL is in talks with the Russian company to participate in the US$ 11.6 bn IPO. The IPO values Rosneft between US$ 60 bn and US$ 80 bn. OVL is also envisaging acquiring stake in Sakhalin-3, Vankor or Timano-Pechora oil fields. Considering that India imports around 70% of the oil that it consumes, ONGC is looking for oil and gas assets abroad to meet the energy security of the country. The stock closed 1.5 % higher week-on-week. Other Energy Stocks.

      Top losers during the week (BSE-A)
      Company Price on
      July 7(Rs)
      Price on
      July 14(Rs)
      %
      Change
      52-Week
      H/L (Rs)
      DENA BANK 25 23 -9.2% 42 / 23
      HMT LTD 64 58 -8.8% 111 / 38
      TORRENT PHARMA 199 183 -8.0% 337 / 114
      HDFC BANK 785 729 -7.2% 898 / 600

    • FMCG major, HLL is working on a phased-out extension of its water purification project, Pureit. Based on a direct-to-consumer distribution model, the product will be targeted at the mid and low-end segments of the urban and rural market. It is believed that HLL's direct selling model, HLL Network, may also be roped to sell the brand. Started in 2001, the project was delayed owing to the disinterest of the then management, which was fighting fierce competition in its core categories. HLL's inability to hit upon a right distribution system also contributed to the delay. The big players in the Rs 7 bn water purification market are Aquaguard from Eureka Forbes (a joint venture between Forbes Gokak and Electrolux of Sweden), Ion Exchange, Permionics India, Softel Machines and Sintex Industries. The company expects the business to break-even in the next three to five years.The stock closed 2.1% higher week-on-week. Other FMCG Stocks.

    With the 1QFY07 result season having started on a positive note, investors will have to keep a watch on more such news filtering in over the next few weeks. However, as we have time and again reiterated, investment decisions need to be taken- not on the basis of quarterly results –but on the basis of the company's long term prospects. Happy investing!

     

     

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