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Good times roll on

Jul 21, 2007

Strong corporate results, buoyant global markets and ample liquidity combined together to yield yet another positive ending week on the bourses and also enabled the benchmark indices to scale more summits. Thus, for the week ended July 20, 2007, while the BSE-Sensex edged higher by nearly 2%, gains in NSE-Nifty were a little lower at 1.4%.

Top gainers during the week (BSE A)
CompanyPrice on July 13 (Rs)Price on July 20 (Rs)% Change 52-Week H/L (Rs)
BSE SENSEX15,273 15,566 1.9% 15,683 / 9,875
S&P CNX NIFTY4,504 4,566 1.4% 4,601 / 2,878
RCF44 54 23.8% 54 / 31
NEYVELI LIGNITE66 81 23.0% 84 / 49
NATIONAL FERTILISER31 36 19.3% 40 / 26
VOLTAS125 149 18.8% 151 / 65
EXIDE INDUSTRIES47 55 15.6% 57 / 22

The indices edged higher for four days out of five, with Tuesday being the day when they ended in the negative, albeit marginally. Infact, even the gains that were recorded on the remaining three days out of four, were also marginal. The sole exception however was Thursday, when strong buying in index pivotals led to the Sensex rising nearly 250 basis points. While the buoyancy continued for most part of Friday, profit booking in the final hour took its toll, translating what could have been another strong day into just a moderate one. However, the sentiment was largely positive throughout the week as first quarter results were along expected lines and the liquidity, especially among the foreign institutions also seemed to be ample.

(Rs m)MFs FIIs Total
13-Jul2,958 23,464 26,422
16-Jul(3,719) 16,601 12,882
17-Jul(1,030) 9,464 8,434
18-Jul(1,748) 12,337 10,589
19-Jul1,116 8,831 9,947
Total(2,423)70,697 68,274

As far as the institutional activity is concerned, while the domestic mutual funds remained net sellers to the tune of Rs 2.4 bn, strong buying was seen amongst Foreign Institutional Investors (FIIs), who pumped in a huge Rs 71 bn during the course of the week.

IndexAs on July 13As on July 20% Change
BSE OIL AND GAS7,820 8,112 3.7%
BSE METAL12,001 12,211 1.8%
BSE BANKEX8,282 8,395 1.4%
BSE AUTO5,058 5,125 1.3%
BSE MIDCAP6,795 6,836 0.6%
BSE IT4,898 4,921 0.5%
BSE PSU7,099 7,105 0.1%
BSE SMLCAP8,216 8,188 -0.3%
BSE HEALTHCARE3,849 3,830 -0.5%
BSE FMCG1,864 1,829 -1.9%

Buoyancy was witnessed across most of the indices, none more so than the oil and gas index, which rose sharply by 4% during the week. The gains were largely a result of strong buying in Reliance and since it accounts for nearly 60% of the index weightage, the underlying strength also propped up the index. On the other hand, with ITC and HUL continuing to slip, the FMCG index emerged as the biggest loser as it lost nearly 2% during the week.

Top losers during the week (BSE A)
CompanyPrice on July 13 (Rs)Price on July 20 (Rs)% Change52-Week H/L (Rs)
HEXAWARE TECH164139-15.2%205 / 137
POLARIS SOFTWARE150132-12.3%237 / 83
TATA TEA864775-10.3%990 / 558
MPHASIS LTD300270-9.9%340 / 121
CMC LTD1,2991,176-9.5%1,550 / 396

Let us take a look at some of the stock/sector specific important developments during the week.

Software stocks closed a mixed bag. While Infosys (up 2.4%) and TCS (up 3.5%) featured among the key gainers, HCL Tech (down 3%) and Satyam (down 3%) closed in the red. Wipro, India's third largest software services exporter, reported 2% QoQ decline in topline on account of rupee appreciation. Operating margins contracted by 240 basis points (2.4%) on a sequential basis due to rupee appreciation and wage hikes. On the positive side, net utilisation increased by 6.3%, which pared some pressure from the margins. The effect of strained EBITDA margins is reflected at the net level also. The bottomline declined by 15% QoQ largely due to higher taxes and interest burden. The stock closed lower by 1%.

Pharma heavyweights closed mostly lower during the week. Key losers were Dr. Reddy's (1%), Cipla (5%) and Sun Pharma (4%). Domestic pharma major Ranbaxy announced mixed results for the second quarter and half year ended June 2007 during the week. The topline clocked a 16% YoY growth driven by the strong performance in Europe and Rest of the World. Growth in revenues from the US was led by the launch of 'Pravastatin' 80 mg tablets for which the company had received the 180-day exclusivity. EBDITA margins shrank by 480 basis points (4.8%) during the quarter, largely on the back of a considerable rise in raw material costs (as percentage of sales). The bottomline grew by 118% YoY in 2QCY07, led by higher forex gains. Excluding this impact, net profits have fallen by 64% YoY. The stock closed almost unchanged.

L&T edged higher by 3% during the week. Strong results announced by the company perked up the sentiment towards the stock. The company has reported 30% YoY growth in standalone sales, which have crossed the US$ 1 bn mark in 1QFY08. The growth in topline was brought about by sustenance of robust performance across all the business segments - engineering and construction (30% YoY growth in sales), electrical and electronics (56% YoY) and machinery and industrial products (68% YoY). What is more, lower sub-contracting charges and construction material expenses (both as percentage of sales) aided the 2.4% expansion in operating margins during the quarter. Further, on the back of a strong rise in other income (due to large forex gains), the company's net profits surged 140% YoY. Among other stocks from the engineering sector, Suzlon also edged higher by 2%.

Be fearful when others are greedy and greedy when others are fearful'. This comment perfectly sums up what we believe seem to be happening with the markets right now. With valuations across most of the sectors looking rather stretched, we would advice investors to practice discipline and assess the risk-reward scenario properly before venturing into any investments. For gains are made in the markets not by making the best investments, but by avoiding the biggest mistakes.

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