Jul 22, 2006|
Volatility: Curbing confidence
As compared to the last fortnight, this time the markets were range bound accompanied by volatility. Markets opened the week on a negative note, which was in line with the global markets. The corporate sector performance till now has been mixed with companies from sectors like software, pharma and commodities positively surprising the markets. But companies from infrastructure failed to enthuse investors.
After a five-day losing streak, domestic markets gained significantly on Thursday. This was largely attributed to the recovery in the world markets (especially US). Though the US Federal Reserve Chairman gave a 'toned down' view on inflation and the need to approach the hike in interest rate in a balanced manner, the underlying economic data continues to emanate mixed signals. Post the sharp spurt on Wednesday, the US markets witnessed profit booking on Thursday and Friday. The Indian markets followed suit. We are not necessarily concerned about the decline in the stock market. We are largely concerned about the extent of volatility on a day-to-day basis, which can have a negative impact on investor confidence.
Beside these two factors one of the most important factor, which led the markets on 'Roller coaster ride', was the statement passed by 'US Fed Chief Ben Bernake'. The chief mentioned that the Fed might end its two-year long series of rate hikes. Following the statement by the Mr. Bernanke that Federal Reserve may end its interest rate hike, the Sensex moved up by 346 points or 3.45% at 10,353 points. While stocks from sectors like metals, banking and FMCG sector rose ahead of the market (by 3% to 5%), capital goods, pharma, software, and auto stocks gained almost 2%.
As compared to the previous week, the WPI was 4.68% lower than 4.96% last week, largely due to the softening of food prices. As we had mentioned in our earlier weekly round-ups, inflation analysis on a week-on-week basis may not be the right approach owing to seasonality in prices. What is important to focus is whether inflation is in line with the RBI's projections and the threats to inflation for the rest of the fiscal year (this is called inflationary expectations). Perhaps the biggest factor that could push inflation to a higher trajectory is crude prices. The Israel-Lebanon issue has moved to the next level, with Israel possibly looking at invading Lebanon. It remains to be seen how this issue pan out over the course of the fiscal year.
As far as the institutional activity on the bourses is concerned, FIIs were net sellers to the tune of Rs 11 bn. This week, domestic mutual funds were also net sellers (Rs 6 bn). Considering the volatility and dismal performance by some mutual funds, there has been a significant increase in redemption request, which is forcing mutual funds to sell stocks. The interest of investors in general can also be gauged from the daily volumes on the bourses. As per the NSE website, the traded value in the cash market on the NSE on July 21st stood at Rs 5.0 bn, which is almost 55% lower than the traded value on April 21st 2006! Even volumes in terms of quantity traded are also lower by 30% as compared to April 2006, indicating the fact that investors are adopting a wait and watch approach.
|13-Jul-06 ||141 ||(160) ||(19)|
|14-Jul-06 ||(3,436) ||(242) ||(3,678)|
|17-Jul-06 ||(5,676) ||(383) ||(6,059)|
|18-Jul-06 ||(3,071) ||1,420 ||(1,651)|
|19-Jul-06 ||899 ||(1,255) ||(356)|
|Total ||(11,143) ||(620) ||(11,763)|
The benchmark BSE-Sensex was down 5.5% last week. Amongst sectoral indices, the least affected was the BSE Bankex, which was down only by 1.8%! BSE Metal fell by 8% followed by auto and energy (both down 7%). Despite robust volume growth in the first quarter of the calendar year, auto stocks are being hammered. We attribute the same to the fears of interest rates rising faster, which in turn could slowdown demand. We also remain concerned about the sustainability of current volume growth.
Key indices over the week
||Price on July 14 (Rs)
||Price on July 21 (Rs)
|BSE Small-cap ||5,291 ||4,815 ||-9.0%|
|BSE Mid-cap ||4,354 ||4,031 ||-7.4%|
|BSE METAL ||8,309 ||7,593 ||-8.6%|
|BSE HEALTHCARE ||3,118 ||3,055 ||-2.0%|
|BSE PSU ||4,914 ||4,609 ||-6.2%|
|BSE IT ||3,935 ||3,745 ||-4.8%|
|BSE AUTO ||4,540 ||4,189 ||-7.7%|
|BSE OIL&GAS ||5,270 ||4,860 ||-7.8%|
|BSE BANKEX ||4,264 ||4,186 ||-1.8%|
|BSE FMCG ||1,965 ||1,850 ||-5.8%|
The last week was also witness to some leading corporates announcing their first quarter ended June 2006 results. A.C.C, Dabur, IPCL, Gujarat Ambuja, MRPL, Ranbaxy, NDTV and many more surprised the stock market. Ranbaxy, the largest pharmaceutical company in India, showed strong performances in the overseas markets. The company reported a 4% YoY growth in revenues in the domestic market. It must be noted that growth in 2QCY06 was subdued since 2QCY05 had exceptionally high sales, which was due to re-stocking by retailers, post implementation of VAT from April 1, 2005. Ranbaxy retained its third position in the domestic pharma market, capturing a share of 5%. The chronic therapy portfolio (23% of sales) clocked an impressive 42% YoY growth as against the market growth of 20% contributing to the growth from this region. Beside this, NDTV and Raymond announced mixed results.
Top gainers during the week (BSE-A)
||Price on July 14 (Rs)
||Price on July 21 (Rs)
||52-WEEK H/L (Rs)
|BSE-SENSEX ||10,678 ||10,086 ||-5.5% ||12,671 / 7,273|
|S&P CNX NIFTY ||3,123 ||2,945 ||-5.7% ||3,774 / 2,221 |
|EXIDE INDUSTRIES ||244 ||261 ||7.2% ||315 / 177 |
|SYNDICATE BANK ||49 ||52 ||6.4% ||400 / 165|
|KOTAK BANK ||246 ||261 ||6.2% ||559 / 317 |
|RANBAXY ||335 ||354 ||5.6% ||4,051 / 2,025 |
|MRF LTD ||2,509 ||2,603 ||3.7% ||115 / 57|
Having looked the institutional activity and select corporate result announcements in the last one-week, let us consider some sector/stock specific developments:
Tata Coffee, a subsidiary of Tata Tea, plans to raise around Rs 2.5 bn through partly convertible debentures. The company is raising the funds to fund its recent acquisition of the US-based, Eight 0'Clock Coffee Company for US$ 220 m and also for other capex plans like freeze-dried plant at Theni (Tamil Nadu) and a coffee-processing unit in Uganda. The coffee major proposes to issue partly convertible debentures (PCDs) in the ratio of 1 debenture for every 2 equity shares held as on the record date. Each debenture will have a face value of Rs 400 and will comprise of two parts. Part A of Rs 250 will be converted into one fully paid equity share of Rs 10 on allotment. Part B of Rs 150 will be non-convertible and will be redeemed in equal installments of Rs 50 each at the end of fourth year, fifth year and sixth years from the date of allotment. The non-convertible portion will carry a coupon rate of 7% per annum. The stock closed 0.2% lower week-on-week. Other FOOD Stocks.
Tata Motors (Telco), the market leader in the commercial vehicle segment, is planning to introduce a new Tatamobile in FY07. It will be based on a new platform with CRDi engine technology as a possible option in the pipeline. The Tatamobile is a pick-up vehicle forming part of the light commercial vehicle range. With this, the company is further planning to go for various expansion plans in its different segments, leading to an increase in their product range. The stock closed 9% lower week-on-week. Other Auto Stocks.
Top losers during the week (BSE-A)
Tata Steel has lost the race to acquire a 79% stake in the South African company, Highveld Steel & Vanadium. The stake has been acquired by Russian metals player Evraz and Swiss Bank Credit Suisse. Highveld is one of the largest producers of vanadium in the world. Though Tata Steel was not interested in the vanadium business, the company had reportedly put in a conditional bid for acquiring only its steel business (40% of Highveld's revenues). That said, Tata Steel has chalked out plans to set up a greenfield ferro chrome project involving an investment of US$ 120 m at Richards Bay, South Africa. The company is partnering with Tata Africa (the Tata Group's holding company in South Africa) in the ratio 90:10 for the project. The stock closed 5% lower week-on-week. Other Steel Stocks.
The Reserve Bank of India (RBI) is expected to announce its first quarter review of the Monetary Policy 2007-07 on Tuesday (July 25th). While many expect the RBI to increase interest rates, as per the latest issue, CMIE (a economic research company) does not foresee a need to increase interest rates. To quote "We believe that there is no need for hike in interest rates in the near future as any hike in interest rate would not help curb inflation but adversely affected the economic growth". In our view, we expect interest rates to increase (whether now or in the next policy meeting is anybody's guess) during the course of the fiscal year. As per banks, while deposit growth has been slower, credit growth has been robust, which puts pressure on the liquidity scenario. Over to the RBI!
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 22, 2017
It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Aug 22, 2017
Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407