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0.015 FM! - Views on News from Equitymaster
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  • Jul 24, 2004

    0.015 FM!

    It was a much-awaited week for the markets, probably equally awaited like the Budget. While the Finance Minister (FM) clarified the new government's stand on various issues announced in the Budget, markets held their breath as the FM made the revised announcements pertaining to the turnover tax. And no sooner had the FM made 'the revised announcement', Indian stock markets rejoiced with the indices shooting up nearly 2% in the closing minutes of the day. The momentum continued during the latter half of the week with both the Sensex and the Nifty closing with over 2.5% gains.

    After the cautious approach adopted by the markets last week, bogged down by concerns related to the impending turnover tax issue and also the faltering of monsoons, this week was quite the opposite. The markets started the week on a rather cautious note as the FM was scheduled to give his clarification with respect to the turnover tax. Not wanting to getting caught on the wrong foot, investors preferred to stay on the sidelines. However, the FM disappointed the markets by refraining from making any statements on this front. Tuesday's was ditto to that of that of Monday with the indices continuing to trade relatively lackluster due to lack of any cues from the FM. However, while Wednesday's trade for most part of the day was similar to the previous tow days, the last 15 minutes of trade was a different ball game all together.

    The FM's announcements with respect to the turnover tax provided the markets with enough reason to cheer as they welcomed the announcements. This is because, not only did the FM exempt the debt market from the purview of the tax, he reduced the tax on day traders and arbitrageurs to 0.015%, brought the mutual fund units under the capital tax gains benefits, albeit maintaining status quo over the tax on delivery based transactions. Markets responded to these with a near 2% rally at the fag end of the close, albeit closing lower owing to index level adjustments. This euphoria continued well into Thursday's trade and was seemingly provided strength to Friday's trade also. However, it would be inappropriate to take away the credit from the robust India Inc. results that poured during the week. <>FIIs too continued to maintain their positive inflows during the week (see chart above).

    Key gainers over the week (NSE-50)
    COMPANY Price on July 16 (Rs) Price on July 23 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 4,951 5,073 2.5% 6,250 / 3,552
    S&P CNX NIFTY 1,559 1,602 2.7% 2,015 / 1,110
    SAIL 33 37 14.3% 62 / 19
    ZEE TELE 127 139 10.2% 175 / 95
    RELIANCE 424 466 9.8% 650 / 327
    HDFC 551 598 8.6% 700 / 395
    TATA STEEL 339 364 7.3% 490 / 183

    India inc. seems to be on a roll! This is vindicated by the largely strong performances being doled out by corporates. The companies that declared their June quarter numbers during the week included Britannia, Corporation Bank, Tisco, Wipro, IPCL, Godrej Consumer, HDFC, Indian Hotels, Marico, Nicholas Piramal, ABB, Reliance Energy, ACC, ICICI Bank, IDBI bank, Satyam and Bharti Tele. You can read our analyses of these results on our Track Corporate India page.

    Key losers over the week (NSE-50)
    COMPANY Price on July 16 (Rs) Price on July 23 (Rs) % CHANGE 52-WEEK H/L (Rs)
    M&M 477 441 -7.4% 525 / 164
    HERO HONDA 462 440 -4.8% 544 / 235
    TATA CHEMICALS 123 118 -4.0% 189 / 73
    HINDALCO 1,088 1,055 -3.1% 1,599 / 720
    ABB 731 711 -2.8% 850 / 365

    Now, considering the key movers during the week amongst the index stocks, steel stocks continued to rally on the bourses this week backed by strong 1QFY05 numbers by India's largest private sector steel player, Tisco, which surprised the markets with its stupendous 179% bottomline growth thus beating market expectations by a considerable margin. The build up of gains in SAIL could also be attributed to similar expectations from this steel behemoth from its June quarter numbers. Further, on the back of the near-term buoyancy in the sector and with the DEPB benefits (export incentives) having been restored for the industry, the near-term positive outlook also seems to have revived for the sector. Other gainers in the steel and related sectors included Ispat Industries (21%), Sesa Goa (10%) and Essar Steel (7%). Gains in other stocks like Reliance and Zee could be attributed to the expectations of good results from these companies, apart from the general market optimism.

    The top index losers this week too were the auto stocks, which continued to lose ground on the back of monsoon concerns, since rural demand forms an important part of auto sales. While M&M's presence in the tractors segment kept the stock out of favour, Hero Honda ended the week lower as its growth in motorcycle sales could take a hit as rural India forms an important source of demand for two-wheelers. Tata Chemicals was also seemingly plagued by concerns over the performance of its fertiliser division in wake of the poor monsoons. Hindalco lost ground seemingly owing to profit booking as the stock had gained significant ground over the last few weeks. It must be noted that the demand for the metal as well as prices has remained firm. The loss in ABB could be attributed to the market reaction to its June quarter results.

    Going forward, with the turnover tax controversy now behind us, it is time to consider some more serious issues at hand here. It must be noted that as per the latest Indian Met Department release, the monsoons this season is 12% below average as yet (10% as per the previous release) with 17 meteorogical sub-divisions (previously 16) out of 36 receiving deficient rainfalls. If this situation continues for sometime, it could seriously dent our GDP growth forecasts for FY05. The consensus estimates of 6.5%-7% growth would then have to be revised downwards. Thus, we continue to re-iterate our stand that in the absence of any real trigger, investors are better off investing in good companies/sectors available at decent valuations from a 3-year perspective. Invest in these in a staggered manner so that the risk is distributed over a period of time. Happy Investing!



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