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Uncle Sam looms large!

Jul 28, 2007

Tremors of the excesses in the US housing market were felt on this side of the Atlantic as despite good corporate results, Indian indices ended significantly in the red. For the week ended July 27, 2007, while the BSE-Sensex edged lower by 2%, losses in NSE-Nifty were a little less than 3%.

(Rs m)MFs FIIs Total
20-Jul(3,165) 12,231 9,066
23-Jul(485) 10,960 10,475
24-Jul(4,868) 12,856 7,988
25-Jul516 (592)(76)
26-Jul150 2,482 2,632
Total(7,852)37,937 30,085
First quarter results continued to pour heavily during the week and with the companies mostly turning in impressive performances, investors made a beeline for stocks and in the process, pushed the indices higher for the first two days of the week. However, cracks begin to appear, as the markets not only witnessed increased volatility but also edged lower on Wednesday as investors opted to book profits and take some money off the table. Bulls were back in action on Thursday as few more companies announced good set of numbers and were rewarded on the bourses, courtesy some fresh buying. The last trading day however, once again brought to the forefront, the vulnerability of the Indian stock markets to global capital flows. Huge sell off in the US markets triggered a similar collapse in the Indian markets and Sensex lost more than 500 points in a single session. The slide was big enough to not only wipe off the net gains of the past four days but also push the indices into the red for the week.

As far as the institutional activity is concerned, between July 20th and July 26th, while the FIIs pumped in Rs 37 bn into the Indian market, domestic MFs sold equities worth Rs 8 bn.

IndexAs on July 20As on July 27% Change
BSE FMCG1,829 1,928 5.4%
BSE IT4,921 4,876 -0.9%
BSE OIL AND GAS8,112 8,016 -1.2%
BSE PSU7,105 6,984 -1.7%
BSE SMLCAP8,188 7,926 -3.2%
BSE MIDCAP6,836 6,598 -3.5%
BSE AUTO5,125 4,944 -3.5%
BSE HEALTHCARE3,830 3,691 -3.6%
BSE BANKEX8,395 7,920 -5.7%
BSE METAL 12,211 11,502 -5.8%

On the sectoral indices front, except for the FMCG index, which edged higher by an impressive 5.4%, all the other indices could not avoid the coat of red. The worst hit was the metal index as it edged lower by 6%, led by declines in pivotals like Tata Steel and Hindalco. On the other hand, gains in the FMCG index could be attributed entirely to a huge 11% surge in ITC, the sector pivotal that accounts for 50% of the sector weightage. The stock gained on the back of the news that the company is venturing into the fast growing market of personal products. Better than expected results for the first quarter also helped the stock rise on the bourses.

Let us have a look at some of the key results that were released during the week:

ICICI Bank announced its 1QFY08 results late last week. The bank has recorded a 25% YoY growth in its bottomline in 1QFY08, riding on increased fee income. The bank's fee income increased by 35% YoY while the net interest margins (NIMs) in 1QFY08 stood at 2.3%, as compared with 2.5% in 1QFY07. The bank has attributed the drop in NIMs to the hike in cash reserve ratio (CRR) from 6.0% to 6.5%, along with RBI's decision to discontinue interest on the same. The bank's net NPAs also increased by 112%, primarily due to retail delinquencies. About 64% of ICICI Bank's retail loans are non-collateral and if rates go up further, then the bank expects the NPA levels to rise further. ICICI Bank's current account and savings account (CASA) in 1QFY08 at 22%, is lower than most of its peers. The stock (down 7%), along with peers PNB (down 13%) and SBI (down 5%), closed into the negative during the week.

Top gainers during the week (BSE A)
COMPANY Price on July 20 (Rs)Price on July 27 (Rs)% CHANGE52-WEEK H/L (Rs)
BSE SENSEX 15,566 15,235 -2.1% 15,869 / 10,590
S&P CNX NIFTY 4,562 4,442 -2.6% 4,648 / 3,023
ITC 154 172 11.3% 196 / 140
RELIANCE ENERGY 688 763 10.9% 817 / 436
BALLARPUR INDUSTRIES 119 132 10.5% 138 / 96
JINDAL STAINLESS 152 166 9.5% 178 / 91
CASTROL 253 274 8.4% 315 / 165

Telecom stocks also closed lower. Reliance Communication (down 8%) lost the most, followed by VSNL (down 7%) and Bharti (down 3%). Weakness in Bharti Airtel was despite the fact that the company has announced strong results for 1QFY08. The topline grew by 54% YoY in 1QFY08, led by strong accretion to the subscriber base and increasing minutes of usage. Owing to improved profitability of the mobile business, operating margins expanded by 230 basis points (2.3%). On the back of expansion in operating margins, higher other and interest income, net profits reported a 71% YoY growth during 1QFY08. During the quarter, the company added 5.7 m subscribers and the base stands at 44.7 m (mobile and broadband included).

Top losers during the week (BSE A)
COMPANY Price on July 20 (Rs)Price on July 27 (Rs)% CHANGE52-WEEK H/L (Rs)
INDIA CEMENTS 225 195 -13.2% 255 / 145
RCF 54 47 -13.0% 56 / 32
BIRLA CORP 295 257 -12.8% 375 / 180
NATIONAL FERT 36 32 -11.8% 40 / 26
TITAN IND 1,273 1,127 -11.5% 1,378 / 568

Maruti Suzuki, country's largest passenger car manufacturer, registered a 26% YoY growth in topline, led by 17% YoY growth in volumes during 1QFY08. Operating margins remained stable at 14.6% as expenses grew in line with revenues. While operating margins remained stable, net margins expanded marginally (90 basis points or 0.9%)as higher other income and lower tax outgo helped bottomline to report a growth of 35% YoY. The stock (down 1%), along with its peers TVS Motors (down 2%), M&M (down 3%) and Tata Motors (down 4%), is trading weak.

The sell-off on Friday must have once again reminded investors that investing in the markets is indeed not a one way journey and it does not take much time for the indices to shed a few hundred points. Further, it has also brought to the fore the vulnerability to global capital market flows. Thus, the two principles of staying invested for the long-term and not paying too much for future growth are the best companions one can hope for in order to avoid burning one's fingers during times such as these.

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