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Markets get an 'economic push'!

Jul 29, 2006

The markets opened the previous week on a subdued note due to interest rate concerns ahead of the monetary policy review. The most-awaited event took place during the week, that of the Monetary Policy Review by the Reserve Bank of India (RBI), the country's central bank. Not letting the loopholes remain unplugged, the RBI governor Dr. Reddy, chose to hike the benchmark short-term lending rates (repo and reverse repo) by 25 basis points each, despite all macro-economic indicators remaining stable. Click here to read more on the monetary policy. Following the announcement, the key indices became buoyant and moved up, giving a 'thumbs-up' to the Monetary Policy Review. This also followed strength in global markets. Thursday saw the indices gaining for the fourth session in the week. The traded volume was marginally higher than the previous session. The market breadth was also positive, as the BSE-NSE combined figures were 1,983:1,279 in favour of advances. Not just this, the market capitalisation of the breadth was also positive, as the figures on the BSE-NSE combined basis were Rs 86.5 bn to Rs 11.2 bn. But on Friday, the markets showed significant volatility, due to mixed numbers reported by the India Inc and finally closed lower, ending the week at 10,680.

As per the official numbers declared yesterday, the wholesale price index (WPI) fell to 4.52% in the 12 months to July 15, lower than 4.68% a week earlier. This was mainly due to the higher base effect. There had been also rise in the prices of some foods, cash crops, minerals and metals.

Net investments
(Rs m) FIIs MFs Total
20-Jul-06 3,213 (801) 2,412
21-Jul-06 (535) 43 (492)
24-Jul-06 315 886 1,201
25-Jul-06 2,298 2,352 4,650
26-Jul-06 2,380 2,761 5,141
Total 7,671 5,241 12,912
As far as the institutional activity on the bourses is concerned, as compared to last week, Foreign Institutional Investors (FIIs) were net buyers this week to the tune of Rs 8 bn. Domestic mutual funds also turned out to be net buyers (Rs 5 bn). The week held good for the mutual funds. The Reserve Bank of India has raised the ceiling for overseas investment limit by mutual funds from US$ 1 bn to US$ 2 bn, giving them more room to diversify their portfolios. Besides this, select mutual funds would also be allowed to invest in exchange traded funds cumulatively to the tune of US$ 1 bn, permitted by Securities and Exchange Board of India (SEBI). With this, mutual funds will be able to invest in a broader horizon overseas.

The benchmark BSE-Sensex closed higher during the last week by 5.9%. Amongst sectoral indices, the BSE Bankex index was up by as much as 13%, while the BSE PSU index gained nearly 9% week-on-week. Other sectoral indices also closed in the positive.

Key indices over the week
Index Price on July 21(Rs) Price on July 28(Rs) % Change
BSE Small-cap 4,815 5,065 5.2%
BSE Mid-cap 4,031 4,278 6.1%
BSE METAL 7,593 7,803 2.8%
BSE HEALTHCARE 3,055 3,214 5.2%
BSE PSU 4,609 5,010 8.7%
BSE IT 3,745 3,896 4.0%
BSE AUTO 4,189 4,420 5.5%
BSE OIL&GAS 4,860 5,054 4.0%
BSE BANKEX 4,186 4,720 12.7%
BSE FMCG 1,850 1,893 2.3%

The last week was also witness to some leading corporates announcing their first quarter results. Arvind Mills, Colgate, 3i Infotech, Balaji Telefilms, Asian Paints, Essel Propack, Indian Hotels, GSK Pharma, OBC, i-flex and many more surprised the stock market. Asian Paints, the market leader in the domestic paint sector, has begun FY07 on a strong note, reporting a 17% YoY and a 38% YoY growth in 1QFY07 consolidated topline and bottomline respectively. On a standalone basis, while revenues have grown by 18% YoY, net profits are up by a strong 31% YoY. However, despite a spike in raw material costs, consolidated operating margins have expanded by 1%, mainly on the back of stock-related adjustments. Due to this, as well as lower depreciation costs, net profit growth has outperformed growth in the topline. However, Arvind Mills reported a fairly dismal performance, with net profits down by as much as 85% YoY.

Top gainers during the week (BSE-A)
Company Price on
July 21(Rs)
Price on
July 28(Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 10,086 10,680 5.9% 12,671 / 7,505
S&P CNX NIFTY 2,945 3,131 6.3% 3,774 / 2,281
MPHASIS BFL SOFT 126 160 26.9% 229/118
ING VYSYA BANK 103 130 25.8% 205/82
SYNDICATE BANK 52 65 25.7% 104/47
BOI 89 110 23.8% 156/80
VIJAYA BANK 34 41 22.1% 72/33

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

  • Wipro Technologies, the global IT services arm of Wipro, has chalked out plans to float a joint venture with Motorola to manage telecommunication networks and services for operators. The joint venture will be called 'WMNetServ' and will offer services such as network planning and deployment, network optimization and security among others. Wipro will hold a majority stake in the venture. The joint venture will provide Wipro access to Motorola's strong pipeline of customers and will also leverage the large resource pool of Wipro. Wipro is India's third largest software services exporter and also has interests in the hardware and consumer care and lighting businesses. However, the largest contribution to its revenues comes from the global IT services and products division (78% of consolidated revenues). The stock closed 7.8% higher week-on-week. Other Software stocks.

  • As per a leading business daily, public sector engineering consultant, Mecon, has advised Steel Authority of India (SAIL) against acquiring the entire assets of the Malvika Steels. Only the iron making facility of the company is a viable purchase option. SAIL was supposed to take a final call on the purchase of assets based on the reports of Mecon. Earlier, SAIL had approached Mecon for evaluation of the complete purchase of Malvika Steels by the company. The company has been aiming to become a fully integrated steel producer. Its major peer, Tata Steel, has been active on the acquisitions front, having acquired Singapore-based NatSteel in 2004. The stock closed 6.3% higher week-on-week. Other Steel stocks.

    Top losers during the week (BSE-A)
    Company Price on
    July 21(Rs)
    Price on
    July 28(Rs)
    % Change 52-Week
    H/L (Rs)
    IGATE SOLUTIONS 168 147 -12.6% 288/145
    INDO RAMA SYN 48 45 -7.8% 100/43
    NALCO 213 198 -7.0% 335/152
    ALFA LAVAL 852 800 -6.1% 1280/721

  • HPCL, a major oil refining and marketing company, has decided to set up new retail fuel outlets and also automate and upgrade the existing ones, at an estimated cost of Rs 9.2 bn during the current fiscal. Of this, nearly Rs 1.6 bn has been allocated for setting up new retail outlets, Rs 1.7 bn for modernisation and upgradation of existing outlets, Rs 2.2 bn towards automation of fuel outlets, Rs 1.8 on purchase of equipment and around Rs 2 bn on auto LPG and vapour recovery units. This move is in line with the regular capex plans of the company. The stock closed 1.7% higher week-on-week. Other Energy stocks.

The coming week is going to witness two major IPOs. Moreover, the results season continues, with many more companies expected to announce their results. At the current levels, we would advise investors to adopt a stock-specific approach, given the volatility that we have seen in the broader markets. Stock selection is of utmost importance, and as an investor, one must always go for companies with strong business models, top-flight management teams, good growth prospects, market leadership and sustainable growth stories. Happy investing!

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