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Markets: The year so far... - Views on News from Equitymaster
 
 
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  • Jul 31, 2007

    Markets: The year so far...

    2007 so far has been an eventful one as far as the Indian stockmarkets are concerned, the notable feature being the breach of the psychological 15,000 mark. However, the journey has had its share of hiccups with both domestic and global factors playing an equally significant role in determining the movement of the markets. Rising inflation, an appreciating rupee and concerns with regards to the slowdown of the US economy have been uppermost on the investors' radar of late. In this article, we shall take a look at the performance of the sectoral indices in the year gone by so far.

    Company Price on
    July 30, 2007 (Rs)
    Price on
    Jan 02, 2007 (Rs)
    % Change
    BSE Bankex 8,055 7,120 13.1%
    BSE Sensex 15,261 13,942 9.5%
    BSE Healthcare 3,682 3,820 -3.6%
    BSE IT 4,846 5,369 -9.7%
    BSE Auto 4,925 5,696 -13.5%

    Banking: The banking sector was the apple of the investors' eye with the BSE Bankex gaining an impressive 13% during the period January to July 2007. Interest in the banking stocks has been a result of capital raising initiated by most of the top banks to meet the rising demand for credit and also in compliance with the Basel II norms. Banking heavyweights such as SBI, ICICI Bank, HDFC Bank and UTI Bank as well as mid size banks such as Yes Bank have either raised capital or have lined up capital raising plans going forward.

    Pharma: The BSE Healthcare index lost around 4% during the seven-month period. This is largely due to the lukewarm performance reported by the top pharma companies in the last two quarters. Having said that, domestic pharma companies performed better than their MNC peers, the latter being impacted by poor growth in the topline due to supply related issues and divestment of certain divisions. While pricing pressure continued to plague the global generics industry, the growth of domestic pharma companies were largely driven by contribution from acquisitions, revenues from 180-day exclusivity periods and ramp up in product launches in the US market. Going forward, while we are positive about the growth prospects of both domestic and MNC companies alike, we, nevertheless, advise investors to adopt a stock-specific approach while investing in the sector.

    Software: The BSE IT index lost a considerable 10% during the January-July 2007 period and was largely affected by the sharp appreciation of the Indian rupee. The rupee since March 2007 has appreciated by around 8.5% and has had a telling impact on the revenues and operating margins of software companies, which are largely export oriented. Unabated dollar inflows into the country and the RBI's reluctance to intervene in the forex markets (in a bid to contain inflation) has led the rupee to appreciate of late thereby impacting the 1QFY08 numbers of all the IT heavyweights. Having said that, from a long-term perspective, we believe that these top-tier software companies, with their superior scalable business models and stronger operating metrics relative to their mid-sized peers, will benefit more from the offshoring story, and we remain positive overall on the sector.

    Auto: The auto index lost by as much as 14% during the period. The sector has been facing the heat due to the rising interest rate scenario, which has impacted volume growth especially that of two-wheelers. During the June quarter, the motorcycle industry witnessed a 15% YoY fall in volumes could be attributed to the strict stance being adopted by financial institutions towards funding two-wheeler loans. These companies have also been facing pressure on the operating margin front. Besides this, growth in the other two segments namely passenger and commercial vehicles has also decelerated significantly in the first quarter of FY08.

    Looking ahead...

    Despite the huge sell-off in the markets last week prompted by global factors, it is imperative for investors to refrain from timing the markets and instead invest in good quality stocks from a long-term perspective. These stocks will continue to reward shareholders with good returns despite the short-term fluctuations witnessed on the Indian bourses.

     

     

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