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The mid-week shocker! - Views on News from Equitymaster
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  • Aug 4, 2007

    The mid-week shocker!

    Facing the wrath of the sub-prime woes in the US markets, the Indian indices plunged sharply on Wednesday and this resulted in them ending lower for yet another time on the bourses. For the week ended August 3, 2007, both the indices edged lower by 1% each.

    The BSE-Sensex managed to close in the positive for four days out of five. Surprising, especially since both the benchmark indices ended in the negative for the week. But not when one considers the fact that the week was witness to one of the biggest intraday declines ever. Coming on the back of a huge sell off across the globe, especially in the US markets, Sensex edged lower by more than 600 points on Wednesday and NSE-Nifty too, declined by more than 180 points. As Foreign Institutional Investors (FIIs) chose to mostly stay away for the remaining days of the week, negating this huge decline was always going to be difficult and with most of the corporate results also not giving any positive surprises, indices closed the week in the red.

    (Rs m) MFs FIIs Total
    27-Jul 2,516 (1,500) 1,016
    30-Jul 5,231 (12,224) (6,993)
    31-Jul 1,863 1,063 2,926
    1-Aug (1,475) (2,410) (3,885)
    2-Aug (69) (1,044) (1,113)
    Total 8,066 (16,115) (8,049)

    As far as institutional activity is concerned, between 27th July and 2nd August, while FIIs turned out to be net sellers to the tune of Rs 16 bn, MFs bough equities worth Rs 8 bn.

    On the sectoral indices front, it was largely a mixed trend as indices like 'Bankex' and 'FMCG' edged higher, while 'IT' and 'Auto' witnessed declines. With heavyweights like 'SBI' and 'Auto' witnessed declines. With heavyweights like 'Hindustan Unilever' witnessing strong gains, the optimism also rubbed on their respective sectoral indices, thus making them inch higher. On the other hand, majors like 'M&M' and 'Tata Motors' edged significantly lower during the week and this impacted the performance of the auto index.

    Index As on July 27 As on August 3 % Change
    BSE BANKEX 7,920 8,049 1.6%
    BSE FMCG 1,928 1,957 1.5%
    BSE PSU 6,984 7,020 0.5%
    BSE MIDCAP 6,598 6,605 0.1%
    BSE SMLCAP 7,926 7,892 -0.4%
    BSE METAL 11,502 11,325 -1.5%
    BSE HEALTHCARE 3,691 3,628 -1.7%
    BSE OIL AND GAS 8,016 7,808 -2.6%
    BSE AUTO 4,944 4,797 -3.0%
    BSE IT 4,876 4,704 -3.5%

    Let us have a look at some of the key stock/sector specific developments during the week:

    FMCG major Hindustan Unilever (HUL) reported a strong performance for the first quarter ended June 2007. While the topline grew by 13% YoY, the bottomline registered an impressive 30% YoY growth. Growth in the topline was largely driven by strong performances by all the business segments. While sales of soaps and detergents grew by 14% YoY, that of processed foods, beverages and ice creams grew by 38% YoY, 21% YoY and 24% YoY respectively. The board of directors of the company has announced a share buyback scheme at a maximum price of Rs 230 per share. The buyback would result in the promoter stake going up marginally, as they would not be offering their shares under the scheme. The stock closed 5% higher for the week while peer ITC was down 2%.

    Top gainers during the week (BSE A)
    Company Price on
    July 27 (Rs)
    Price on
    Aug 3 (Rs)
    H/L (Rs)
    BSE SENSEX 15,235 15,138 -0.6% 15,869 / 10,780
    S&P CNX NIFTY 4,445 4,402 -1.0% 4,648 / 3,143
    INGERSOLL RAND 304 361 18.8% 409 / 240
    MPHASIS LTD 259 304 17.2% 340 / 155
    INDIA CEMENTS 195 217 11.0% 255 / 145
    FEDERAL BANK 333 368 10.6% 375 / 176
    ADANI EXPORT 309 341 10.4% 346 / 113

    Tata Motors registered a growth of 5% YoY in the standalone topline led by 1% YoY growth in volumes during 1QFY08. As far as exports are concerned, a strong 42% YoY growth in M&HCV segment helped total exports grow by 6% YoY. Forex gains led to EBITDA margin expansion of 130 basis points. Excluding the same, margins contracted 210 basis points and operating profits fell 16% YoY. Modest rise in interest expense as well as depreciation charges led to a 22% YoY growth in the bottomline and 110 basis point expansion in net margins. Consolidated revenues grew 13% YoY and net profits were up 30% YoY. The stock ended 6% lower for the week, while M&M was down 13%.

    Top losers during the week (BSE A)
    Company Price on
    July 27 (Rs)
    Price on
    Aug 3 (Rs)
    H/L (Rs)
    NIIT 1,140 975 -14.5% 1,265 / 299
    ESCORTS 104 93 -10.9% 157 / 77
    NALCO 280 252 -10.2% 306 / 185
    MASTEK 297 268 -9.6% 410 / 267
    POLARIS SOFTWARE 122 111 -9.3% 237 / 100

    Pharma stocks also edged lower for the week. While GSK Pharma an Cipla were down marginally, Dr Reddy's declined nearly 3%. Decline in Dr Reddy's was despite the fact that the lead anti-diabetic molecule 'Balaglitazone', which the company is developing in partnership with Rheoscience, has entered Phase III clinical trials. There trials will investigate the safety and efficacy of 'Balaglitazone', as an oral anti-diabetic drug. A complete Phase III programme has been designed in which the glucose lowering effects of 'Balaglitazone' will be tested either alone, or in combination with a number of other oral agents. 'Balaglitazone' is being developed under a co-development agreement between the company and Rheoscience. Rheoscience will retain the marketing rights for the European Union and China and Dr Reddy's will retain the marketing rights in the territories of the United States and rest of the world. Rheoscience shall obtain all necessary regulatory approvals on behalf of Dr Reddy's in the United States.

    The current phase of heightened volatility is likely to continue, as while stretched valuations are likely to keep some investors at bay, ample liquidity that still exists in the system is likely to make the others take a plunge. We would side with the former lot as paying too much for future growth is not our idea of investing with an adequate margin of safety. Only time will tell, who will be proven right eventually.



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    Aug 22, 2017 03:36 PM