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Party pooper - Views on News from Equitymaster
 
 
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  • Aug 7, 2004

    Party pooper

    It was the 6th straight positive week for the Indian indices. Though the current week's gains were rather muted, the air of optimism continues to embrace investor sentiment. If it wouldn't have had been for the party pooper this week (read inflation numbers on Friday), the indices would have had a much more decent close.

    Last week's positivism trickled into the current week with the indices having a respectable start to the week on Monday. Backed by good India Inc. results in the month of July, investors continued to evince confidence towards Indian equities. Despite the TCS IPO having been underway, which had raised apprehensions with respect to market liquidity getting affected, there seemed active participation from all sections of the investor class in the market. Even the TCS IPO ended with an oversubscription of over 10 times. Though there was some profit booking witnessed over the next couple of days, it seemed more in the nature of consolidation as the indices had been on a largely one-way street since the last few weeks.

    Thursday once again saw the bulls back in action and this time with a much greater conviction and force, pushing the indices to levels closer to last seen during mid-May, just before the historic fall of the Indian stock markets owing to the change in the government at the Centre. It must be noted that till now (since July), the Indian stock markets had been bucking the trend witnessed across global stock markets. This was thanks to the strong June quarter performance by India Inc.

    However, Friday was a different day. With situation on the crude oil front getting grimmer with prices breaching the US$ 44.5 per barrel mark, global indices unnerved further. This is a big concern for India considering that India imports about 70% of its crude oil requirement. Oil accounts for roughly about 30% of India's total import bill. While the effect of this was visible on the Indian markets at the start of trade on Friday, it was the weekly inflation numbers (that touched 3.5 year highs) that turned the indices jittery.

    The inflation numbers (7.5%) for the week ended July 24, 2004 declared on Friday took investors by surprise in both the markets - equity and debt. No sooner was this declared, Indian equities plunged on fears of a sooner than expected interest rate hike that could impede not only corporate profits but also the pace of our economic growth and consequently the stock markets. (Also read Inflation and stock markets) Bond prices also fell on similar fears that the central bank would now be forced to tighten monetary measures in order to control the rising inflation.

    Key gainers over the week (NSE-50)
    COMPANY Price on
    July 30 (Rs)
    Price on
    August 6 (Rs)
    %
    CHANGE
    52-WEEK
    H/L (Rs)
    BSE-SENSEX 5,170 5,197 0.5% 6,250 / 3,722
    S&P CNX NIFTY 1,632 1,633 0.1% 2,015 / 1,165
    GUJARAT AMBUJA 278 303 9.0% 347 / 199
    ACC 240 257 7.4% 308 / 179
    GRASIM 981 1,041 6.1% 1,317 / 543
    HERO HONDA 429 452 5.3% 544 / 245
    BAJAJ AUTO 824 854 3.7% 1,210 / 623

    However, on the bourses this week, there were certain sectors and stocks that managed to steal the limelight, despite the near flattish weekly behaviour of the indices. One such sector was cement (see table above). It must be noted that cement stocks have been the market favourite in recent times owing to improving fundamentals of the sector. Strong 1QFY05 despatches on the back of higher demand from domestic construction and exports, improving realisations owing to firm demand and consolidation in the domestic cement industry, all augur well for the sector. Further, even a couple of two-wheeler stocks made it to the top gainers list this week as the revival of monsoons in the country seems to have provided a temporary lifeline to the auto industry, which had been out of favour over the last few weeks.

    Key losers over the week (NSE-50)
    COMPANY Price on
    July 30 (Rs)
    Price on
    August 6 (Rs)
    %
    CHANGE
    52-WEEK
    H/L (Rs)
    GAIL 196 183 -6.4% 312 / 101
    MARUTI 425 400 -5.9% 600 / 190
    VSNL 181 172 -5.1% 210 / 109
    HINDALCO 1,102 1,054 -4.4% 1,599 / 720
    ZEE TELE 141 135 -4.0% 175 / 95

    Looking to the next week, the markets are likely to open with an overhang of this week's negative cues, both domestic and global. From the domestic front, high inflation numbers remain the biggest deterrent for investor sentiment, more so, considering the fact that these are yet to reflect the recent petroleum price hikes and steel price increases. On the global front, soaring crude oil prices and the result of its inflationary effect on global economic growth (including India) is surely to make investors think twice before committing themselves to equities. However, while these concerns are undoubtedly near-term dampeners for the capital markets, the relatively attractive valuation of Indian equities vis-a-vis many emerging and developed economies and the fundamental improvements being witnessed in India, do offer an investment case for long-term investor monies to nourish here. Happy Investing!

     

     

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