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Is the bull run over? - Views on News from Equitymaster
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  • Aug 9, 2003

    Is the bull run over?

    It was yet another good week for the markets, albeit a volatile one. Last week the Sensex had closed just under the crucial 3,800 level, despite breaching it a couple of times. However, on Monday the markets displayed strength only to witness a 100 points correction on the following two days. The last two trading days, however, saw investors flocking to the markets displaying the sheer underlying optimism, and the markets closed the week in the positive. While the BSE Sensex gained 1.8%, the NSE Nifty closed the week with gains of 2.2%.

    Markets have been gaining consistently since the beginning of the current financial year. Well almost! Fall in the indices in the month of April could be termed as an aberration and can largely be attributed to the mayhem witnessed on the bourses after the tech bellwether Infosys revised downwards its FY04 guidance, only to upgrade it again during its June quarter results. Moreover, lack of clarity over the arrival of monsoons held the investors back a little, as the effect of a monsoon failure on the economy last year remained at the top of their minds. And rightly so! Just to put things in perspective, in the last two decades, 17 out of 20 times our GDP growth moved in line with the success or failure of the monsoons. This is, indeed, a high dependence on rain Gods! However, a normal monsoon was all the markets were waiting for! The rest is history (see chart above).

    Top 5 gainers over the week
    COMPANY Price on August 1 (Rs) Price on August 8 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 3,815 3,884 1.8% 3,891 / 2,828
    S&P CNX NIFTY 1,196 1,223 2.2% 1,225 / 920
    IND. RESORT 59 75 26.4% 81 / 35
    KESORAM IND. 41 49 20.2% 50 / 22
    IOC 433 519 19.8% 521 / 198
    STERLITE OPTICAL 49 58 19.0% 81 / 25
    JAIPRAKASH IND. 53 62 18.3% 65 / 27

    With the high relevance of monsoons in Indian lives, good monsoons are a boon for every Indian. Almost 70% of our population continues to depend on agriculture for their livelihood and the balance 30%, in a way, depend on the consumption and spending of the former. It is when the farmers and rural population have surplus that they spend on consumer durables, tractors and other products. This gives a fillip to the manufacturing sector, which in turn aids the services sector growth. Thus, with factors like normal monsoons, inflation under control (4.6%), substantial forex reserves (US$ 85 bn) and strong export performance (up 11%), the odds are in favour of a strong economic turnaround.

    Top 5 losers over the week
    COMPANY Price on August 1 (Rs) Price on August 8 (Rs) % CHANGE 52-WEEK H/L (Rs)
    PUNJAB TRACTORS 153 141 -8.0% 178 / 108
    PFIZER LTD. 437 404 -7.6% 479 / 298
    NIIT 132 122 -7.3% 196 / 93
    INFOSYS 3,784 3,557 -6.0% 4,873 / 2,420
    HFCL 33 31 -6.0% 58 / 11

    Now, just digressing a bit from the macro perspective for a little while, let us look at Punjab Tractors, which was one of the top losers this week. The stock has seen a lot of volatility since the announcement of Punjab government’s 23.5% stake sale in the company to a private equity fund, CDC Capital Partners, at a price of only Rs 153. This price, at which the deal was struck, seems to have been below market expectations. Though the stock was hammered on the day of the news to around 135 levels, it had recovered back to 150 levels. Another stock to lose ground during the weak was Infosys, which seems more of profit booking as the stock has seen a handsome run in the last 3-4 months.

    Getting back to the mainstream, though the markets have already run up in the last 4 months (indices gaining about 23%-25%), it must be noted that the story is not over yet. In fact, a lot is still left to unfold and India Inc. is for sure on a higher growth trajectory. Moreover, slower growth in global economies gives Indian markets an upper edge and makes India, which is one of the fastest growing economies in the world, one of the best investment destinations for international money to flow into. A safe haven if one can call it! At the current juncture also, we continue to believe that Indian markets still do not reflect the true growth potential of India Inc. and this leaves room for further re-rating of Indian capital markets over the medium to longer-term. Invest in companies with sound management and feasible business models (sustainable over the long-term) and sit tight. To conclude, hold on! The (bull) ride is not over yet!



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