Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Inflation deflates sentiments - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Aug 14, 2004

    Inflation deflates sentiments

    The Indian stock markets remained surrounded by concerns throughout the week, which was reflected in this weeks trading. Investors not only refrained from committing themselves to equities but also opted to take some money off the table, which led to the benchmark indices ending the week with losses of about 2% each. This put an end to the 6-week gaining streak on the bourses (see chart below).

    Note: For the week ended August 13, 2004, FII data does not include Friday's activity

    Shrugging off last week's negative surprise on the inflation front, the Indian indices opened on a positive note this week. Though apprehensive, the indices managed to gain ground on the first two trading days of the week. However, Wednesday's trade was a different ball game altogether. Markets tumbled sharply on Wednesday owing to the CMIE forecast, which lowered its India GDP growth estimates for FY05 from 6.3% to 6%. This estimate was arrived at on the back of the uneven pattern of rainfall being witnessed during the current monsoon season, which, according to the organisation, is likely to adversely affect the farm output, thus putting strain on India's growth prospects.

    The following two days also saw the indices drift lower. Apprehensions with respect to high inflation and its impact on interest rates have forced investors to take a cautious approach towards Indian equities. While a staggered and calculated hike in interest rates by the government should not 'derail' India's growth prospects, it certainly has the potential to slow down the growth rate, as corporate profitability would be affected. Further, higher interest rates would also put pressure on the government as it would be much more difficult for it to stick to its fiscal deficit targets considering its huge borrowing programme for its various infrastructure projects.

    Key gainers over the week (NSE-50)
    COMPANY Price on
    August 6 (Rs)
    Price on
    August 13 (Rs)
    H/L (Rs)
    BSE-SENSEX 5,197 5,103 -1.8% 6,250 / 3,874
    S&P CNX NIFTY 1,633 1,598 -2.2% 2,015 / 1,229
    SUN PHARMA 352 376 7.0% 420 / 204
    IPCL 181 191 5.5% 240 / 106
    HINDALCO 1,054 1,098 4.2% 1,599 / 720
    ACC 257 263 2.1% 308 / 179
    RANBAXY 943 959 1.7% 1,171 / 828

    However, amidst all the negative near-term cues for the stock markets, not just in India, but also across the globe, stock specific action continued on the bourses.

    • Hindalco was amongst the top gainers amongst the index stocks this week (see table above). With aluminium prices holding firm ground, copper realisations set to improve and capacity expansions completed, the company is well poised to reap the advantages of the current upturn in the commodity cycle. This is also vindicated by the performance of the stock over the last 3 months wherein the stock has gained about 15% compared to the approximate 5% fall in the Sensex.

    • Cement stocks, continued their run on the bourses. With cement prices remaining firm aided by the exports demand (up 10%) led by the Gulf countries, which is sucking out excess capacity mostly in western and northern region, cement companies' realisations are expected to remain strong. Further, with robust demand from housing (largest cement consumer) and domestic infrastructure projects set to continue and no greenfield capacity expansion in sight, the demand-supply scenario favours cement companies.

      Key losers over the week (NSE-50)
      COMPANY Price on
      August 6 (Rs)
      Price on
      August 13 (Rs)
      H/L (Rs)
      BPCL 345 322 -6.6% 533 / 230
      SAIL 41 38 -6.4% 62 / 21
      TATA MOTORS 425 401 -5.8% 570 / 242
      DABUR 70 67 -5.5% 98 / 53
      VSNL 172 163 -5.4% 210 / 109

    • Energy stocks were out of favour this week with BPCL losing as much as 7% this week. High international crude prices, hovering near US$ 46 per barrel, have led to concerns over the petro-product marketing companies being able to pass on the increase to consumers. Although the government has provided limited autonomy to them to increase prices of petrol and diesel with a 10% price band, the reduction in subsidies share of the government has not helped matters. As a result, the oil marketing companies shall witness pressure on the bottomline during the fiscal.

    • Steel stocks witnessed significant correction during the week, as investors seemed to have seemingly drawn inferences from the Finance Minister's (FM) statement who partially blamed the rising commodity prices in the domestic markets for fuelling the inflation. This seems to have given negative cues to investors about the possibility of a (forced) price reduction or price freeze at a time when international steel prices are trading at a considerable premium to domestic steel prices.

    Going forward over the next few weeks, concerns pertaining to domestic inflation and interest rates would remain at the top of investors' minds, especially considering the fact that the recent price hikes in steel and petroleum products are yet to be reflected in the weekly inflation numbers, which was at 7.61% for the week ended July 31, 2004. Moreover, with oil companies set to increase petroleum product prices once again, on the back of the record high global crude prices (near US$ 46 per barrel), the inflationary situation for the domestic economy does warrant some concern in the near-term.

    However, we would like to re-iterate that attractive valuations at about 11x FY05 expected earnings makes Indian equities a relatively safer bet for investors. We continue to believe that there are many stock specific stories available in the market at attractive valuations, which could be considered by investors to build their portfolio with a long-term investment horizon.



    Equitymaster requests your view! Post a comment on "Inflation deflates sentiments". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)