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That sinking feeling again!

Aug 18, 2007

The markets ended in negative for three out of the four trading sessions in the week, tracking weak global cues. A whole host of factors, right from yen carry trade unwinding, hedge fund redemption pressure, Foreign Institutional Investors (FIIs) selling and sub-prime concerns continued to haunt the domestic markets, resulting in benchmark indices, both BSE-Sensex as well as NSE-Nifty losing 5% during the week. The domestic indices have been closely tracking the global markets. The week began on a positive note with BSE Sensex advancing close to 150 points, but not without some amount of volatility. A range-bound trade followed on Tuesday, when Sensex posted a marginal loss of 16 points on the back of mixed global cues. The stock markets remained closed on Wednesday on the eve of Independence Day. On Thursday, Sensex opened with a gap-down of more than 400 points as markets across the globe were gripped with selling pressure. The Sensex closed the day with a fall of 643 points, its second biggest fall in a day (in absolute terms). Selling continued on Friday, with indices losing more than 4% in the first half of the trading session. Bargain hunting at lower levels and positive cues from European markets, however, resulted in market restricting the losses to 1.5% for the day.

On the institutional activity front, between 10th and 16th August, while FIIs sold equities worth Rs 39 bn, domestic mutual funds emerged as net buyers to the tune of Rs 2 bn.

(Rs m)MFs FIIs Total
10-Aug(1,698) (4,081)(5,779)
13-Aug230 (5,202)(4,972)
14-Aug1,515 (1,275)240
16-Aug2,392 (28,499) (26,107)
Total2,439 (39,057)(36,618)

On the sectoral indices front, metal index was the worst hit, losing close to 10% during the week. Huge sell-off witnessed on the London Metal Exchange (LME) was the primary reason for the decline. IT, Bankex and PSU index were the other indices that bore the brunt of wanton sell-off, with each shedding 5% to 6%. The BSE Small Cap index was least affected, losing 2.6% during the week.

IndexAs on August 10As on August 17% Change
BSE IT4,774 4,500 -5.7%
BSE SMLCAP7,904 7,695 -2.6%
BSE OIL AND GAS7,756 7,427 -4.2%
BSE HEALTHCARE3,601 3,487 -3.2%
BSE AUTO4,736 4,561 -3.7%
BSE PSU6,919 6,543 -5.4%
BSE MIDCAP6,508 6,259 -3.8%
BSE FMCG1,903 1,812 -4.8%
BSE BANKEX7,774 7,351 -5.4%
BSE METAL 10,864 9,812 -9.7%

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

Pharma stocks closed mixed for the week with Sun Pharma edging higher by 1%, while GSK Pharma and Cadila Helathcare lost close to 7%. As per a leading business daily, dug maker Sun Pharma has received approval from the U.S. Food and Drug Administration (USFDA) to make and market Octreotide injection. Octreotide is a generic cancer drug. While the market size of the drug has not been divulged, the said approval will boost Sun Pharma's revenues from the US market. US currently contributes 22% of the company's total revenues.

Top gainers during the week (BSE A)
CompanyPrice on
Aug 10 (Rs)
Price on
Aug 17 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX 14,868 14,142 -4.9% 15,869 / 11,297
S&P CNX NIFTY 4,333 4,108 -5.2% 4,648 / 3,305
CHAMBAL FERT. 33 37 11.8% 41 / 30
BONGAIGAON REFN. 51 56 8.8% 67 / 39
FACT 22 23 7.2% 29 / 19
INDUSIND BANK 48 51 6.3% 63 / 37
J. B. CHEMICALS 62 66 6.2% 107 / 59

In line wit the broader markets, energy stocks ended in the red with HPCL (lost 10%) and ONGC (lost 7%) leading the pack of the losers for the week. As per a leading business daily, the Prime Minister's Economic Advisory Council (EAC) has submitted a report, which says RIL's gas pricing formula is broadly correct, although it requires some minor adjustments. It mentions that the RIL's price is similar to the price at which Rawa field gas was sold recently. Moreover, market determined prices are the way to go forward as the Production Sharing Contract (PSC) under the NELP scheme expressly provides for it and is vital to attract private investment in exploration activities. The EAC however suggested that the auction conducted by RIL should be broad based and include more players than the original set of 10 participants. It also suggested that RIL should offer the entire peak production of 80 MMSCMD for auction, up from the earlier 34 MMSCMD and 10-year contracts benchmarked with Brent crude, instead of 3 year contracts. This report comes as welcome news for RIL because an earlier report submitted by the committee of secretaries (CoS) disapproved of the RIL price of $4.33/ MBTU. With the matter under the empowered group of ministers (eGoM), the EAC report bodes well for RIL.

Top losers during the week (BSE A)
CompanyPrice on
Aug 10 (Rs)
Price on
Aug 17 (Rs)
%
Change
52-Week
H/L (Rs)
TATA STEEL636544-14.4%731 / 399
KOTAK BANK735635-13.7%816 / 300
CORPORATION BANK348303-12.9%445 / 212
STERLITE IND.593517-12.9%682 / 390
ORIENTAL BANK226199-12.0%280 / 157

As per a leading business daily, M&M will set up a utility assembly plant in Manuas, North Brazil, with local partner Bramont. The plant is expected to be commissioned by early November this year. M&M will assemble 5,000 completely knocked down kits (CKD) of Scorpio and pick-up trucks in this plant per annum. This would eventually be scaled up to its full capacity of 10,000 units a year. The move, we believe is just another example of the trend that big domestic auto companies like M&M and Tata Motors have been following of entering into lesser popular and low competition markets like the Africa and Latin America. The stock, along with its peers Tata Motors closed 4% lower.

While it is easy to be complacent in a rising stock market, market declines can be unsettling and even downright scary. Rather than getting caught in the moment, we would advise our investors to look for good quality stocks that are available at attractive prices from a long-term perspective. We believe that the India story is intact and investments made from a long-term horizon are likely to bring adequate returns.


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