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Big boys take charge…

Aug 23, 2003

The bull run simply refuses to end, or for that matter, even take a breather. They are moving in a single direction and seem to have belied all hopes and fundamentals and indications that the rally is on the verge of a correction. However, with every rise in the indices, the chances of a correction become more and more imminent. In the meanwhile, it must be noted that the current week’s gains have been the biggest since the start of the current fiscal. While the BSE Sensex ended with gains of 5.2%, the NSE Nifty closed higher by 5.1%. In fact, only on a couple of previous occasions have the indices gained more than 4% since April this year.

For every trading day of the week, the markets continued to strengthen. In fact, every day, markets opened with a significant gap on the upside and held onto their gains and sometimes even gained further during the day’s trading. Also, interestingly, though the markets corrected sharply (from their days highs) in the latter half of trade on Friday, they bounced back even smartly to finally close in the positive. The underlying bullishness and heightened investor optimism towards the stock market can also be gauged from the fact that, despite the government having to face a no-confidence motion, the stock markets seemed absolutely unconcerned over the no-confidence debate as if it were totally unaware of the same. The market’s stand seemed clear: we are heading further up, come join us!

However, as mentioned above, this week gains were the biggest so far in the rally as it was the big boys in the markets that actually took charge and the onus of taking the index to greater heights. A list of such stocks is given below, which provided the push to the indices.

Sensex heavyweights: Supporting gains
COMPANY Price on August 14 (Rs) Price on August 22 (Rs) % CHANGE
ICICI BANK 156 179 15.0%
HPCL 358 401 12.1%
INFOSYS 3,419 3,655 6.9%
RELIANCE 359 383 6.7%
ITC 764 812 6.3%
RANBAXY 835 886 6.1%
HLL 178 187 5.3%
TISCO 243 253 4.2%

One of the biggest gainers amongst index stocks this week was HPCL. News that the due diligence of the government's stake sale in HPCL would be over soon and the divestment process would commence, charged up investor interest towards the stock. The divestment of HPCL is slated to be completed by November 2003. The prospective bidders include Reliance, BP, Kuwait Petroleum, the Shell-Saudi Aramco combine, and Essar Oil. Notably, this process is set to begin even when the Supreme Court is yet to take a decision on whether the government needs the Parliament's approval for the divestment of HPCL through the strategic route. The benefit of this news also percolated down to BPCL, which too closed the week with strong gains (over 8%). BPCL’s 40% stake sale is planned via the IPO route, both domestic and international.

Top 5 gainers over the week
COMPANY Price on August 14 (Rs) Price on August 22 (Rs) % CHANGE 52-WEEK H/L (Rs)
BSE-SENSEX 3,921 4,125 5.2% 4,150 / 2,828
S&P CNX NIFTY 1,248 1,311 5.1% 1,319 / 920
VIDEOCON INTL. 41 54 32.4% 55 / 21
STERLITE IND. 370 490 32.3% 520 / 135
INDO RAMA SYN. 40 50 25.2% 58 / 24
HEXAWARE TECH. 150 183 22.0% 186 / 52
SILVERLINE TECH. 6 7 21.4% 32 / 5

Steel stocks continued to rally even in the current week. Despite witnessing a strong correction during the week, steel stocks ended higher week-on-week. The key gainers this week were Jindal Steel (9%), Jisco (6%), Essar Steel (5%), Tisco (4%) and SAIL (1%). However, like in our previous weekly roundup, we would once again want to reiterate our stand and caution investors that at current valuations, steel stocks are fully valued, probably even slightly stretched. All the good news has already been factored into the stock prices and the downside risk is much higher than the upside. For more on what we observed and believe, kindly read the article: Where are steel stocks headed?

Top 5 losers over the week
COMPANY Price on August 14 (Rs) Price on August 22 (Rs) % CHANGE 52-WEEK H/L (Rs)
ASIAN PAINTS 439 294 -33.1% 472 / 257
IDBI 47 41 -13.3% 51 / 15
ESAB INDIA 49 45 -8.3% 52 / 28
EXIDE IND. 90 83 -7.9% 96 / 36
AVENTIS PHARMA 445 416 -6.4% 454 / 235

So, now what? Markets have continued to rise unabated, defying fundamentals and surpassing investor expectations. They are heading in only one direction, but we believe that, as already mentioned above, with every rise in the indices, the chances of a correction become more and more imminent. Moreover, now that the indices have reached their peak of sorts, at least in the short-term, we believe that from hereon, it will be a clear case of pick-and-choose for investors. To keep it short, invest in companies with sound business models and with managements capable of delivering results and set your investment horizon to medium-long term and wait for the companies to deliver. Happy investing!

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