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Volatile week

Aug 25, 2007

Volatility was the order of the week with markets witnessing curt crashes and swift recoveries as the focus shifted to domestic factors and in particular, to the fate of the UPA government in its confrontation with the left parties over the Indo-US civil nuclear agreement. The bulls, however, had the last say with markets ending the week with a gain of 2%. The tug of war between the bulls and bears led to indices oscillating between the positive and the negative territory for the entire week. Unlike previous week, when global cues dictated the markets, it was the domestic politics that gnawed at investors this time around. The week began on a positive note with BSE-Sensex advancing close to 300 points, tracking strong global cues. The recovery was led by bank and metal stocks, which were butchered during the previous week. The joy was, however, short-lived as bears made a comeback on Tuesday, unwinding all the gains registered a day earlier as the speculations of withdrawal of support by the Left parties to the government became rife. Bulls were back with a vengeance on Wednesday as markets gained close to 2% led by capital goods and metal stocks. The markets remained extremely volatile on Thursday, closing marginally in the red after gaining more than 2% in early trades. After 4 volatile trading sessions, the sentiments turned positive on Friday, as the Left clarified that they did not want to destabilize the government. Buying in auto, cement, capital goods and FMCG stocks led to Sensex closing with a gain of 283 points (or 2%).

On the institutional activity front, between 10th and 16th August, while Foreign Institutional Investors (FIIs) sold equities worth Rs 35 bn, domestic mutual funds emerged as net buyers to the tune of Rs 16 bn.

(Rs m)MFs FIIs Total
17-Aug8,783 (32,427)(23,644)
20-Aug1,523 928 2,451
21-Aug(165) (98)(263)
22-Aug3,210 (6,681) (3,471)
23-Aug3,091 3,304 6,395
Total16,442 (34,974)(18,532)

On the sectoral indices front, the BSE Healthcare and the BSE IT index ended with a loss of 2% each, while the BSE Metal and the FMCG index gained 5% and 4% respectively. Buying in metal stocks was aided by the recovery in metal prices on the London Metal Exchange (LME). Small-caps and Mid-caps, however, refused to participate in the recovery losing 2% each during the week.

IndexAs on August 17As on August 24% Change
BSE IT 4,500 4,408 -2.0%
BSE SMLCAP 7,695 7,522 -2.2%
BSE OIL AND GAS 7,427 7,517 1.2%
BSE HEALTHCARE 3,487 3,424 -1.8%
BSE AUTO 4,561 4,569 0.2%
BSE PSU 6,543 6,626 1.3%
BSE MIDCAP 6,259 6,190 -1.1%
BSE FMCG 1,812 1,878 3.7%
BSE BANKEX 7,351 7,315 -0.5%
BSE METAL 9,812 10,277 4.7%

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

Cement stocks closed firm for the week with Ambuja Cements and India featuring among the key gainers (each up 7%). Switzerland's Holcim has announced a public takeover offer for another 20% of the share capital of Ambuja Cements in a bid worth around US$ 1.1 bn. In case the public offer is accepted in full, Holcim's stake in Ambuja will rise to more than 56%. Holcim Mauritius, an indirect wholly owned subsidiary of Holcim (Europe), the world's second-largest cement maker, had over a period of time, directly and indirectly has acquired 32% stake in the company. While the merger with Ambuja Cement Eastern has provided the company with a presence in the eastern markets, Holcim's expertise will benefit it in the long term. The company has outlined investment outlay of Rs 35 bn to increase its capacity from the current 16 MT to 22 MT by 2009 and also to increase its clinker capacity.

Top gainers during the week (BSE A)
CompanyPrice on
Aug 17 (Rs)
Price on
Aug 24 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX14,142 14,425 2.0% 15,869 / 11,297
S&P CNX NIFTY 4,108 4,191 2.0% 4,648 / 3,305
CHAMBAL FERT.37 47 25.0% 52 / 30
BHEL 1,559 1,750 12.3% 1899 / 970
STERLITE IND. 517 576 11.5% 682 / 398
BHARTI AIRTEL 795 866 9.0% 960 / 382
TATA TEA 666 719 8.1% 990 / 58

Energy stocks closed mixed for the week with Cairn India (ended 4% up) and ONGC (up 3%) featuring among the major gainers, while Castrol and Petronet LNG (each down 4%) ended in the red. As per a leading business daily, Reliance Industries (RIL) has reported its discontent with the current policy of maintaining retail fuel prices low and compensating PSU oil marketing companies for their under-recoveries with the subsidies and oil bonds. As a fall out, RIL will not open the required number of outlets in remote and low-service areas. Around 11% of the company's total outlets are required to be in such areas. The company is of the view that the outlets in question can be viable only when profit generated elsewhere from market-determined prices can be used to cross-subsidise them. RIL plans to meet its obligations when market-determined prices prevail in the future. It must be noted that the upstream (exploration and production) segment of the hydrocarbon chain is more crucial for the country. Hence changes in retailing plans will not dent the fundamentals of the sector.

Top losers during the week (BSE A)
CompanyPrice on
Aug 17 (Rs)
Price on
Aug 24 (Rs)
%
Change
52-Week
H/L (Rs)
BONGAIGAON REFN.5649-12.9%67 / 39
ESCORTS8677-10.9%157 / 73
HINDUJA TMT386344-10.9%890 / 332
PUNJAB TRACTORS247223-9.6%359 / 218
IGATE GLOBAL235214-8.9%432 / 165

Pharma stocks closed mixed for the week with Glenmark Pharma (ended 5% up) and Wockhardt (up 3%) featuring among the major gainers, while Cipla (down 7%) and Panacea Biotech (down 5%) ended in the red. According to a leading business daily, the Monopolies and Restrictive Trade Practices Commission (MRTPC) has asked its investigation wing to probe a US-based NGO's allegation that pharma major Cipla is selling a crucial AIDS drug in Africa at a price, which is significantly less than the price for which it sold in India. Cipla has denied the allegation, saying it does not sell 'Viraday', a combination of three drugs, in Africa. The commission took note of the recent advertisements by the AIDS Healthcare Foundation, which said that the Cipla brand is available to a patient in Africa for Rs 21,200 for a year's treatment while it costs Rs 54,000 in India. It has asked the director-general of investigation and registration (DGIR) to find out the facts from the NGO and Cipla. While MRTPC is not a price regulator, it intervenes where it feels there is an unfair trade practice.

While the markets did end in the positive, the gains were far from convincing. Not surprising, especially given the fact that even at current levels, most of the stocks look adequately valued from a medium term perspective. Thus, with the liquidity tap also being turned off to a great extent, courtesy the recent sub prime meltdown, more sanity is likely to prevail. As for investors, stay invested for the long-term and in good quality stocks as the India story very much remains intact.

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