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All's well that ends well

Aug 26, 2006

After briefly breaching the 11,500 mark (Sensex) towards the end of last week, markets opened on a weak note on Monday. First half of the week was volatile with indices losing sheen, but these losses were covered during the latter half as the indices staged a smart recovery. On Tuesday, Asian markets showed some recovery, even the commodity markets recovered from the profit-booking mode seen over the past couple of sessions. Crude prices stayed flat throughout week in the aftermath of Iran's soft stance on the U.N demand. Not continuing with its negative trend, the markets traded positive on Thursday. Market breadth was positive as the BSE-Sensex & NSE-Nifty combined advance decline ratio stood at 1761:1376 and the capitalisation of the breadth was also positive. Action was predominantly seen in the large cap space, with index heavyweight Reliance notching up an impressive gain of 4% in just one trading session. Besides this, the markets surged on select buying in the oil & gas and metal sector. The positive momentum continued on Friday with the markets finally closing down at 11,572, a week on week gain of nearly 1%.

As per the official numbers declared yesterday, the wholesale price index (WPI) rose to 4.92%, a shade higher than last week's level of 4.82%. This increase was due to an increase in food and manufactured product prices.

As far as the institutional activity on the bourses is concerned, Foreign Institutional Investors (FIIs) were net buyers this week to the tune of Rs13bn. Domestic mutual funds however turned out to be net sellers (Rs 2 bn). mutual funds (MFs) seem to be reeling under redemption pressure and hence were forced sellers in a rising market.

Net investments -
(Rs m) FIIs MFs Total
17-Aug-06 8,088 271 8,359
18-Aug-06 5,190 (238) 4,952
21-Aug-06 427 (569) (142)
22-Aug-06 (97) 34 (63)
23-Aug-06 (521) (2,276) (2,797)
Total 13,087 (2,778) 10,309

The benchmark BSE Sensex closed higher during the last week by 0.9%. Amongst sectoral indices, BSE Metal led the list of gainers with a week on week gain of 4%. The rise in index seemed largely a result of happenings in the global markets where the mining giant BHP Billiton indicated that prices of metals are likely to remain higher on account of continued buoyant Chinese demand. Strike at one of the company's foremost copper mine, which supplies around 8% of the world's copper ore also led to tightening of metal prices.

Key indices over the week
Index Price on
Aug 18(Rs)
Price on
Aug 25(Rs)
%
Change
BSE METAL 8,080 8,385 3.8%
BSE IT 4,198 4,223 0.6%
BSE BANKEX 5129 5216 1.7%
BSE Small-cap 5767 5833 1.1%
BSE Mid-cap 4770 4814 0.9%
BSE PSU 5452 5482 0.5%
BSE FMCG 1984 1980 -0.2%
BSE AUTO 4924 4963 0.8%
BSE OIL&GAS 5452 5608 2.9%
BSE HEALTHCARE 3557 3513 -1.2%

Having looked the institutional activity in the last one-week, let us consider some sector/stock specific developments:

  • Suzlon Energy A/S (SEAS), the Denmark-based international business headquarters of Suzlon Energy, Asia's largest and the world's fifth largest wind turbine manufacturer, has signed an important contract with Maestrale Green Energy of Italy for 21 MW. Besides this, the company has also signed a contract for 39.9 MW with Portugal's Technologies Energeticas, SA. The orders will be supplied with Suzlon's largest product, the S88-2.1 MW wind turbine. These orders mark Suzlon's breakthrough into the emerging wind energy markets of Europe. Emerging Europe is a key market for Suzlon alongside China, India and the US. The stock was up 1.7%week-on-week. Other Engineering Stocks.

  • Domestic pharma major Ranbaxy, is said to be in advanced stages of negotiations to acquire the Russian generics drug maker Akrikhin. The consideration for the same is likely to be US$ 100 m. Moscow-based Akrikhin, is one of the top five-pharma companies in Russia with a portfolio comprising of around 140 products. Besides strengthening Ranbaxy's presence in the Russian market (Russia contributed around 3% to its total revenues), Ranbaxy stands to benefit from Akrikhin's drug supplies to the Russian government, which accounts for 20% of Akrikhin's turnover. Ranbaxy is contemplating making acquisitions in the Canadian market as well. Considering the highly competitive environment in the US generics market, Ranbaxy is looking to de-risk its revenues by increasing its geographical reach. The stock was down 4.7% week-on-week. Other Pharma Stocks.

    Top gainers during the week (BSE-A)
    Company Price on
    Aug 18(Rs)
    Price on
    Aug 25(Rs)
    %
    Change
    52-Week
    H/L (Rs)
    BSE-SENSEX 11,466 11,572 0.9% 12,671 / 7,566
    S&P CNX NIFTY 3,357 3,386 0.9% 3,774 / 2,307
    STERLITE OPTICAL 133 180 35.1% 194 / 73
    ABBOTT INDIA 503 582 15.7% 785 / 412
    PFIZER LTD 741 851 14.9% 1,225 / 621
    GSFC 158 178 12.5% 251 / 129
    WELSPUN GUJ 68 77 12.1% 113 / 47

  • Engineering major L&T and Mitsubishi Heavy Industries are contemplating setting up a power generation-equipment manufacturing facility for 800 MW super critical boilers in India. The minimum investment required for setting up these kinds of greenfield facilities generally has been estimated at Rs 10 bn. This move by L&T is expected to boost the power generation capacity, as the reason cited for the slow growth in the country's generation capacity is inadequate manufacturing and engineering infrastructure. It must be noted that currently, BHEL is the only player in India, which has the capacity to manufacture 800 MW super-critical boilers. The stock was down 0.5% week-on-week. Other Engineering Stocks.

    Top losers during the week (BSE-A)
    Company Price on
    Aug 18(Rs)
    Price on
    Aug 25(Rs)
    %
    Change
    52-Week
    H/L (Rs)
    BOM DYEING 726 655 -9.9% 989 / 260
    BONGAIGAON R 62 57 -9.1% 86 / 40
    INDUSIND BANK 48 44 -8.0% 81 / 27

  • UTV Software Communications has entered into a joint venture with Fox Searchlight (a unit of Fox Entertainment Group) and Will Smith's production house - Overbrook Entertainment - for three mainline Hollywood flicks. This is the first instance when an Indian studio has tied up with a Hollywood studio for co-production, with a total value across projects running up to US$ 37 m. The first deal with Fox Searchlight is a 50:50 joint venture in terms of equity, with both parties putting in US$ 7 m, making it a US$ 14 m co-production. This is UTV's second project with Fox after co-producing Mira Nair's 'Namesake' for US$ 9 m. Moreover, the company is also expecting 35% to 40% of its revenues to come from the overseas market in the coming years. For the company, these projects are big strides in reaching the North American markets and expanding its presence globally. The stock was up 7.8% week-on-week. Other Media Stocks.

Volatility seems to be the name of the game on the bourses currently as investors seem a bit bewildered on which way the markets would move in the near term. As far as we are concerned, although we view the current level of valuations with some amount of concern, we remain positive on the long-term growth story and would suggest companies with strong fundamentals and a proven track record over a long-term horizon.


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