Aug 27, 2005|
The rally snaps…
The 16-week rally came to a halt this week with the benchmark indices closing in the red. After the Sensex and the Nifty having gained 24% and 23% respectively over the last 16-weeks, they ended the current week with a loss of about 1% each, thus bringing an end to this leg of the bullrun…or should we say, dream run? However, the mid-cap segment performed relatively better this week with losses of 0.6%.
After the muted gains witnessed last week, the Indian stockmarkets opened with a sort of a bang on Monday morning. However, little did the investors know that they were in for a roller coaster ride, yet again. It must be noted that it has been now three weeks that the Indian stockmarkets are in the grip of strong volatility. This has come about owing to the alternate bouts of buying and selling being witnessed on the bourses. With FII interest having tapered off in recent times towards Indian equities (see table above), the fizz on the Indian bourses too have disappeared. While FIIs have not been net sellers as yet, but there has been a trend of subdued interest over the last three weeks. However, our domestic mutual funds have been consistently lapping up stocks, taking advantage of every fall in the markets. This thus indicates that it is largely the retail public that has been in the sell mode as they take some profits off the table.
Anyways, coming back to the markets on Monday, despite the strong opening, profit booking at higher levels saw the markets nose-dive into the negative territory as the Sensex lost more than 100-points (from the intra-day highs) to close the day in the red (down 30 points). Further, Monday’s pains were further aggravated as the Indian stockmarkets collapsed in Tuesday’s trade losing by about 2%. It was absolute mayhem as the bulls were forced to run for cover and the bears took complete charge of the bourses. None of the sectors were spared and profit booking was witnessed across categories of stocks i.e. large, mid and small. However, it must be noted that again, both – FIIs and domestic MFs – were net buyers on Tuesday as they got into the value-buying groove.
The volatility continued on the remaining three days also as derivatives settlement played a significant part in imparting the same. Despite the derivatives rollover being smooth and the markets clocking gains on Thursday and Friday, it was not sufficient enough to save the week from a loss. The damage had already been done leading to an end of the 16-week rally.
Top gainers over the week (NSE-50)
Aug 19 (Rs)
Aug 26 (Rs)
|| 7,921 / 5,022
|S&P CNX NIFTY
|| 2,427 / 1,574
|| 475 / 331
|| 1,479 / 959
|| 785 / 407
|| 1,794 / 1,022
|| 687 / 374
Now let us consider some sector/stock specific developments this week:
Despite international crude oil prices showing no signs of easing, oil marketing major, BPCL, was the top gainer this week seemingly on the back of the news that the government is contemplating raising fuel prices soon. This would help ease the pressure on margins of oil marketing companies as crude oil, which is the input for these companies, has been hovering around the US$ 68 per barrel mark now. It must be noted that it is precisely for this reason that BPCL had reported a loss in 1Qfy06. Other energy stocks
Housing finance major, HDFC, is planning to list its associate company Intelnet Global Services (a BPO joint venture of HDFC along with Barclays Bank in which HDFC holds 50% stake) in the next two years. The company is also contemplating to dilute stake in HDFC Chubb General Insurance and HDFC Standard Life Insurance depending on market conditions and the capital requirements of these companies. Offloading stake in these investments is expected to unlock substantial value for the parent company (HDFC). Also, HDFC is targeting a 30% growth in incremental offtake for FY06. The stock was amongst the key losers this week, down about 4%. Other investment & finance stocks
L&T (down marginally during the week) has chalked out an aggressive plan to grow its international business to around 25% of revenues by 2010, from the current levels of 15%. This plan envisages growing L&T's international revenues by around 25% per annum to reach US$ 1.5 bn by 2010. Out of these targeted revenues, the company expects West Asia alone to contribute around two-thirds or US$ 1 bn. L&T has been one of the frontrunners in the international market in the past 2-3 years. While this is a positive as it provides the company a greater global visibility in the global arena, it has cost the company on the profitability front in the past, as it has undertaken some low margin projects as a strategy to make entry into the marketplace. Other engineering stocksTop losers over the week (NSE-50)
Aug 19 (Rs)
Aug 26 (Rs)
|| 445 / 160
|| 702 / 412
|| 960 / 548
|| 531 / 373
|| 765 / 366
Domestic pharma major, Ranbaxy, is close to acquiring a German research-based pharmaceutical company. Notably, Germany is the largest pharmaceutical market in Europe and the company has been scouting for acquisitions in the European region as a part of its inorganic growth plan. It must be also noted that in Europe, the company already has RPG Aventis in France, the generic portfolio of the Spanish firm Epharmes and Doktor Mom range of products in Romania under its belt. Ranbaxy, in its vision statement, has envisaged revenues to the tune of US$ 2 bn by 2007 and intends to make Europe its second largest growth driver after the US. However, the stock ended the week with a loss of 1%. Other pharma stocks
Mobile telephony major, Bharti Tele, has inked a US$ 125 m network expansion deal with Finnish equipment major, Nokia. As per the deal, Nokia will expand and manage Bharti's cellular network in 8 circles, mainly catering to the rural areas. This move by the Indian telecom major is in line with its strategy of outsourcing non-core activities and focusing on the core business of branding and marketing telecom services. The deal will help Bharti rapidly cover more than 5,000 towns across the country, up from around 2,700 currently. Further, in related company news, Bharti has forayed into the life insurance sector and has inked a deal with the world's largest insurer, AXA. In our view, this venture is a deviation from its core business of telecom services. The stock was down less than 1% during the week. Other telecom stocks
Going forward, we anticipate tougher times for investors to identify stocks where significant value/growth remains, as most of them have run up quite substantially. At the risk of sounding repetitive, we would continue to advise investors to take a long-term approach while investing. While investment in equities was never risk-free, this is compensated for by the higher returns. The risks can surely be mitigated to a large extent by following a disciplined, staggered and fundamental investment approach, which is an optimum strategy, especially for a retail investor, for whom, preservation of capital is as much important as earning decent returns on the same. Happy investing!
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