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Bulls on the march…

Sep 1, 2007

The week belonged to the bulls as domestic indices closed firm for all the five trading sessions. Though global and political factors made their presence felt during the week, markets managed to sail through. Uncertainty in Indian politics, which gnawed at investors in the previous week, saw some relief and stability. BSE-Sensex and NSE-Nifty ended with gains of more than 6% for the week. The week ended August 31, 2007, began on a positive note with BSE Sensex advancing more than 400 points on Monday, tracking strong global cues. The rally was led by banking, metals and auto stocks, which were butchered in the past few weeks. Revival of global worries on Tuesday, however, led indices opening marginally in the red. Subsequent buying in metal and software stocks, however, led to indices closing with marginal gains. Similar trend was visible on Wednesday, with the BSE Sensex closing with a gain of 77 points after being down more than 250 points in the early trades. The markets were less volatile on Thursday and Friday, with the BSE Sensex advancing by 1% and 2% respectively.

On the institutional activity front, between 24th and 30th August, FIIs and mutual funds both emerged as net buyers to the tune of Rs 11 bn and 13 bn respectively.

(Rs m)MFs FIIs Total
24-Aug847 4,145 4,992
27-Aug3,454 12,018 15,472
28-Aug459 3,656 4,115
29-Aug598 (1,921)(1,323)
30-Aug7,264 (6,645)619
Total12,622 11,253 23,875

The recovery in markets was broad-based as all the sectoral indices ended the week on a positive note. The BSE Metal (up 13%), BSE Oil & Gas (up 8%), BSE Bankex and BSE Small-Cap Index (each up 7%) were the biggest gainers for the week.

IndexAs on August 24As on August 31% Change
BSE IT4,408 4,586 4.0%
BSE SMLCAP7,522 8,061 7.2%
BSE OIL AND GAS7,517 8,160 8.6%
BSE HEALTHCARE3,424 3,573 4.3%
BSE AUTO4,569 4,878 6.8%
BSE PSU6,626 7,095 7.1%
BSE MIDCAP6,190 6,608 6.8%
BSE FMCG1,878 1,974 5.1%
BSE BANKEX7,315 7,859 7.4%
BSE METAL10,277 11,566 12.5%

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

Auto stocks closed firm with TVS Motors (up 15%), M&M (up 11%) and Maruti (up 10%) leading the pack of gainers. As per leading business news daily, TVS Motor, India's third-largest two-wheeler manufacturer will launch a hybrid and a CNG-run two-wheeler next year. The company will invest Rs 500 to 600 m every year to increase its capacities and launch new products. Around 3% of its turnover will go into R&D and developing future technologies. It is close to launching hybrid and CNG bikes, which will bring fuel costs down by 50%. TVS Motor, which has faced reversals on the two-wheeler front and had cut production to control inventories, expects a turnaround in 2008. The company is expecting good growth during the festival period of October-December. It has strengthened its portfolio and entered the 125 cc executive segment with its product Flame, which should help in increasing its sales. The stock closed up 8% while its peer Bajaj Auto ended 1% higher.

Top gainers during the week (BSE A)
CompanyPrice on
Aug 24 (Rs)
Price on
Aug 31 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX14,425 15,319 6.2% 15,869 / 11,444
S&P CNX NIFTY4,191 4,464 6.5% 4,648 / 3,328
ISPAT IND.16 19 25.5% 20 / 10
ESCORTS77 95 24.0% 157 / 73
TATA STEEL582 690 18.4%731 / 399
TITAN IND.1,058 1,242 17.4% 1378 / 660
SAIL146 168 15.4%173 / 71

As per a leading business daily, the Telecom Regulatory Authority of India (Trai), in a move to enhance competition and spur mergers in the telecom sector, has recommended no limit on the number of players in this sector, relaxation of stringent M&A norms, technology neutrality for telecom licences, in addition to suggesting that both GSM and CDMA players pay an entry fee and higher spectrum fee for additional 2G radio frequency allocation. It also has suggested that the price of spectrum beyond 10 Mhz should be raised substantially. The operators should pay Rs 160 m for every additional one Mhz of spectrum that they require beyond this cut-off bar. Also the telecom operators should pay Rs 800 m as 'one time spectrum acquisition charge' in the cities of Mumbai and Delhi and other prime states. Also companies like RCOM (a CDMA operator) should be allowed to now launch a pan-India GSM service within the same license, but only after paying an additional Rs 15 bn. However, the industry is not happy with the recommendations, as it would have to pay over Rs 20 bn for 5 MHz of spectrum (Rs 5 bn due to additional revenue share and the rest as payment for spectrum). While Reliance Communications gained 9%, Bharti Airtel advanced by 2% for the week.

Real Estate stocks closed firm with Parsvnath (up 8%), DLF and Unitech (up 6%) leading the pack of gainers. As per a leading business daily, real estate major Parsvnath Developers is forming a special purpose vehicle (SPV) to foray into the mobile services (GSM) space. The company has already submitted applications to the Department of Telecom (DoT) for providing unified access service in 22 telecom circles across the country. According to the management, the company will rope in a strategic partner for the venture while the Parsvnath group will hold atleast 26% stake in the company. Parsvnath's application will put further pressure on the Government, which is finding it difficult to make available adequate spectrum for existing operators. Mobile service providers including Idea Cellular, Spice Telecom and Aircel are awaiting spectrum in new circles.

Top losers during the week (BSE A)
CompanyPrice on
Aug 24 (Rs)
Price on
Aug 31 (Rs)
%
Change
52-Week
H/L (Rs)
NIIT130125-3.4%170 / 40
GILLETTE891863-3.1%1020 / 762
WYETH LTD.503491-2.5%607 / 440
FINOLEX CABLES7977-2.4%110 / 66
P&G768751-2.2%1005 / 725

While the markets have recovered most of the lost ground during the week, we believe there are still plenty of opportunities left on select counters. With the liquidity tap being turned off to a great extent, courtesy the recent sub prime meltdown, more sanity is likely to prevail in the markets. As such, we would advice our investors to stay invested for the long-term and in good quality stocks, as the fundamental stories remain intact.

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