Sep 2, 2006|
Don't expect fireworks now!
Despite the futures and options market rollover, the last week was not as turbulent as expected, albeit some amount of intra-day volatility was witnessed. Since the drastic fall in May and June 2006, the markets have gained at a steadfast pace and investor confidence is improving gradually. The BSE-Sensex and the NSE-Nifty, the benchmark indices, gained around 2% week-on-week.
In the last week, steel majors announced price reductions, which reflects the trend in the international markets. Though steel companies are terming it as temporary 'price adjustments', in our view, steel prices are likely to soften going forward. For the first time, Baosteel, one of the major steel producers in China, cut prices earlier this month by around 5%. This was on the back of significant excess capacity in China, which has forced Chinese companies to export. In our view, based on our interactions with steel majors, given the global demand-supply equation, commodity prices are expected to decline, which will force Indian companies to adjust prices downwards.
Beside this, cement stocks also faced the brunt of selling pressure. This was mainly due to the steps taken by the cement producers. Cement producers across the country are planning big capacity expansions. However, it should be noted that, despite the strong prospects for cement companies due to the infrastructure boom in the country, this additional supply could result in cement prices falling as and when they come onstream.
Coming back to the stock markets, FIIs were net buyers in the Indian stock markets to the tune of Rs 12.4 bn. Domestic mutual funds also turned net buyers last week to the tune of nearly Rs 1.8 bn.
Net investments -
|28-Aug-06 ||434 ||(109) ||325|
|29-Aug-06 ||3,689 ||731 ||4,420|
|30-Aug-06 ||3,369 ||583 ||3,952|
|31-Aug-06 ||4,871 ||545 ||5,416|
|Total ||12,363 ||1,750 ||14,113|
The benchmark index, the BSE Sensex, closed higher during the last week and was up by 1.8%, while the NSE Nifty gained 1.5%. Amongst sectoral indices, the BSE Bankex was up 3.2% followed by BSE Healthcare (2.8%) and BSE FMCG (2.7%).
Key indices over the week
Having looked at the institutional activity in the last week, let us consider some sector/stock specific developments:
As per a leading business daily, engineering major L&T has won an order worth US$ 150 m for setting up a high-tech methanol and carbon monoxide plant in Saudi Arabia. The company has secured this order in consortium with Haldor Topsoe of Denmark. The scope of the project includes residual basic engineering, detailed engineering, project management and procurement of equipment for the plant. It must be noted that L&T booked orders worth Rs 63.2 bn in its E&C (Engineering and Construction) business (86% of total orders booked) during 1QFY07, thus taking its order backlog to nearly Rs 275 bn (2.4 times the division's FY06 revenues and 97% of the total order backlog). The stock was up 3.2% week-on-week. Other Engineering Stocks
Tata Motors's newly established 100% subsidiary, TML Financial Services, has chalked out plans to increase the company's present chain of 150 'Tata Motorfinance' branches to 500 branches by FY10. This move is in line with the parent company Tata Motors' plans to expand its product portfolio in 2008. It must be noted that the launch of the Rs 1 lakh car by Tata Motors is expected in 2008. The new company is expected to support and enhance the vehicle finance activities of Tata Motor Finance. Tata Motor Finance recorded a 60% YoY increase in revenues in FY06, which accounted for 24% of Tata Motors' domestic sales. The stock was up 1.6% week-on-week. Other Auto Stocks
Top gainers during the week (BSE - A Group)
Jindal Stainless is planning to raise the capacity of its Hisar plant to 700,000 tonnes by March 2007 from 550,000 tonnes. The company will invest about Rs 800 m on the back of growing global demand for stainless steel. The company is also setting up a greenfield unit at Dubri near Bhubaneshwar with an initial outlay of Rs 217.5 m. In the first phase, the company will set up facilities for a ferro alloys unit, coke oven and a 250 MW captive power plant. It is also exploring a fully integrated plant with a capacity in excess of 1.4 MT per annum. The company is also looking at acquisitions and strategic tie-ups in Europe to service that market. Jindal Stainless is focussing on small companies based in Europe to whom it can supply hot bands and set up cold rolling units. With this, the company is planning to establish its brand globally. The stock was down 4.7% week-on-week. Other Steel Stocks
Top losers during the week (BSE-A)
ONGC, India's largest oil exploration and production major, plans to focus on developing its marginal fields in the next three to four years, which would contribute a substantial portion to its total production. The company plans to use remote-control 'smart well' technology in all the deepwater clusters of marginal fields. Smart well technology is used in the deep-waters, where human intervention could be highly expensive. Meanwhile, the E&P major has cleared an investment of Rs 319.5 bn in a cluster of C-series fields near Daman with peak production gains of 2.7 million metric standard cubic meters (mmscm) per day. Development of the marginal fields will depend on future crude oil prices, as higher prices will be able to offset the high costs associated with the development of these fields. Thus, the profitability of the development of these marginal oilfields depends on future crude prices. The stock was up 0.8% week-on-week. Other Energy Stocks
So, what should investors do now, at a time when markets have rebounded significantly from the lows hit in mid-June and are now at levels of nearly 11,800? We would say that these are times again when you should be cautious while investing in stocks. As has been repeatedly mentioned by us, investors should focus more on those companies that are fundamentally strong and also have good managements. Investing in fundamentally sound stocks not only increases the probability of earnings good returns in future, but also reduces the element of risk involved. We certainly believe that it is necessary to invest by following a disciplined process, and this is the best way to make money in any market, bull or bear, across economic and market cycles. Happy Investing!
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