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Extending gains...

Sep 8, 2007

Markets extended their gains during the week, presumably on the back of assurances from Federal Reserve chairman Ben Bernanke and President George Bush that they would not let the US economy collapse. Though bears made their presence felt many times during the week with domestic indices closing in negative for 2 out of 5 trading sessions, the bulls weren't complaining as the BSE-Sensex and the NSE-Nifty ended the week with gains of 1.8% and 1% respectively.The week began on a positive note with BSE Sensex advancing more than 100 points on Monday, tracking strong global cues. Banking and pharma stocks led the rally. Infact, the BSE Bankex and the BSE Healthcare Index gained more than 1.5% each. In absence of any global cues, market traded within a narrow on Tuesday and Wednesday. While the BSE Sensex advanced by 43 points on Tuesday, it shed 19 points on Wednesday. The bulls were back on Thursday, as the BSE Sensex gained 170 points to close at 15,616. Though markets opened on a negative note, the index pared all its losses and proceeded to trade higher for the rest of the trading and finally closed with a gain of 1.1%. Although Friday started on a positive note, market pared early gains as fresh selling emerged in later half of the day when European markets drifted lower. The BSE Sensex finally closed the day with a marginal loss of 26 points.

On the institutional activity front, between 31st August and 6th September, Foreign Institutional Investors (FIIs)and mutual funds both emerged as net buyers to the tune of Rs 29 bn and 8 bn respectively.

(Rs m)MFs FIIs Total
31-Aug4,636 6,773 11,409
3-Sep1,425 5,277 6,702
4-Sep989 6,304 7,293
5-Sep674 4,104 4,778
6-Sep452 6,231 6,683
Total8,176 28,689 36,865

The week belonged to the mid-cap and small-cap counters, who were left behind in the recovery witnessed last week. The BSE Small Cap and the BSE Mid Cap Index ended the week with a gain of 4.6% and 3.7% respectively. Among sectors, the BSE Healthcare and the BSE FMCG emerged as the key gainers (each up 4%).

IndexAs on August 31As on September 7% Change
BSE IT4,586 4,660 1.6%
BSE SMLCAP8,061 8,434 4.6%
BSE OIL AND GAS8,160 8,186 0.3%
BSE HEALTHCARE3,573 3,706 3.7%
BSE AUTO4,878 4,890 0.2%
BSE PSU7,095 7,288 2.7%
BSE MIDCAP6,608 6,852 3.7%
BSE FMCG1,974 2,047 3.7%
BSE BANKEX7,859 8,096 3.0%
BSE METAL11,566 11,609 0.4%

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

Pharma stocks closed firm with Sun Pharma (up 9%), Cipla (up 8%) and Ranbaxy (up 5%) leading the pack of gainers. As per a leading business daily, Ranbaxy has completed the second phase of the clinical trials of a revolutionary anti-malarial drug that could enable it to be the nation's first pharmaceutical company to launch a New Chemical Entity (NCE) globally. The company has just finished phase II clinical trials and is doing a phase II for the combination of that product. If everything continues to be successful, Ranbaxy will be able to launch the NCE in the market by 2011. While two to three dozen new molecules are being developed for cardiovascular, arthritis, diabetes and oncology, there have been just two products launched in the last 30 years for malaria. Though the market size is considered small the competition is not likely to be intense.

Top gainers during the week (BSE A)
CompanyPrice on
Aug 31 (Rs)
Price on
Sep 7 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX15,319 15,590 1.8% 15,869 / 11,444
S&P CNX NIFTY4,464 4,510 1.0% 4,648 / 3,328
NIIT125 154 22.5%170 / 40
CENTURY ENKA118 140 18.3%164 / 112
RAMCO SYSTEMS145 168 15.9%233 / 119
LIC HOUSING186 214 15.2%221 / 128
HCL INFOSYS199 229 15.1% 230 / 125

As per a leading business daily, Reliance Industries (RIL) has acquired Mauritius-headquartered Gulf Africa Petroleum Corporation (Gapco), a petroleum distribution company with an extensive network and large storage facilities in east Africa. RIL acquired the company through its wholly owned subsidiary, Reliance Industries Middle East (RIME), a company registered in the United Arab Emirates. Gapco owns and operates large storage terminal facilities and a retail distribution network in Tanzania, Uganda and Kenya. It also owns and operates large storage terminals in Dar-es-Salaam in Tanzania, Mombassa in Kenya, Kampala in Uganda and has other well-spread depots in east and central Africa. It also operates more than 250 outlets covering retail and industrial segments. The imports of petroleum products into these countries are expected to rise in the near future and the east African countries have rapid economic growth and progressive government policies in place. The acquisition is a strategic fit for RIL's exports from the country and a step towards achieving its global vision in the petroleum downstream sector by integrating the entire value chain consisting of refining, shipping, trading, terminalling and marketing through retail and wholesale segments. While RIL closed flat, Cairn India gained 2% during the week.

Top losers during the week (BSE A)
CompanyPrice on
Aug 31 (Rs)
Price on
Sep 7 (Rs)
%
Change
52-Week
H/L (Rs)
WELSPUN GUJ. STAHL247231-6.8%264 / 65
JINDAL STAINLESS165156-5.3%178 / 95
BALAJI TELEFILMS264250-5.3%278 / 104
EIH LTD114109-4.5%127 / 88
PIDILITE149143-3.8%160 / 93

Reliance Energy is planning to hive off its engineering, procurement and construction (EPC) division into a new company. REL is considering the option to list the new company to raise funds for its projects. The EPC division has an order backlog of Rs. 70 bn. The EPC division's revenue was Rs 20.8 bn in FY07, almost a third of company's total revenue of Rs 65.8 bn. The EPC division has contributed about 8% of the net profit of Rs. 8 bn of Reliance Energy. While Reliance Energy gained 9%, Tata Power advanced by 5% for the week.

With markets close to their all-time highs, dangers of overvaluation in select sectors have once again surfaced. While on an aggregate basis, the markets do look adequately valued, it should be remembered that not all sectors have participated in the current rally. Hence we advise investors, to closely monitor the risk-return equation in overheated sectors.

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