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Bears creep in - Views on News from Equitymaster
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  • Sep 13, 2003

    Bears creep in

    It was a week dominated by volatility as investors took their time before deciding upon a particular course of action. However, the final direction of the indices, for the week, must have not gone down too favourably with a lot of investors, especially the bulls, more so, considering the fact that the indices opened the week with a bang. The final tally was in favour of the bears as they surfaced strongly in the last two trading sessions of the week. For the week, while the BSE Sensex lost 1.4%, the NSE-Nifty lost a shade under 2%.

    Steel stocks continued to lose ground this week also. At the start of the week, news reports of China's warning to India as regards India's steel exports to China came as a dampener for steel stocks. It must be noted that in FY03, almost 30% of Indian steel exports found its way to the Chinese markets. The Chinese authorities claim that in the current year, India has already exceeded its exports quota to China, which is currently 3% of China's total steel imports (similar to the US quota). It has also warned India that if it fails to curb its steel exports, then Indian steel will have to face import barriers in China. Moreover, after the postponement of the intended price hike in the first week of September, there are indications that though steel demand will continue to display strength going forward, steel prices are unlikely to move up further from hereon as fresh capacities come into existence. The key losers during the week amongst steel stocks included Ispat (17%), Essar Steel (15%), SAIL (14%), Jindal Iron (11%) and Tisco (6%).

    For our view on steel stocks read: Steel: Reality check

    Top 5 gainers over the week
    COMPANY Price on September 5 (Rs) Price on September 12 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-Sensex 4,369 4,306 -1.4% 4,474 / 2,828
    S&P CNX NIFTY 1,398 1,372 -1.9% 1,431 / 920
    Infosys 165 223 35.3% 242 / 72
    SSI LTD. 109 138 27.0% 143 / 54
    VIDEOCON INTL. 58 70 20.1% 75 / 21
    BURROUGH WEL. 464 548 18.2% 570 / 185
    IDBI 34 39 15.4% 51 / 15

    After witnessing a rally of sorts over the last one month, software stocks witnessed a bout of profit booking during the current weak. Much of the optimism towards technology stocks seemed primarily a factor of significant gains seen on the tech laden Nasdaq, which gained over 11% in the last one month alone on the back of ‘expectations' of a stronger US economic growth and increased global technology spending. Based on the argument that Indian players also will reap the benefits of higher tech spending, as currently, almost 70% of the revenues of some top-rung software companies are derived from the US markets, domestic software stocks had also started to gain ground on the bourses. However, we feel that while there are no clear signs of increasing global tech spending, the billing pressure on Indian software companies is here to stay. In fact, in our article dated September 4, 2003, we had tried to analyse the reasons for the recent spurt in software stocks. The key losers this week amongst the software pack included HCL Tech (7%), Satyam (7%), Wipro (5%), Hughes Software (5%) and Infosys (1%).

    Top 5 losers over the week
    COMPANY Price on September 5 (Rs) Price on September 12 (Rs) % CHANGE 52-WEEK H/L (Rs)
    SHREE RAMA MULTI 9 6 -31.8% 16 / 4
    Steel Authority of India 40 35 -13.9% 61 / 6
    NOCIL 13 12 -10.7% 15 / 5
    National Aluminium Company Ltd. (NALCO) 128 114 -10.3% 142 / 67
    ZEE TELE 115 104 -10.0% 124 / 60

    Among other snippets for the week:

    • MTNL (down 1%) has proposed to form a wholly owned subsidiary 'MTNL International' for making an entry into the international market as it has been witnessing increased pressure from private players in the Mumbai and Delhi markets. MTNL plans to initially enter into Mauritius where it has already bagged a license for offering long distance and fixed phone lines in Mauritius. It plans to invest Rs 2.5 bn over the next five years.

    • The Supreme Court on Tuesday declared that Star television network was not bound to transmit its signals to SitiCable (subsidiary of Zee) for distributing them as part of their bouquet of channels. The broadcasters contended that SitiCable was using Headends-In-The-Sky (HITS) to collect their signals at the local stations and uplinking them for unauthorized distribution all over the country. This news affected sentiments towards the Zee Telefilms stock as it lost 10% during the week.

    • Infosys (down 1%) has bagged (not yet confirmed by the company) a 5-year US$ 50 m deal from the largest Australian telecom company, Telstra. Infosys would provide Telstra with software development and maintenance services. This deal for Infosys, though small in size, comes at a time when Indian software companies are looking up to the 'expected' improvement in global technology spending to bring in more large-size deals.

    • Maruti Udyog's production continues to get affected due to a strike at a leading component supplier's facility. Exports are also likely to get severely affected owing to this shortage. The stock lost over 4% during the week.

    Going forward into next week, markets could trade relatively cautiously considering the fact that the current week's losses would be at the top of investors mind. However, at the same time, the current weeks correction is good news for investors who were expecting to enter at lower levels. While we continue to advocate caution while investing for the short-term, we continue to believe that Indian equities are a good long-term play and India is well placed to show encouraging growth going forward, which is likely to lead to handsome returns for investors.



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