Sep 18, 2004|
On a high...
The Indian bourses are on a roll since the last 3 months. Notwithstanding the correction witnessed during mid-August, the BSE-Sensex is currently at the pre-May 17 levels. To put this the other way round, it is at a four-month high. The story for the NSE-Nifty is also not very different. And the one big factor that has been providing the support to the indices has been the Foreign Institutional Investors (FIIs) factor (see chart below), which continued well into this week also. This led to the Indian indices closing with about 4% gains over the week making it the fourth straight week of gains.
The Indian bourses were in strong hands right from the start of trading this week and ended the week on a high note. While there was no specific positive news that could have provided the FIIs a reason to pump in money into Indian equities, markets seem to have shrugged off the cash reserve ratio (CRR) hike for the time being. Apart from this, lack of any further adverse news (apart from the already existing with respect to oil and interest rates) could have aided sentiments. However, if one would like to consider it this way, the fall in inflation to 7.81% (vis-à-vis the 8.33%) is a welcome development for the markets. Another possible explanation for the recent euphoria on the bourses could be the strong expectations from India Inc.'s September quarter results.
The big news at the start of the week was RBIs announcement of the CRR hike by 50 basis points to 5%, which would take effect in two tranches of 25 basis points each. This measure is part of the central bank's initiatives of curbing rising inflation (currently at 7.8%) through tightening of credit in the economy. This hike in CRR is likely to suck out Rs 80-85 bn from the system, as banks would now have to keep a larger portion of reserves with the RBI that would reduce funds at their disposal. However, while the banking community is not expecting any near term impact on lending rates, a further tightening of the money supply through a rise in interest rates might reduce demand for money going forward thus affecting banks' performance. However, amidst the euphoria on the bourses, banking stocks also performed well. Banking stocks during the week.
Key gainers over the week (NSE-50)
Sept 10 (Rs)
Sept 17 (Rs)
|| 6,250 / 4,098
|S&P CNX NIFTY
|| 2,015 / 1,285
|| 533 / 230
|| 56 / 21
|| 492 / 237
|| 189 / 58
|| 203 / 61
Pharma stocks have continued to strengthen further on expectations of strong results for the September quarter. For instance, as per the management of Cipla, the company has grown its sales by over 25% in the first two months of September quarter. Apart from this, Ranbaxy has also done very well in the US markets and now enjoys considerable market share in certain generic products. This position of Ranbaxy augurs well for the company's growth in the generics space in regulated markets. However, concerns over Dr Reddy's growth remain and apart from the growth, another major concern for Dr Reddy's is its margin profile, which is likely to take a major blow due to changing mix of its business. Indian pharma stocks over the week.
Steel stocks, after a considerable period of dullness on the bourses, shot back into the limelight this week. The optimism towards the sector was fuelled by expectations of another round of strong quarterly results next month by steel companies. Further, the news of India's most efficient and largest private steel company, Tisco, having paid a high advance tax is also being interpreted as an indication of strong results by the steel major. The spill over effect was also witnessed in other steel stocks, especially SAIL. However, at the current juncture, while the near-term momentum in steel stocks cannot be ruled out, we must advise caution to investors that the risk of investing in steel stocks at the peak of the cycle (or almost the peak) is a considerably high risk proposition. Steel stocks over the week.
Key losers over the week (NSE-50)
Sept 10 (Rs)
Sept 17 (Rs)
|| 600 / 199
|| 397 / 154
|| 98 / 57
|| 818 / 326
On the losers' front, Maruti was the only noticeable loser amongst the index stocks. The news regarding Suzuki ramping up the capacity in the country through a joint venture (JV) with its Indian subsidiary, Maruti Udyog, was not accepted well by the markets. It has to be noted that Maruti was working well beyond its rated capacity in FY04. Considering the robust growth expected in the Indian automobile industry, capacity expansion was imperative. However, now, the prospects seem to have diluted for Maruti, as it will have to share its earnings through the JV. Besides, the new JV is likely to create conflict of interest with regards to new models coming out from the Suzuki stable. Auto stocks over the week.
Going forward, with the Indian indices having already run up considerably over the last 15-18 months, we would like to point out that although the India growth story is not over yet, it is time that investors exercise caution. While across the board buoyancy is unlikely to continue for long, the story going forward would be more stock specific. Invest in companies with strong fundamentals, proven track record with a long-term horizon in mind. Staggering your investments will also be a useful strategy.
Market commentary for September 17, 2004
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