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And the rally continues… - Views on News from Equitymaster
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  • Sep 27, 2003

    And the rally continues…

    It was just ‘last week’ that the indices had touched the 4,100 levels on the Sensex and 1,300 levels on the Nifty. And look at them now. While the Sensex gained 3.9% during the week and is nearing the 4,400 levels, the Nifty notched gains of 4.9% to close in to the 1,400 levels. The gains this week seem to suggest that the bear party is over and the bulls are back in action, all ready to take the indices to greater heights.

    The week opened on a cautious note, as losses of the previous two weeks was fresh in the minds of investors. Despite the markets opening on a firm footing on the first trading day, the hangover of the previous two weeks soon took over investor sentiments, which led to the indices losing over 1% on Monday. Tuesday also opened weak but after witnessing some initial weakness, the bulls went on a buying spree across sectors, pulling the indices out of the trough. The buying followed through into Wednesday’s trading as the Sensex gained about 120 points, one of the ‘few’ trading sessions when it gained in 3-digits in 2003. The last time it had had triple digit gains was the day after the Mumbai bomb blasts.

    Top 5 gainers over the week
    COMPANY Price on
    September 19 (Rs)
    Price on
    September 26 (Rs)
    H/L (Rs)
    BSE-SENSEX 4,217 4,383 3.9% 4,474 / 2,828
    S&P CNX NIFTY 1,322 1,387 4.9% 1,431 / 920
    HCL INFOSYS 208 306 47.3% 316 / 75
    NOCIL 11 15 37.1% 15 / 5
    MOSER-BAER INDIA 327 407 24.3% 419 / 138
    TATA FINANCE 35 41 17.4% 62 / 14
    NALCO 104 118 13.2% 142 / 70

    However, during the entire week, concerns about trading on Thursday kept surfacing, it being the last day of derivatives settlement. On this day, the open positions on the derivatives segment have to be either squared-off or rolled over to the next settlement. Investors were worried about the consequences of a possible sell off on the bourses in the event of the open positions in derivatives not being rolled over. However, the markets did lose ground on Thursday. Friday was another big day, as the markets displayed immense strength.

    Top 5 losers over the week
    COMPANY Price on
    September 19 (Rs)
    Price on
    September 26 (Rs)
    H/L (Rs)
    HFCL 29 21 -26.4% 48 / 11
    SSI LTD. 137 118 -13.4% 151 / 54
    GTL LTD. 77 68 -11.4% 100 / 52
    PENTAMEDIA 10 9 -7.6% 33 / 7
    DSQ SOFTWARE 9 9 -6.0% 24 / 7

    The losers’ list above reminds about the one time favourites called as K-10 stocks ruled investor sentiments. However, the stocks were back in the news this week owing to BSE’s decision of shifting 9 stocks (it does not include DSQ Software) to the trade-to-trade segment, which is equivalent to downgrading them to the Z category of stocks. It must be noted, however, that this move by the BSE does not indicate any call on the fundamentals of the above-mentioned companies (if any), but is rather a part of preventive surveillance measures to ensure market safety and integrity. The other stocks are GTB, Silverline, Kopran, Aftek and lupin.

    Now for some news bits of the week:

    1. The big news for the week was about the unified licensing scheme (ULS), which would enable telecom companies, which have licenses to operate basic and cellular services, to migrate to other services without paying any extra charges. However, any decision regarding including national and international long-distance services under the ULS is still to be taken. Among others, a decision was taken to allow mergers between operators within the same circle and an increase in the foreign investment limit in the telecom sector to 74% (from the present 49%). Some key gainers

    2. HCL Infosystems Ltd., the largest PC manufacturer in the country, declared its audited FY03 results (June ending). It posted a net profit growth of 34% on the back of a strong 31% topline growth. However, for this period, the company witnessed a decline in operating margins by 70 basis points. The rise in profits was due to a substantial decline in depreciation and tax. The stock was amongst the biggest gainers amongst ‘A’ group stocks this week, notching gains of over 47%! However, we must caution investors here that the earnings visibility and consequently the profitability of the company yet seem hazy. However, software stocks closed largely in the positive for the week. Some key gainers

    3. The Organisation of Petroleum Exporting Countries (OPEC) has decided to cut its crude oil production by 0.9 m barrels per day, or 3.5%. This comes in the wake of rising concerns among the OPEC members about declining oil prices from the current $25 per barrel post the Iraq war. Prices have already dropped around 13% in the past month for OPEC's benchmark, due to Iraqi exports and rising output from Russia. ONGC, is likely to be a key beneficiary of rising prices as then it would be in a position to sell its crude at higher prices. As for other Indian oil companies, they are likely to pass on the effect of rising input costs (due to rising crude prices) to customers. Some key gainers

    Going forward into next week, the indications seem to suggest that there is still steam left in the rally from hereon and the markets ‘should’ soon (not necessarily next week) be testing their recent highs (made on September 9, 2003), which is just about 2%-3% up from the current levels. However, at the same time, we will be entering into the results month, which could play on investor sentiments. However, one thing is for sure, it is now important for investors to remain cautious and be selective of their choice in stocks. While the long-term Indian growth story remains intact, from hereon, it is the fundamentals that will takeover the sentiments on the bourses. Happy Investing!



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