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Bulls run amuck!

Sep 29, 2007

The markets seemed to be in ecstatic mood during the week ended 29th September, as the benchmark indices closed in positive for all the five trading sessions. Scoring the quickest 1,000 points, the BSE-Sensex closed above the historical 17,000-mark, while the NSE-Nifty managed to close above the magical 5,000 mark for the first time in their trading historyThe week began on a strong note with the BSE Sensex gaining close to 300 points on Monday. The rally was lead by index heavyweights like Reliance Industries, ICICI Bank, Bharti Airtel and NTPC. The markets extended their gains on Tuesday, but not without some amount of volatility. After being down more than 251 points form the day's high, the index witnessed an amazing turnaround in the final hour of trade to close 0.3% above the breakeven. Renewed buying in software stocks helped the indices rally to a fresh all-time intra-day high of 17,074 on Wednesday. The index, however, could not hold on to its gains and finally closed just 72 points short of the magical figure. Unabated buying in power metal stocks on Thursday led to the Sensex closing above the 17,000-mark for the first time. Reliance Energy (up 10%), Tata Power (up 9%) and Tata Steel (up 6%) emerged as the key gainers on the index. Metal stocks continued to garner investor's interest on Friday, with the BSE Metal Index advancing more than 3.3%. The BSE Sensex and the NSE Nifty closed the week with gains of 4.4% and 3.8% respectively.

On the institutional activity front, between 21th and 27th September, while Foreign Institutional Investors (FIIs) emerged as net buyers to the tune of Rs 64 bn, mutual funds sold equities worth Rs 11 bn.

(Rs m)MFs FIIs Total
21-Sep1,287 1629517,582
24-Sep(3,540) 9,243 5,703
25-Sep(4,305)12,844 8,539
26-Sep(5,175)15,503 10,328
27-Sep927 10,040 10,967
Total(10,806)63,925 53,119

All the sectoral indices ended the week on a positive note, with the BSE Metal (up 9%) and the BSE Bankex Index (up 8%) featuring among the key gainers.

IndexAs on September 21As on September 28% Change
BSE IT4,428 4,628 4.5%
BSE SMLCAP8,895 9,100 2.3%
BSE OIL AND GAS9,340 9,562 2.4%
BSE HEALTHCARE3,654 3,784 3.6%
BSE AUTO5,194 5,332 2.7%
BSE PSU7,781 8,202 5.4%
BSE MIDCAP7,200 7,422 3.1%
BSE FMCG2,153 2,161 0.4%
BSE BANKEX8,740 9,469 8.3%
BSE METAL12,813 13,945 8.8%

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

East India Hotels (EIH) will be terminating its strategic alliance for marketing and co-branding with the US-based hospitality chain, Hilton International for its Trident Hotels. Currently, there are seven Trident Hilton properties across the country with a cumulative inventory of 1,900 rooms. The Oberoi-Hilton alliance had come into effect in 2004. Further, it has also chalked out an aggressive expansion plan for the Trident brand in the country adding another 1,300 rooms in the process. The reason for the termination is due to Hilton's multi-brand strategy in India, which could dilute the positioning of the Trident brand. Hilton has been pursuing a three-pronged development strategy for India, including a 75-hotel JV with the real estate major, DLF Group, with a focus on the mid-market segment. This could send confusing signals to the customer. Though, EIH was able to command higher room rates due to Hilton association, independently following the expansion of the brand shows the confidence of the management in developing and growing the Trident brand in the country. While EIH advanced by 13% during the week, Indian Hotels gained 6%.

As per a leading business daily, BHEL, country's largest power equipment manufacturing firm, has won Rs 7.65 bn turnkey order from SAIL to set up a 62.2 mw captive power plant in Burnpur, West Bengal. The power unit will meet the requirements of the upcoming expansion project of the IISCO steel plant at Burnpur and is slated for commissioning in 26 months. This is one of the largest-value single orders secured by BHEL's industry sector business segment. The order involves commissioning of the captive power plant in addition to civil works. The company would supply steam turbine generator sets, multi-fuel gas-fired boilers and controls and instrumentation package on a unified platform, besides other associated auxiliaries. The industry segment accounted for almost 30% of the company's total revenues and has reported 32% YoY growth during FY07. At the end of March 2007, the company's order backlog stood at Rs 550 bn, which was over 3 times its total sales in FY07. This provides strong visibility into company's growth over the next few years. Engineering stocks closed mixed with BHEL (up 3%), L&T and Voltas (each up 1%) featuring among the key gainers, while Punj Lloyd and ABB closed marginally in the red.

Top gainers during the week (BSE A)
CompanyPrice on
Sep 21 (Rs)
Price on
Sep 28 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX16,564 17,291 4.4% 17,361 / 12,179
S&P CNX NIFTY4,838 5,021 3.8% 5,056 / 3,509
MRPL 54 73 34.8% 83 / 32
ARVIND MILLS 51 62 22.2% 73 / 42
ISPAT INDUSTRIES 23 28 21.6% 30 / 10
RELIANCE ENERGY1,010 1,206 19.4% 1220 / 448
MRC ELECTRONICS 19 22 18.6% 30 / 16

Energy stocks closed firm with MRPL (up 35%), RNRL (up 17%), IOC (up 16%) featuring among the key gainers. The petroleum planning and analysis cell (PPAC) has recommended a judicious mix of reduction of excise duties and state taxes along with initial moderating of consumer prices of fuels. Taxes constitute 54% and 32% of retail selling prices of petrol and diesel respectively in Delhi and should be reduced to reasonable levels. If the taxation level on petrol and diesel are reduced to reasonable levels then the oil companies can pass on the impact of international prices. A reduction of excise duty of Rs 2 on petrol and diesel will impact government revenues by Rs 140 bn. The government can recoup these losses by increasing tax on other commodities. If the state government also reduces VAT on fuels then competitive prices will not only benefit consumers but also would also bring efficiencies in operations of oil companies and compel them to adopt international benchmarks for their products.

Top losers during the week (BSE A)
CompanyPrice on
Sep 21 (Rs)
Price on
Sep 28 (Rs)
%
Change
52-Week
H/L (Rs)
INDO RAMA SYN6963-9.7%71 / 44
INGERSOLL RAND342319-6.8%409 / 263
INDUSIND BANK8075-6.0%82 / 37
RAMCO SYSTEMS166157-5.8%233 / 139
CONTAINER CORP2,2082,101-4.8%2,444 / 1,662

As expected, markets during the week were primarily driven by the liquidity factor as the FIIs went on a buying binge, counting on a further appreciation in rupee vis-a-vis dollar. Though investors might find this as a reason to cheer, they need to be cautioned about the short-term nature of this 'hot' money. Though, the global worries may have marginally subsided, we are more concerned about the stretched valuations prevailing in the domestic markets. As such, we would advise our investors to concentrate on companies with strong fundamentals and good management that are likely to provide adequate returns on investment and not get complacent by the one-way movements in the indices.

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