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Firing on all cylinders - Views on News from Equitymaster
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  • Oct 2, 2004

    Firing on all cylinders

    After a brief consolidation last week, the Indian indices were back in the reckoning gaining nearly 3% over the week. With this, the gains for Indian indices are now at 18% in a little over 3 months. Buying was witnessed across sectors with index heavyweights playing an important role. Strong 1QFY05 GDP numbers along with ample liquidity and expectations of a strong performance by India Inc. in the forthcoming results season were the key drivers for Indian markets.

    The Indian indices started the week on a rather cautious note, which seemed primarily a trickle down effect of last week’s consolidation on the bourses. Apprehensions on part of investors to invest at 5,500 odd levels (on Monday) seemed to have held them back. Further, another near-term concern pertaining to the turnover tax regime also lingered. The situation worsened further on Tuesday as crude oil breached the US$ 50 per barrel mark owing to future oil supply concerns.

    However, after two days of bear dominance, bulls came back with a vengeance over the next three days. Good GDP numbers at 7.4%, relatively tamed inflation at 7.8% and smooth rollover of the derivatives open positions, were seemingly all triggers, which further fuelled the rally that has been brewing on the Indian bourses over the last 3 months. It must be noted here that FIIs have been a key driver of this leg of the rally and have invested over US$ 1.4 bn in the last 3 months into Indian equities, with the aggregate buying by them now within striking distance of the US$ 5 bn mark in 2004.

    Now, let us consider some key developments during the week:

    • The turnover tax was finally implemented on the Indian bourses on October 1, 2004. However, contrary to investor apprehensions that stocks would witness a bout of profit booking, as investors might take advantage of the new 10% short-term capital gains tax regime against the previous 30%, the markets continued to rally. Also read ‘Turnover tax and you’

      Key gainers over the week (NSE-50)
      Company Price on
      Sept 24 (Rs)
      Price on
      Oct 1 (Rs)
      % Change 52-Week
      H/L (Rs)
      BSE-SENSEX 5,528 5,676 2.7% 6,250 / 4,228
      S&P CNX NIFTY 1,723 1,775 3.1% 2,015 / 1,292
      MTNL 126 143 13.3% 166 / 92
      HINDALCO 1,260 1,383 9.8% 1,599 / 720
      NALCO 163 175 7.7% 209 / 95
      RELIANCE 499 533 6.9% 650 / 382
      SCI 135 144 6.8% 203 / 61
      Note: Click on the link above to read our view on the company/sector.

    • MTNL stock was amongst the key gainers this week (up 13%). With the government considering the reverse merger of MTNL with the national carrier BSNL in order to get the latter listed on the bourses, the sentiment was buoyant. Telecom stocks during the week

    • The government prevented the oil marketing companies from raising petroleum product prices in order to keep inflation under check. It must be noted that there was news that oil-marketing companies had asked the permission to raise diesel prices by Rs 1.5 per litre in wake of rising crude oil prices, which breached US$ 50 per barrel. Since companies like BPCL (up 3%) and HPCL (marginally up) cannot pass on the rise in crude prices (its raw material) to consumers, their margins are likely to come under pressure. Energy stocks during the week

      Key losers over the week (NSE-50)
      Company Price on
      Sept 24 (Rs)
      Price on
      Oct 1 (Rs)
      % Change 52-Week
      H/L (Rs)
      BHARTI TELE 150 143 -4.4% 189 / 70
      MARUTI 369 357 -3.3% 600 / 227
      BRITANNIA 673 655 -2.6% 786 / 530
      PNB 269 262 -2.6% 397 / 164
      TATA TEA 437 427 -2.3% 450 / 220
      Note: Click on the link above to read our view on the company/sector.

    • Further, the government has also announced that PSUs should increase dividend payouts by distributing atleast 20% of their net profits. However, not much should be read into this as most of the PSUs already have dividend payouts ranging between 20% and 40%.

    Going forward, the prevailing optimism with respect to the continuation of India Inc. performance, which has kept the current rally alive, would soon be tested once the September quarter results start pouring in. However, investors must keep a close watch on strengthening oil prices, which is trading near the US$ 50 per barrel mark, as it has the potential to retard the growth of world economies (including India), consequently affecting stock markets. Further, with markets poised close to the 5,700 mark (Sensex), it really would test the mettle of investors as to should he commit further money despite lack of convincing positive triggers (in the near to medium term) or book profits. Here it would make sense for him/her to consider the upside and the downside before taking a decision. Further, we believe that in such a scenario, staggering one's investments can turn out to be a good strategy.

  • Market commentary for October 01, 2004



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