It was a Dussehra gift to the investors this week. The Sensex and the Nifty both gained around 4% each. Both the indices closed the week on new 52-week highs. The Sensex closed above the magic figure of 4,500. The buying was seen across all sectors, including cement, commodities, software and FMCG. PSUs too were in demand.
The week marked the end of the first half of FY04. In the last six months, both the Sensex and the Nifty have gained about 56% each (one of the sharpest gains ever).
The top gainer on the Nifty was PSU shipping major, Shipping Corporation of India (up 36%). Out of this, a major 26% gain came in on the last day of the trading week (i.e. Friday). The company declared an interim dividend of Rs 17 per share, thus triggering the buying spree. The dividend yield at the current price works out to nearly 12%. The fact that the PSU has doled out such a huge dividend also hints to the fact that the government is seriously looking at exiting the company through the divestment route.
Top 5 Nifty gainers over the week
September 26 (Rs)
October 3 (Rs)
||4,453 / 2,847
|S&P CNX NIFTY
||1,449 / 923
||143 / 51
||138 / 62
||164 / 62
||212 / 38
||540 / 250
Infact, of the top 10 gainers on the Nifty, 5 were PSUs, namely Oriental Bank, GAIL, Shipping Corporation, SAIL and Nalco. This indicates that notwithstanding the current clouds on the divestment programme investors are still willing to back these companies largely on the fundamental strengths.
Another key gainer on the bourses was Zee Telefilms (up 18%). The broadcasting major announced a Rs 100 per month package (plus taxes) for its DTH services. The package looks quite aggressive, but one has to remember the fact that the subscriber may have to shell out a higher one-time cost as compared to the current cable services. Zee too gained 10% on the last day of trading.
Nifty losers over the week
September 26 (Rs)
October 3 (Rs)
||1761 / 815
||861 / 611
||484 / 281
||523 / 216
Mid-caps across sectors made a comeback. Among the key gainers on the BSE-A group were Bombay Dyeing, Ashok Leyland, Titan, Century and Saregama. Arvind Mills and Voltas too were buoyant. Voltas’ electro mechanical division has been gaining orders and bidding for contracts both in domestic and international markets. The estimated orderbook of this division is nearly Rs 8 bn. Similarly, Titan gained nearly 18% this week. The company has announced that it would sell its business of publishing the Reader's Digest magazine. Titan has 50% stake in RDI print & publishing Ltd., which is its associate company and are the publishers of this magazine. The business is being sold to Living Media India Ltd. for lumpsum consideration of Rs 150 m. The company has had a worrying FY03 and a subdued first quarter. Selling of such non-core businesses would help the company in infusing the capital required to pay of its large debt.
CV major, Ashok Leyland, too finished among the top gainers on the BSE A group (up over 20%). The company closed at a new 52-week high level, much like the benchmark indices. The company is expected to post higher growth in revenues in FY04 on the back of higher CV sales and one time boost from the order the company had won for exports to the Middle East. However, we expect Ashok Leyland to under-perform Telco on the CV front in FY04, thus resulting in further decline in its market share from 32% levels.
Though mid-cap software stocks did well during the week, the biggies like Infosys, Wipro and Satyam did not gain much. This is despite the fact that the US has capped the number of H-1B visas to 65,000 per annum for the next 3 years (as compared to 195,000 per annum earlier). Industry watchers expect the move to be detrimental to the smaller software companies. Investors need to exercise caution towards this sector as the September quarter results season is on its way. Historically, the quarterly result season has made or marred the sentiment towards the sector.
Banking stocks too were in demand. PSU majors especially held sway backed by increased optimism of improved efficiencies and gains from their treasury operations. In another development, the two largest banks in India, SBI and ICICI Bank, inked a deal to share their ATM network. The tie up will give their retail banking customers' access to almost 4,000 ATMs across the country. The deal has opened a new vista for cooperation in the banking sector. In our view, caution again is the buzzword as for most PSU banks, the gross NPAs are high and the sector is going to get increasingly competitive in the years to come.
At the current levels, both the Sensex and the Nifty trade at 14.5x trailing 12 months earnings. With the economy expected to grow at 6%-6.5% in FY04, the forward valuation of the indices is likely to be hovering around 11x-12x forward 12 months earnings. Though we find the Indian markets attractively placed over the long term, at levels above 4,500 retail investors should be very prudent in where there are putting their money. For investors who do not research on stocks on their own, a good way to invest would be through the mutual funds. Or, one can also solicit professional advice to take decisions. Happy investing!