X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Volatility's the middle name! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 7, 2006

    Volatility's the middle name!

    The previous week saw the Indian indices finally giving way to profit booking after the recent strong gains, which saw them come within barely 200 points of their all-time highs hit in May. The week's trade was characterised by significant levels of volatility, as can be expected when the indices are not too far way from their all-time highs. With the BSE-Sensex trading at over 21 times its trailing 12-month earnings, this is not cheap by any means, and participants appeared to have finally decided to take profits off the table. The BSE Sensex lost 0.7% for the week, while the NSE-Nifty lost 0.5%.

    Coming to the trade for the week, Monday being a holiday made the week a holiday-shortened one. Resuming trade after the lengthened weekend, Tuesday saw some amount of weakness in the markets, as participants finally opted to take home profits after what has been strong gains for the indices post their lows hit in June. Weakness was also exacerbated by the poor sentiment across global markets. Wednesday saw a continuation of the weak trend, and in fact, was a day of significant weakness, with the Sensex losing as many as 162 points.

    On Thursday, it was a totally different story, as the indices powered ahead into the positive after the weakness seen in the previous couple of trading sessions. Strength across global markets also encouraged local investors. Friday, however, saw a return to caution by participants, as they opted to take home some profits ahead of the weekend.

    As far as the institutional activity on the bourses was concerned, Foreign Institutional Investors (FIIs) were net buyers this week to the tune of nearly Rs 13 bn. Domestic mutual funds (MFs) also turned out to be net buyers to the tune of Rs 3 bn.

    Net investments
    (Rs m) FIIs MFs Total
    28-Sep-06 7,195 3,087 10,282
    29-Sep-06 12,936 1,211 14,147
    3-Oct-06 (2,943) 191.0 (2,752)
    4-Oct-06 (4,194) (1,314.7) (5,509)
    Total 12,994 3,174 16,168

    The benchmark BSE Sensex closed lower during the last week by 0.7%, while the NSE Nifty lost 0.5%. As regards sectoral indices, the BSE Metal and BSE Auto indices proved to be the biggest gainers during the week, notching up gains of 2.1% and 2.0% respectively. The BSE PSU and BSE Bankex indices also gained some ground. On the other hand, the BSE FMCG and BSE Healthcare indices lost ground. However, while the major indices lost ground during the week, the mid and small caps proved to be the gainers. It appears that given the fact that the large caps are currently fairly valued, participants are now starting to turn their attention to the lower rung stocks in the market where, in our view, there is more value at current levels. Going forward, these stocks could finally be accorded their true values that they deserve, after being out-of-favour after the May and June crashes. Thus, over a medium-term time frame, mid-caps could outperform large caps, given the fact that for many of them, the valuation gap between them and the large caps has increased after the May-June crash, which may not be warranted, as at the same time, their fundamentals continue to impress.

    Key indices over the week
    Index As on September 29 As on October 5 % Change
    BSE AUTO 5,366 5,472 2.0%
    BSE BANKEX 6,039 6,080 0.7%
    BSE FMCG 2,066 2,028 -1.8%
    BSE HEALTHCARE/TD> 3,684 3,623 -1.7%
    BSE IT 4,394 4,401 0.2%
    BSE METAL 8,509 8,687 2.1%
    BSE OIL&GAS 5,803 5,815 0.2%
    BSE PSU 5,816 5,864 0.8%
    BSE MIDCAP 5,148 5,264 2.3%
    BSE SMLCAP 6,162 6,329 2.7%

    Having looked at the institutional activity and the movement in key indices in the last week, let us consider some sector/stock specific developments:

    • MNC pharma major, Pfizer India, announced decent results for the third quarter and nine months ended August 2006 (November ending company) late Saturday. Topline, during the quarter, has grown by 10% YoY, which could be attributed to the strong performance of its key brands such as 'Corex', 'Becosules', 'Gelusil' and 'Listerine' mouthwash. The company's three new launches i.e. 'Viagra', 'Caduet' (cardiovascular) and 'Lyrica' (nerve pain), could also have contributed to the overall topline growth. Operating margins have expanded by 60 basis points backed by improved efficiencies at the operating level. During the quarter, strong growth in other income and reduction in extraordinary expense has led to the bottomline growth (up 29% YoY) outpacing the operating profit growth (up 13% YoY). The stock closed the week with 4.3% losses. Other pharma stocks.

    • Public sector aluminium major Nalco is planning to set up a greenfield integrated aluminium complex in Orissa at an investment of Rs 150 bn. The company will conduct a feasibility study as it gets permission from the Orissa government. The complex will comprise a 1.5 m tonne (MT) alumina refinery, a smelter with installed capacity of 250,000 to 300,000 tonnes and a captive power plant. Power being a major input for making aluminium, Nalco is actively exploring the possibilities of setting up a smelter in joint venture abroad where cheap power is available. It has identified 3 Gulf States, Oman, Abu Dhabi and Qatar. The stock closed the week with 1.0% gains. Other aluminium stocks.

      Top gainers during the week (BSE-A)
      Company Price on Sept 29 (Rs) Price on Oct 5 (Rs) % Change 52-Week H/L (Rs)
      BSE-SENSEX 12,454 12,373 -0.7% 12,671 / 7,656
      S&P CNX NIFTY 3,588 3,570 -0.5% 3,774 / 2,307
      MOSER-BAER INDIA 208 240 15.6% 268 / 162
      MICR ELEC. 25 29 15.2% 30 / 14
      D-LINK INDIA 86 98 13.4% 150 / 64
      DREDGING CORP 568 634 11.6% 749 / 460
      MRF LTD. 3,837 4,269 11.3% 4,269 / 2,025

    • As per a leading business daily, home textile major, Welspun India, having acquired UK towel brand Christy in 1QFY07, is planning to introduce it in the Indian market. Currently, retailing their home textile range under Welspun Homemart (factory outlets) and Spaces brand of retail stores, the management is toying with the idea of adding another level after Spaces. Besides Spaces and Homemart, the company plans to add another layer catering to the top of the customer pyramid. Welspun currently has 8 Spaces stores and intends to multiply their existing retail network to 150 Welspun Homemart stores and 60 outlets under the Spaces brand by 2008. The capex for the retail expansion in the coming fiscals is estimated to be over Rs 1 bn. Also, the retail business turnover that was Rs 1 bn in FY06, is expected to scale up to Rs 5 bn by FY08. The stock closed the week with 0.6% losses. Other textile stocks.

      Top losers during the week (BSE-A)
      Company Price on Sept 29 (Rs) Price on Oct 5 (Rs) % Change 52-Week H/L (Rs)
      STERLING BIOTECH 145 135 -6.8% 157 / 87
      HDFC 1534 1432 -6.7% 1,541 / 901
      NOVARTIS 463 433 -6.4% 635 / 381
      GUJARAT GAS 1297 1218 -6.1% 1,530 / 920
      TATA POWER 567 540 -4.8% 613 / 376

    • According to a leading business daily, Tata Steel, India's largest private sector steel company, is in talks with Anglo-Dutch steel giant, Corus Group, for a possible takeover at a price of US$ 10.4 bn. Corus is the ninth-largest steel producer in the world and the second-largest in Europe, with a capacity of 18 m tonnes (MT). The details of the possible takeover are still to be disclosed. However, if the takeover takes place, it would be the largest overseas acquisition by any Indian company. The deal is likely to be financed through a leveraged buyout, where Tata Steel would raise funds against its future earnings. However, as company officials have denied to comment on the issue, we need to exercise caution at the current juncture. The stock closed the week with marginal 0.2% gains. Other steel stocks.

    The BSE Sensex now trades at a price-to-earnings multiple of around 21.1 times its trailing 12-month earnings. As we have mentioned a couple of times in the recent past, this is not cheap, and despite the undoubtedly strong growth prospects of India Inc, we believe that most of the upside, at least in the near-term, has already been factored in. The upcoming second quarter results are undoubtedly expected to be the next trigger for determining the near-term trend of the indices. However, given the relatively high expectations from India Inc after a strong first quarter, we believe that any negative surprises on this front could lead to a correction.

    We continue to believe that there are greater opportunities in select mid-cap stocks at the current levels. This has already been seen this week, with funds plumping for mid-cap stocks over large cap stocks, as is reflected in the gains seen in the mid-cap index, as opposed to losses for the benchmark indices. We continue to advocate a long-term view on stocks, particularly at these levels. Of course, we remain bullish on the 'India story' over the long-term, and believe that a bottom-up approach is the way to go for generating 'alpha' - superior returns over and above those given by the benchmark indices. Happy Investing!

     

     

    Equitymaster requests your view! Post a comment on "Volatility's the middle name!". Click here!

      
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Mughal Money: How a 14th Century Emperor Proves Gresham's Law (The 5 Minute Wrapup)

    Aug 24, 2017

    How a fourteenth century Mughal story holds one of the key essences of safe stock investing.

    5 Attributes Of Lord Ganesha You Can Apply To Your Personal Finance (Outside View)

    Aug 24, 2017

    With Lord Ganesha's attributes and teachings, awaken your inner-self and inculcate these financial habits for a sound future.

    Why Shopping Online This Festive Season Makes Better Sense (Outside View)

    Aug 24, 2017

    Online shopping if done sensibly can help you save money and carries many other advantages.

    Mr Trump Has Been Broken (Vivek Kaul's Diary)

    Aug 24, 2017

    Kelly, Mattis, McMaster, Cohn, and Mnuchin are in charge. But these Pentagon bureaucrats and Wall Street hustlers may be worse than a loose-cannon president.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 24, 2017 03:05 PM

    MARKET STATS