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 reigns... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 13, 2007

    Volatility reigns...

    Markets movements during the week ended 12th October 2007 were marked by significant volatility as curt crashes and swift recoveries became the order of the week. Although bears made their presence felt during the week, with indices closing in the red for two out of five trading sessions, the bulls were not complaining as the domestic indices closed the week with gains of around 4%.

    The week began on a negative note with the BSE Sensex losing more than 300 points on Monday after opening with a positive gap of 129 points. The sell-off was led by metal and power stocks as the BSE Metal Index shed more than 4% for the day. However, the bulls were back with a vengeance on Tuesday, as the Sensex closed the day with its biggest-ever single day gain up 789 points from its previous close. Markets continued their northbound journey in the next two trading sessions with BSE Sensex gaining 378 and 151 points on Wednesday and Thursday respectively. Bears made a comeback on Friday, with the BSE Sensex losing close to 400 points. On the sectoral indices front, the BSE Capital Goods Index and the BSE Bankex (each down 2.7%) emerged as the key losers. For the week, while BSE-Sensex advanced by 3.6%, NSE-Nifty closed with gains of 4.7%.

    On the institutional activity front, between 5th and 10th October, while Foreign Institutional Investors (FIIs) emerged as net buyers to the tune of Rs 77 bn, mutual funds sold equities worth Rs 13 bn.

    (Rs m) MFs FIIs Total
    5-Oct (2,749) 5,750 3,001
    8-Oct (3,312) 34,199 30,887
    9-Oct (3,409) 19,511 16,102
    10-Oct (3,549) 17,479 13,930
    Total (13,019) 76,939 63,920

    On the sectoral indices front, the BSE Metal Index and the BSE Oil & Gas Index featured among the key gainers with gains of 5.1% and 4.6% respectively, while the BSE Infotech Index lost 1.1%.

    Index As on October 5 As on October 12 % Change
    BSE IT 4,740 4,688 -1.1%
    BSE SMLCAP 9,102 9,099 0.0%
    BSE OIL AND GAS 10,110 10,576 4.6%
    BSE HEALTHCARE 3,826 3,806 -0.5%
    BSE AUTO 5,366 5,515 2.8%
    BSE PSU 8,341 8,673 4.0%
    BSE MIDCAP 7,486 7,529 0.6%
    BSE FMCG 2,107 2,142 1.7%
    BSE BANKEX 9,225 9,311 0.9%
    BSE METAL 14,122 14,841 5.1%

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

    Software major, Infosys announced its 2QFY08 results today. The topline grew by 9% QoQ on the back of 1.9% QoQ growth in blended billing rates and 7.6% QoQ growth in volumes. The operating margins expanded by 2.6% QoQ, aided by higher utilisation. Other income dropped sharply due to change in hedging policy in the previous quarter. Higher taxes, largely due to MAT, restricted the PAT growth to 2% QoQ for the quarter. While 48 new clients were added during the quarter, attrition rose to over 14%. Software stocks closed weak with I-flex (down 5%) and Infosys (down 3%) leading the pack of losers.

    The government has announced a slew of measures to help the sugar industry. Subsidised loans would be given to sugar mills to help them clear dues of farmers and making mandatory the blending of 5% ethanol in petrol with immediate effect across the country, barring the North East, Jammu and Kashmir and the island territories. It has also allowed sugar factories to produce ethanol directly from sugarcane juice to augment its availability and reduce the oversupply of sugar. Further, 10% blending has been made optional from this year, but this would become mandatory from next October. A uniform nationwide purchase price of Rs 21.5 per litre (ex-factory) for supply of ethanol for the next three years was also decided at a meeting of the Cabinet Committee on Economic Affairs. The CCEA has also extended export subsidy by one more year from April 19, 2008 to April 18, 2009, to target an additional export of 3 million tonnes of sugar. The Indian sugar industry is facing its worst crisis, due to higher supply of sugar. Most companies have incurred losses in the last two quarters. The decision would bring some relief to the industry. Sugar stocks closed in the red with Balrampur Chini (down 3%) and Bajaj Hindusthan (down 2%) leading the pack of losers.

    Top gainers during the week (BSE A)
    Company Price on
    October 5 (Rs)
    Price on
    October 12 (Rs)
    H/L (Rs)
    BSE SENSEX 17,773 18,419 3.6% 18,845 / 12,315
    S&P CNX NIFTY 5,186 5,428 4.7% 5,549 / 3,546
    IGATE GLOBAL 241 374 55.3% 432 / 208
    GMDC 1,262 1,851 46.7% 1,851 / 333
    VSNL 451 526 16.6% 559 / 342
    BOI 275 312 13.5% 324 / 132
    RELIANCE ENERGY 1,447 1,636 13.1% 1726 / 448

    Pharma stocks closed mixed for the week with Nicholas Piramal (up 6%) and Glenmark Pharma (up 5%) leading the pack of gainers, while Dr. Reddy's (down 6%), Novartis and Aurobindo (each down 5%) were out of favour. As per a leading business daily, pharma majors Aurobindo, Cadila and Lupin are set to hive off their R&D units to reduce cost pressures and improve valuations of their other businesses. As a matter of fact, R&D is heavy on costs. Domestic pharma companies find it prudent to de-merge R&D into a separate unit to reduce the cost burden of other businesses. This, in turn, improves the valuation of the other businesses. The practice is, however, confined to the Indian space where R&D is not really the core activity. Global companies such as Pfizer or Merck have not adopted such a model because their core business activity is R&D. Such companies are instead divesting their manufacturing units or entering into contract manufacturing tie ups in low-cost locations such as India and South Africa. Big companies like Nicholas Piramal and Sun Pharma have already hived off their R&D units into separate businesses.

    Top losers during the week (BSE A)
    Company Price on
    October 5 (Rs)
    Price on
    October 12 (Rs)
    H/L (Rs)
    FACT 28 24 -11.8% 30 / 19
    IOC 503 454 -9.9% 585 / 370
    CHAMBAL FERT 56 51 -9.6% 63 / 30
    NATIONAL FERT 50 46 -8.9% 53 / 26
    MRPL 68 62 -8.5% 83 / 32

    FIIs continued their obsession with emerging markets. 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 the 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. With valuations taking a backseat in this mad rush of capital inflow, we advise investors to concentrate on the fundamental aspect and not get carried away by the one-way movements in the indices. The fundamentals will get manifested in the upcoming results season.

    The current markets remind us of Warren Buffett's remark that bull markets make the investors think "I can't miss the party". While the India story has roots in strong fundamentals, the valuations are running ahead of themselves on the back of overenthusiastic FII money. We urge you dear investor to be fearful when others are greedy. No stock is good at "any" price. Stock prices sooner or later revert to intrinsic value of the underlying business and the current upward run in prices contain a fair amount of euphoria in addition to business value. And, euphoria never lasts forever! Happy investing.



    Equitymaster requests your view! Post a comment on "Volatility reigns...". 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.

    Were You Lured By Mr Market's Bait? (The 5 Minute Wrapup)

    Aug 23, 2017

    Mr Market lured investors into believing they'd bitten into a crash. Did you take the bait?

    Deep State First (Vivek Kaul's Diary)

    Aug 23, 2017

    Nowhere was the darkness deeper than in the nation's capital. There, no light shone. No flicker of awareness...observation...learning...or reflection appeared.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    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.

    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.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    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?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    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!

    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


    Aug 23, 2017 03:36 PM