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Oil spoils sentiments

Oct 16, 2004

The Indian indices witnessed a volatile trend this week as they finally ended the week lower, in the red. Both the Sensex and the Nifty closed with losses of over 1%. While profit booking was witnessed at every rise on the bourses, a slew of positive (GDP, inflation and corporate results) and negative news (oil, oil and oil) during the week forced investors to exercise caution at the current index levels. It must be noted that this weakness crept in despite the good India Inc. results for the September 2004 quarter. Further, CMIE’s upgraded GDP target for FY05 on the back of continued robust domestic demand also failed to enthuse investors. Thus, bears had the final laugh in this shortened trading weak owing to a holiday on Wednesday as Maharashtra went to polls.

Looking back at the week gone by, the Indian indices opened on a firm note on Monday, seemingly backed by last week’s gains. However, as the trading day progressed, profit booking crept in as investors opted to take a cautious approach on the back of strengthening global crude oil prices. It must be noted that global oil prices have failed to show any signs of cooling off and are currently hovering near the US$ 55 per barrel mark. In fact, there are indications of a further rise in oil prices on the back of low oil reserves. Further, with winter round the corner in the US, oil demand is expected to pick up, which could further worsen the demand-supply situation.

Key gainers over the week (NSE-50)
CompanyPrice on
Oct 9 (Rs)
Price on
Oct 15 (Rs)
H/L (Rs)
BSE-SENSEX 5,758 5,687 -1.2% 6,250 / 4,228
S&P CNX NIFTY 1,818 1,795 -1.3% 2,015 / 1,292
INFOSYS1,6991,7875.1% 1,836 / 1,031
HCL TECH3863972.9% 407 / 190
SATYAM3934012.0% 425 / 230
WIPRO6376502.0% 677 / 396
BPCL3513551.3% 533 / 230
Note: Click on the link above to read our view on the company/sector

Tuesday’s trade was not much different. Impressive numbers by software bellwether, Infosys, failed to cheer investor sentiments. However, it did trigger a round of strong gains across software majors, which continued almost throughout the week, despite the largely bearish sentiments on the bourses. Going into Thursday’s trade, despite opening on a weak note, the indices staged a smart turnaround in the latter half of trade led from the front by gains in software stocks, Infosys in particular. However, this was followed by profit booking again on Friday. Though the bulls made ample efforts at pushing the indices to higher levels, profit booking at every rise kept the pressure on the indices.

Now let us consider some of the stock/sector specific developments (apart from India Inc. results) during the week that played on investor minds:

  • The big news this week was the Chinese bugle that led to a meltdown amongst metal stocks, not just in India, but also across the globe. Metal stocks fell like ninepins on the bourses on Thursday. The cause of the pessimism towards these sectors could be attributed to the news that China would be taking further measures to rein in its galloping economic growth. It must be noted that Chinese demand for metals like aluminium, steel, copper, zinc, etc has been the biggest driver of prices over the last couple of years. Measures to cool down the Chinese economy could hurt the demand for these metals consequently affecting prices, which are currently ruling at multi-year highs. It must noted that prices of zinc (down 10%), aluminium (down 8%) and copper (down 15%) fell considerably during the week on the London Metal Exchange (LME). Steel and aluminium stocks during the week

  • However, this news of Chinese authorities taking further measures to curb the pace of its economic growth took its toll on practically all sectors that have been riding high on the China story. Another sector that has been facing good times since the last 18-24 months has been the Indian shipping industry. Massive imports by China of ore, metals and oil had led to a significant firming up in freight rates, the benefits of which are being reaped by all the shipping companies. However, with the possibility of a Chinese slowdown, the sustainability of the current high freight rates seems rather difficult, which in turn would affect the profitability of shipping companies going forward.Shipping stocks during the week

    Key losers over the week (NSE-50)
    CompanyPrice on
    Oct 9 (Rs)
    Price on
    Oct 15 (Rs)
    H/L (Rs)
    HINDALCO1,3681,244-9.0% 1,599 / 720
    SHIP. CORP.176161-8.9% 203 / 61
    HDFC672630-6.3% 703 / 450
    SAIL5148-5.7% 56 / 21
    OBC253239-5.6% 367 / 149
    Note: Click on the link above to read our view on the company/sector

  • The NTPC IPO ended Thursday with an overwhelming response. The issue was oversubscribed nearly 13 times (FIIs 7 times and retail investors nearly 2.5 times) and managed to garner over Rs 682 bn (assuming the upper prices band) against the targeted Rs 54 bn. Further, it must be noted that this has become the largest IPO (in terms of the amount raised from the primary market) surpassing the Rs 607 bn raised by the government from the ONGC IPO.

  • Software stocks stole the limelight this week with better than expected numbers by almost all the players that have declared their September quarter results so far. These include results from Infosys, TCS, Wipro, Hughes Software and MphasiS. Kindly click on the respective company links for our detailed analysis on their quarterly performance.

Going forward into next week, apart from corporate results (which include ABB, Bajaj Auto, Biocon, Reliance Energy, Corporation Bank), surging oil prices is likely to play at the top of investors’ minds. It must be noted that high oil prices fuels inflation and consequently lead to higher interest rates, thus affecting corporate profitability and economic growth. As yet, the saving grace has been the fact that the government has refrained from passing on the adverse impact of rising crude prices onto Indian consumers thus ‘postponing’ the upward pressure on inflation. Further, the current ample liquidity in the market is also aiding the largely bullish undertone prevailing in the markets. However, while we continue to remain positive on the long-term growth prospects, investors should prepare themselves for a bumpy ride in the near-term if oil prices show no mercy. Happy and safe investing!

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