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That sinking feeling!

Oct 22, 2005

It was yet another week of sheer choppiness on the bourses with the benchmark indices finally ending the week with 1.6% losses each. This has thus marked the third consecutive week of losses for the markets with cumulative losses of about 9%. The mid-cap and small-cap segments of the market have been hit harder over this period with cumulative losses of 11% and 16% from the respective peaks that their representative indices made merely 3-weeks ago.

Bogged down by the weak sentiments of the previous couple of weeks, the markets opened this week on a shaky note. Alternate bouts of buying and selling indicating investor nervousness towards Indian equities kept the markets volatile throughout Monday's trading session. However, the markets (Sensex) ultimately managed to close in the positive by a whisker. This seemingly helped investor sentiments on Tuesday with the markets opening on a strong footing, which helped the Sensex breach the 8,300 level in the initial hour of trade. However, this turned out to be a false indication for investors as since then, the markets slowly and steadily gave up their gains. Further, this trend turned into a full-blown profit-booking act with the markets sliding sharply into the red in the final hour of trade on Tuesday. At the end of the carnage (prior to Tuesday's adjusted closing), the Sensex had collapsed a good 250-points i.e. 3% from its intra-day peak.

The volatility continued into Wednesday's trade as well with the Sensex treading lower for most part of the trading session before some recovery in the final hour of trade. However, Thursday marked another day of roller coaster ride for investors with the Sensex swaying between a near 300-points range (about 3.6%)! The markets opened on a firm note on the back of positive global cues, which provided enough reason for market participants to take advantage of the near 10% correction and do some bottom fishing. However, bears slowly and steadily increased their might as the trading day progressed. As profit booking intensified, the indices were soon deep into the red. The markets found a footing at these levels, as re-emergence of buying support helped the markets to recover much of their lost ground (see adjoining chart).

This recovery sustained well into Friday's trade (Sensex up 1.7%), but not without its share of volatility. What seemed to have aided market sentiments on the last trading day of the week were the positive developments on the reforms front with the government raising the FDI limit in telecom from the current 49% to 74% and allowing foreign portfolio investments in television news channels. Further, the Finance Minister indicating his confidence in the strength of the Indian rupee and the Indian economy, which would aid foreign inflows, helped soothe market nervousness. It must be noted that the recent weakness in the rupee had encouraged Foreign Institutional Investors (FIIs) to book profits in Indian equities.

Top gainers over the week (NSE-50)
CompanyPrice on
Oct 14 (Rs)
Price on
Oct 21 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 8,202 8,069 -1.6% 8,822 / 5,558
S&P CNX NIFTY 2,484 2,444 -1.6% 2,669 / 1,750
HERO HONDA690 743 7.7%770 / 412
DABUR164 174 6.0% 189 / 71
MARUTI534 559 4.7% 601 / 338
SATYAM570 593 4.0% 608 / 349
SHIP. CORP.151 156 3.1% 188 / 136

Now let us consider some sector/stock specific developments this week:

  • Telecom stocks were in the limelight during Friday's trade and managed to recoup much of their losses witnessed in the first four trading sessions of the week. The government's clearance to the increase in FDI limit in the telecom sector from 49% to 74% aided sentiments towards these stocks, which had otherwise been hammered over the past few days. Bharti Tele (up 1%) led the telecom gainers' pack this week. Total foreign shareholding in the company currently stands at 48.5%, including 30.8% held by Singtel, a strategic investor in the company. This rise in FDI limit is a positive for the Indian telecom sector, as this would enable players to attract greater investments, which is a key factor for the long-term growth of the sector. Other telecom stocks

  • PSU shipping major, Shipping Corporation of India (SCI) is planning to invest Rs 65 bn over the next 5 years in order to increase its cargo business and is also considering a JV with some foreign companies. Further, the company is in the process of examining several global tenders for acquiring some vessels and containers. This move by SCI is a positive, as challenges in the international markets are increasing and the capex will ensure that it stays in competition. The stock ended the week higher by 3%. Other shipping stocks

  • Suzlon Energy made its debut on the bourses this week. The stock ended the week higher by 32% over its allotment price of Rs 510 per share. Suzlon Energy Limited (SEL) is the country's leading manufacturer of wind turbine generators (WTG) having a 43% market share of the total installed capacity. As at the end of 2004, the company was the sixth largest manufacturer of WTGs globally in terms of annual installed capacity. It is the first Asian company to manufacture WTGs, which have MW and multi-MW capabilities. The products manufactured by Suzlon include rotor blades, control panels, nacelle cover and tubular towers. Click here to read what was our view on the Suzlon Energy IPO.

  • Gains in Satyam this week was on the back of a robust performance reported by the company for the second quarter of FY06. The performance for the half-year has also been good. Further, the company raised its full-year guidance, which helped the stock beat the market heat. Other software stocks Contrary to this, domestic pharma major, Ranbaxy, lost a further 12% this week and was amongst the biggest index losers this week. The stock has been in a downtrend ever since the unfavourable ruling in the ‘Lipitor' case. Matters became worse with the company reporting nearly 90% YoY erosion in profits for 2QFY06. To read our view on the stock, click here


    Top losers over the week (NSE-50)
    CompanyPrice on
    Oct 14 (Rs)
    Price on
    Oct 21 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    ZEE TELE173 145 -16.4% 206 / 128
    RANBAXY443 390 -12.1% 640 / 386
    SAIL 57 52 -8.8% 70 / 44
    ORIENTAL BK.273 249 -8.5% 382 / 228
    GRASIM1,211 1,115 -8.0% 1,415 / 1,010

  • Media stocks were amongst the worst hit this week with stocks falling like nine-pins across the board. Among the biggest losers this week were Zee Tele (down 16%) and NDTV (down 15%). India's leading broadcaster, Zee Telefilms, reported dismal September quarter numbers this week. Apart from this, the fact that the company has been found ineligible for being awarded the cricket telecast rights could have affected sentiments. In the case of NDTV, the company reporting a loss of Rs 66 m for 2QFY06 compared to a profit of Rs 28 m in the corresponding quarter of the previous fiscal took its toll on the stock price. To read our NDTV result analysis, click here

To conclude, while a large part of India Inc. results having been in-line/above estimates (like Satyam, Godrej Consumers, Pidilite, Reliance Energy, Bajaj Auto), one should not overlook the fact that there have been a number of instances wherein companies have delivered poor/very poor results, which have taken investors by surprise. This has lead to a sharp correction in the stocks of these companies, cases in point being Zee Telefilms, Ranbaxy, Geomteric Software, ACC and NDTV. Going forward, with investors already feeling the heat considering the huge volatility being witnessed on the bourses, we would advise investors to take a long-term approach while investing. While investment in equities was never risk-free, this is compensated for by the higher returns. The risks can surely be mitigated to a large extent by following a disciplined, staggered and fundamental investment approach, which is an optimum strategy, especially for a retail investor, for whom, preservation of capital is as much important as earning decent returns on the same. Happy and safe investing!

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