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19K regained! - Views on News from Equitymaster
 
 
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  • Oct 27, 2007

    19K regained!

    Positive sentiment made a thumping comeback during the later half of the week, as Foreign Institutional Investors (FIIs) and domestic mutual funds became net buyers after initiating heavy selling action during the first two trading sessions. The restoration in sentiment was on account of positive second quarter results of corporate India and greater clarity over the P-Notes issue. The draft on P-Notes became a regulation but not after a steady flow of clarifications from both the Finance Minister and the Securities and Exchange Board of India (SEBI) chairman.

    The week began on a cautious note as the BSE-Sensex closed with marginal gains (0.2%) while the NSE-Nifty lost marginally (0.6%) on Monday, after witnessing significant volatility during the day. Tuesday witnessed a huge upsurge in positive sentiment amidst positive global cues, as the Sensex zoomed 879 points (5%). Wednesday was a repeat of Monday as the markets opened with a positive gap but could not hold on to their gains for long and slipped into a lackluster closing. As the 2QFY08 results of corporate heavyweights kept filtering in, the investor confidence was reinstated and the Sensex gained more than 250 points on Thursday. More positive results flowed in and the confusion over the P-Note issue finally came to an end on Friday, to which the Sensex cheerfully responded with a 472 points surge. For the week, the benchmark index appreciated by 7%.

    On the institutional activity front, between 19th and 25th October, while FIIs emerged as net sellers to the tune of Rs 16 bn, mutual funds bought equities worth Rs 8 bn.

    (Rs m) MFs FIIs Total
    19-Oct (2,317) (32,155) (34,472)
    22-Oct (3,263) (12,103) (15,366)
    23-Oct 2,992 7,770 10,762
    24-Oct 3,374 18,610 21,984
    25-Oct 7,123 2,130 9,253
    Total 7,909 (15,748) (7,839)

    On the sectoral indices front, BSE Bankex (up 16%) and BSE Metal (up 16%) featured among the key gainers, while the BSE Infotech Index was the only loser (down 1%).

    Index As on October 19 As on October 26 % Change
    BSE BANKEX 8,838 10,274 16.2%
    BSE METAL 14,480 16,745 15.6%
    BSE PSU 8,211 9,227 12.4%
    BSE MIDCAP 7,239 7,921 9.4%
    BSE SMLCAP 8,800 9,551 8.5%
    BSE OIL AND GAS 10,242 11,103 8.4%
    BSE AUTO 5,297 5,617 6.0%
    BSE FMCG 2,022 2,129 5.3%
    BSE HEALTHCARE 3,715 3,886 4.6%
    BSE IT 4,686 4,636 -1.1%

    Let us now have a look at some of the key stock/sector specific developments during the week.

    Software stocks closed mixed with Satyam (up 3%) leading the pack of gainers, while Infosys and TCS (down 3% each) closed in the red. Buoyancy in Satyam was s result of strong 2QFY08 results that the company reported during the week. Its topline grew by 11% QoQ during 2QFY08. Growth was led by 9% QoQ growth in volumes and improvement in billing rates. Operating margins contracted by 2.6% QoQ due to wage hikes and rupee appreciation. Bottomline grew by 8% QoQ largely helped by higher other income (75% QoQ growth). FY08 revenues are seen at US$ 2.1 bn up from the earlier guidance of US$ 1.9 bn. EPS guidance for FY08 was upgraded from Rs 24.6 to Rs 25.1. Dabur registered strong growth across its key categories leading to a consolidated topline growth of 13% YoY for 2QFY08. While Consumer care, Foods and International business divisions reported growth of 15% YoY, 25% YoY and 31% YoY respectively for 1HFY08, consumer health care division sales declined by 4%. Oral care, shampoo and health supplements were the main growth drivers. Consolidated operating margins improved by 1% YoY led by decline in expenses as a percentage of sales. Excluding the extraordinary, the net profit grew by 30% YoY on a consolidated basis. The company's board of directors recommended a dividend of 75 paise per share. FMCG stocks closed strong with Pidilite (up 21%), GSK Consumers (up 14%) and Britannia (up 9%) and Dabur (6%) leading the pack of gainers.

    Top gainers during the week (BSE A)
    Company Price on
    October 19 (Rs)
    Price on
    October 26 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    BSE SENSEX 17,560 19,243 9.6% 19,276 / 12,316
    S&P CNX NIFTY 5,215 5,702 9.3% 5,737 / 3,555
    INDUSIND BANK 67 95 41.1% 96 / 37
    ADANI EXPORT 614 836 36.1% 849 / 133
    ENGINEERS INDIA 543 726 33.7% 726 / 430
    DREDGING CORPORATION 589 787 33.7% 802 / 461
    JINDAL STEEL 6,500 8,382 29.0% 8,490 / 1,741

    Engineering stocks closed on a high with L&T (up 22%) and BHEL (up 11% each) featuring among the key gainers. L&T announced results for 2QFY08 on Friday. The company grew its standalone sales by 47% YoY during the quarter and 39% YoY during the half year period. Lower sub-contracting, construction material and staff costs (all as a percentage of sales) aided the 4.3% expansion in operating margins during the quarter. Net profits grew 73% YoY during 2QFY08 which was largely aided by expansion in operating margins as other income declined by 79% YoY.

    Top losers during the week (BSE A)
    Company Price on
    October 19 (Rs)
    Price on
    October 26 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    HEXAWARE TECH 118 111 -6.0% 205 / 108
    ADITYA BIRLA NUVO 1,606 1,533 -4.5% 1,820 / 805
    TCS 1,107 1,070 -3.3% 1,399 / 978
    INFOSYS 1,908 1,849 -3.1% 2,439 / 1,745
    GEOMETRIC SOFTWARE 87 85 -2.4% 145 / 81

    The volatility over the week reminds us of Ben Graham's Mr. Market. We have been cautioning investors about keeping their focus on the fundamentals of the companies and not unduly worrying over the market movements. Every market tumble is an invitation to have a re-look at good businesses to see if anything is available at a bargain. Concentrating on what is important and knowable (i.e.fundamentals of the businesses) rather than fretting on what is now known (i.e. market movements due to Mr. Market's mood swings) tilts the odds of investment success in favor of the rational investor. We urge you, dear reader, to stay rational in weeks such as the one gone by.

     

     

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