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Movers & shakers in October - Views on News from Equitymaster
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  • Nov 5, 2004

    Movers & shakers in October

    Bulls seem to be back in the limelight. After reaching a low during the last week of October, the stock markets have gained sharply since then notching up a decent 5% gains. However, on a month-to-month basis, the gains at about 1% seem to be rather muted. Despite this, there were some stocks that bucked the trend and witnessed significant appreciation. In this article, let us have a look at the top five gainers on the Sensex in the past one month.

      4-Oct'04 4-Nov'04 % Change
    Sensex 5,766 5,833 1.2%
    Nifty 1,806 1,835 1.6%
    Infosys 1,727 1,988 15.1%
    Bharti Tele 145 160 10.3%
    BHEL 589 633 7.5%
    Wipro 628 671 6.8%
    ICICI Bank 291 309 6.2%

    Infosys: With gains of 15% in the last one month, Infosys, the software major is perched comfortably at the top. The company has had a dream run on the bourses and the buying interest could be attributed to upbeat guidance of the management and improved revenue projections that it announced post its 2QFY05 results. As cost pressures mount on global corporations, they are likely to outsource more to cheaper destinations like India and Infosys, by virtue of being one of the leaders in the industry, is likely to benefit from such a trend. The re-election of Bush was also taken as a positive for a continued move towards offshoring.

    The company’s other major peer, Wipro, has also gained strongly (up nearly 7% in the past one month). While we have faith in the long-term ability of these companies to deliver good returns to their shareholders, we would like to point out that at the current juncture, the valuations are ruling at high levels and much of the future growth that will accrue to these companies seems to have already been factored into valuations. Moreover, unless Indian software companies move to higher value added services, margins are likely to come under pressure and this might affect profitability. Hence, one should not get carried away by the euphoria generated from the sector.

    Bharti Tele: The country’s largest mobile telephony company has witnessed 10% gains over the last one month and has emerged as the second highest gainer on the Sensex. The investors seemed to have bought into the stock on the back of massive subscriber additions in the mobile telephony market. Truly, the penetration in the country at 8 per 100 is among the lowest in the world and this in itself underlines the huge potential waiting to be tapped. But the industry is highly capital intensive in nature, especially when it is in a nascent stage and this demands extremely strong cash flows from the company. With ARPUs (Average Revenue Per User) under pressure and competitive pressure increasing, it remains to be seen whether the company can sustain its growth trajectory.

    BHEL: The public sector engineering major has gained over 8% in the past one month and is the third highest gainer on the Sensex. Riding on the back of an investment cycle upturn, the company has witnessed strong order inflows in the past few months and this has led to significant appreciation in the stock price. The company is a leader in setting up power generation plants in the country. Since the 10th plan envisages adding another 41,000 MW of power generation capacity, the company is likely to benefit from such a trend. Moreover, the industrial division revenues are also likely to show strong growth as sectors such as steel, auto, cement go in for significant capacity addition over the next couple of years.

    ICICI Bank: With gains of 6%, India’s largest bank in the private sector has occupied the fifth place among the gainers in October. The bank, which prides itself as the first universal bank in the country, has continued to register strong growth in its retail advances, which now account for 58% of advances as compared to 52% a year ago. Besides, the bank has managed to bring down its interest expenses and this has helped it to improve net interest income and consequently its interest margins. There has also been a significant improvement in core fee based income as evident from the September quarter results. Thus, it appears as if the bank is slowly addressing all the concerns plaguing it and this is improving the investor sentiment towards the bank. In other words, it is taking the right steps to emerge as one of the most profitable banks in the country.

    It should be remembered that the gains have come despite crude prices ruling at high levels and the general feeling among investors is that the markets have already factored in the rise in crude prices. Therefore, if the crude prices were to fall from here, one could only gauge the kind of positive impact it will have on the markets. However, although we too are supporters of the long-term growth story of India Inc, we believe that valuations are looking stretched at current levels and investors’ would do well to stagger their investments and take a cautious approach towards the stock markets.



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