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Eyeing 6,000? - Views on News from Equitymaster
 
 
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  • Nov 6, 2004

    Eyeing 6,000?

    It was bull mania this week on the Indian bourses with the benchmark indices registering weekly gains of close to 4% and similar action being witnessed amongst the mid-cap indices also. Strong FII inflows and seemingly active participation by retail investors led to this euphoria. This in turn could be attributed to the impressive September quarter results, which has gone down well with the investor community – both, domestic and foreign. With the gains this week, the Sensex is once again within striking distance of the coveted 6,000 mark!

    After the tepid weekly gains witnessed last week, the Indian indices opened on a somewhat cautious note. With the results season behind them, investor focus seemed to have shifted from the recently concluded quarterly results to what the future holds for India Inc. Factors like high raw material prices in the form of strong commodity prices and high global crude prices seemed to have played on investor minds. However, they soon realised that the positives outweighed the negatives at the current juncture and the September quarter results were a vindication of their faith in Indian equities. This led to strong buying in Indian equities throughout the week, barring a brief blip on Thursday.

    Note: Data for November 2004 is for the first four trading days

    However, there were a slew of positive developments also during the week, which aided investor sentiments. One of it, and seemingly the most important one, was the positive statements emanating from the FII community, who are positive on the prospects of India Inc. going forward and are thus looking at increasing their exposure to Indian equities. Another news was on the tax reforms front that the Finance ministry might be considering a corporate tax cut in next year’s Budget thus further fuelling investor sentiments. Investors also continued to witness positive development on the global crude oil front, which slid further during the week to levels closer to US$ 48 per barrel mark. This is a welcome development for equity market participants who have been living in the backdrop of fears of strong oil prices disrupting the pace of global economic recovery, especially of oil importing countries like India and China. All this collectively led to renewed buying interest in Indian equities after almost three weeks of lacklustre trading activity.

    Now, coming to some key news during the week:

    After weeks of dilly-dallying over hiking petro-product prices, the government finally bit the bullet, and bit it rather hard! Petroleum product prices, including that of LPG, were raised substantially this week, creating a sort of unrest not only amongst political circles, especially the allies (read Left parties) but also stunning the average consumer. This is because while average petrol prices have been increased by about 6%, average diesel prices have been hiked by 9% and LPG (cooking gas) prices have been increased by 8%! While consumers have to bear the inflated fuel costs, shareholders of oil marketing companies had a field day on the bourses.

    Key gainers over the week (NSE-50)
    Company Price on
    Oct 29 (Rs)
    Price on
    Nov 5 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    BSE-SENSEX 5,672 5,891 3.9% 6,250 / 4,228
    S&P CNX NIFTY 1,787 1,852 3.7% 2,015 / 1,292
    BPCL 346 397 14.6% 533 / 230
    DABUR 81 91 12.4% 98 / 60
    GLAXO 673 752 11.7% 766 / 475
    SBI 447 498 11.4% 690 / 390
    HPCL 308 342 11.0% 542 / 262
    Note: Click on the link above to read our view on the company/sector

    As can be seen in the table above, oil marketing majors, BPCL (15%) and HPCL (11%) were amongst the top gainers in the index stocks this week. With rising crude prices in the recent past, these companies, among others, were making substantial losses owing to a freeze in prices imposed by government. Further, apart from the price hike, one should look at this development as an indication of government pro reform resolve. Going forward, we might see more flexibility given to energy companies on the pricing front. However, the big concern here is the effect of this on inflation, which seems to be raising its head once again (see chart above).

    Key losers over the week (NSE-50)
    Company Price on
    Oct 29 (Rs)
    Price on
    Nov 5 (Rs)
    %
    Change
    52-Week
    H/L (Rs)
    SHIP. CORP. 170 165 -3.0% 203 / 61
    CIPLA 279 274 -1.8% 302 / 194
    TATA CHEM 128 127 -1.4% 189 / 94
    BHARTI TELE 157 156 -0.8% 189 / 78
    Note: Click on the link above to read our view on the company/sector

    Another big news this week was the listing of NTPC, India’s largest power generation company. The stock was issued at Rs 62, while it closed Friday at Rs 75.5, a 22% premium to its issue price. At this price, the stock trades at P/E multiple of 15x FY04 earnings, which is at a premium to peers like Tata Power. However, looking at the growth plans, we believe earnings will grow at a faster pace in the long-term. As per our estimate, the per-share asset value of NTPC stands at Rs 72. Further investors should keep in mind that it is just the asset value as on today. Besides, though the valuation of the stock may look stretched, but investors should also consider the fact that NTPC's cash and investments per share stands at more than Rs 21 on the post issue equity base. Overall, positives outweigh negatives from a long-term perspective.

    At the current juncture, considering the various positives working in favour of Indian equities on the back of the reforms and development under way in the country and the growth opportunities existent for various Indian companies, it would not be wise to stay out of Indian equities at the current juncture. However, the need of the hour is to follow a stock specific and staggered investment approach. Happy and safe investing!

     

     

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