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Tumbling towards 19Ků

Nov 8, 2007

Crude prices continued to inch northwards during the holiday shortened week and quite expectedly, it did not go down well with the market participants, resulting into heavy selling. The fact that the markets looked a little overbought also did not help matters. Thus, for the week ended November 8, 2007, while the BSE-Sensex shed 3.4%, losses on the NSE-Nifty stood at 2.9%The week began on a pessimistic note on weak global cues and lingering subprime concerns. Consequently, the Sensex declined by 385 points (2%) while the Nifty lost 85 points (1%) on Monday. The negative sentiment continued on Tuesday as the indices declined further to end in the red by 1% on both the Sensex and the Nifty. The markets witnessed considerable volatility on Wednesday led by stocks from the technology pack, which closed deep in the red on concerns of a continuation of the rupee's appreciation against the greenback. The Sensex declined by 111 points. The trend of closing in the red continued on Thursday as the Sensex shed 230 points while the Nifty lost 83 points, thus capping off a week where bears came out on top all through.

On the institutional activity front, between 2nd November and 7th November, FIIs were net sellers to the tune of Rs 14 bn while mutual funds bought equities worth Rs 3 bn.

(Rs m)MFs FIIs Total
2-Nov2,180 (7,614) (5,434)
5-Nov835 (6,568) (5,733)
6-Nov632 51 683
7-Nov(1,136)377 (759)
Total2,511 (13,754)(11,243)

On the sectoral indices front, BSE Bankex (down 8%), BSE IT (down 7%), BSE Metal and the BSE Auto (down 4% each) featured were among the key losers.

IndexAs on November 2As on November 8% Change
BSE PSU9,930 9,847 -0.8%
BSE MIDCAP8,022 7,946 -0.9%
BSE OIL AND GAS11,736 11,594 -1.2%
BSE SMLCAP9,742 9,611 -1.3%
BSE HEALTHCARE3,934 3,859 -1.9%
BSE FMCG2,062 2,011 -2.5%
BSE AUTO5,423 5,229 -3.6%
BSE METAL17,694 17,050 -3.6%
BSE IT4,635 4,299 -7.2%
BSE BANKEX11,242 10,353 -7.9%

Now let us have a look at some of the key stock/sector specific developments during the week ended November 8, 2007.

Engineering stocks closed mixed with Engineers India (12%) and BHEL (5%) leading the pack of gainers, while L&T (7%) closed in the red. As per its press release, engineering major L&T has entered into a joint venture agreement with Mitsubishi Heavy Industries Limited for setting up a manufacturing facility to supply super-critical steam turbine and generator facility in India. The proposed manufacturing JV, with a capital outlay of around Rs 8.8 bn, will have a product configuration catering to plant capacities ranging between 500 MW to 1,000 MW. The manufacturing operation is expected to commence during the later part of FY09. It must be noted that L&T and Mitsubishi had earlier inked a JV for the manufacture of super critical boilers. At the end of September 2007, the order backlog for L&T's E&C segment stood at Rs 420 bn, 44% YoY higher and more than 3 times the segment's FY07 revenues.

FMCG stocks closed strong with Colgate (4%) and Dabur (1%) the pack of gainers while Hindustan Unilever remained flat. Hindustan Unilever (HUL) has set up a joint venture (JV) with Smollan Holdings of South Africa. The venture, called Hindustan Unilever Field Services (HUFS), will be operational from January 1, 2008 at approximately 2,000 organised retail stores in India. The operations will begin with the existing modern trade in-store execution team of HUL moving into HUFS. Smollan Holdings is an in-store execution and field services company and has expertise in a diverse range of outsourced services to multiple channels, primarily within the FMCG industry in the areas of shelf filling, logistics for merchandising materials and in store execution. The JV is strictly for the specialised services at the point of purchase in a store, which includes merchandising, brand activation by proper display, maintaining the required level of stocks in different categories etc. With modern trade in India witnessing robust growth and currently contributing only 3% of HUL's sales, huge potential exists. This JV would help HUL build the right capabilities to deliver the company's marketing strategy in modern trade. Also it will enable HUL to face the stiff competition in the FMCG sector.

CompanyPrice on
November 1 (Rs)
Price on
November 8 (Rs)
%
hange
52-Week
H/L (Rs)
BSE SENSEX19,724 19,059 -3.4% 20,238 / 12,316
S&P CNX NIFTY5,866 5,699 -2.9% 6,012 / 3,555
FACT24 31 29.2% 41 / 19
HMT LTD. 61 78 27.7% 96 / 50
DENA BANK 65 79 21.5% 83 / 29
NEYVELI LIGNITE 138 166 20.0% 180 / 49
NALCO309 371 19.7% 380 / 193

Telecom stocks closed weak with Reliance Communications (11%) and Bharti Airtel (6%) featuring among the key losers. Reliance Communications (RCom) has signed a strategic partnership with Microsoft Corporation to provide internet protocol television (IPTV) services in the country. RCom will pay Microsoft US$ 500 m in license fees for using its platform - Mediaroom - under an exclusive agreement spread over eight years and will spend another US$ 500 m for setting up the necessary IPTV infrastructure. The IPTV service, powered by the Microsoft Mediaroom platform, will be launched by FY08. IPTV provides for two-way interactive communication and allows consumers to watch TV while using the telephone line and broadband internet. IPTV is in its early stage in India and the move is to explore the untapped market with the target segment being the mass market, unlike in the west where the focus in on the affluent class.

CompanyPrice on
November 1 (Rs)
Price on
November 8 (Rs)
%
Change
52-Week
H/L (Rs)
GUJ.MINERAL DEV. 2,522575-77.2%3,050 / 333
REL PETRO 262221-15.5%295 / 56
I-FLEX SOLUTIONS 1,5471,336-13.6%2,630 / 1,330
RAMCO SYSTEMS 169148-12.3%233 / 119
JINDAL STEEL 12,10610,720-11.4%13,850 / 1,889

The indices declined in each trading session this week. International stock markets are catching cold over the weakening dollar, rising oil prices and the prospect of a substantial economic slowdown in the United States. What are you supposed to do, dear reader? Let's refer to Warren Buffett's 1997 letter to shareholders. He says, "If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. Prospective purchasers should much prefer sinking prices." We urge you, dear reader, to keep your focus on the fundamentals of the companies and search for bargains.

  • To read the market commentary as of 8th Nov 2007 please click here


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