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6,000…finally!

Nov 13, 2004

The bulls continued their run on the Indian indices this week, pushing the benchmark higher by over 1%. It was the third consecutive week of gains for the Indian indices, with aggregate gains of over 5% during this period. However, the ultimate highlight of the week was the fact that the Sensex, once again, managed to breach the much coveted and much awaited 6,000 mark during Diwali day’s ‘muhurat’ trading.Backed by two weeks of gains, the Indian bulls were all charged up at the start of the current week. However, the euphoria seemed to have lost its fizz from thereon, except for some buying witnessed during Wednesday’s trade. While India Inc.'s 2QFY05 performance may have provided the markets enough reason to cheer, investors seemed to be keeping a close watch on concerns like high crude oil prices and other commodity prices, which have the potential to dent corporate profitability. Investors must also note that while there was select buying witnessed at lower levels, at every rise, there was some amount of selling pressure, which capped the index gains during the week.

However, the big event this week, if one wants to look at it this way, is the Sensex breaching the 6,000 mark in early trades on Friday’s Diwali muhurat trading. However, the happiness was only short lived, as profit booking soon emerged, pushing the indices back to lower levels. It must be noted that last time the Sensex achieved this level was in early January, after which the bulls took a backseat (see chart above), primarily on the back of the general elections then. However, after the big crash of May 17, 2004, it was largely a one-way street for the Indian markets i.e. up! As can be seen in the chart above, the Sensex has gained about 27% since last year’s Diwali.

While a large credit of this rally during Samvat 2060 can be attributed to the FIIs who continued to back the Indian economy by pumping in over US$ 8 bn into Indian equities during this period, domestic participation has also been on the rise, a fact vindicated by the huge retail over subscriptions witnessed in a slew of IPOs during the year and also the strong rally witnessed in mid-cap stocks, which are typically looked at by investors other than the FIIs.

Some key gainers over the week (NSE-50)
CompanyPrice on
Nov 5 (Rs)
Price on
Nov 12 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 5,891 5,964 1.2% 6,250 / 4,228
S&P CNX NIFTY 1,852 1,873 1.1% 2,015 / 1,292
HDFC BANK 432 469 8.3% 477 / 256
MTNL 138 147 6.3% 166 / 92
HDFC 668 694 3.9% 709 / 450
SATYAM 393 405 3.1% 425 / 230
GLAXO 751 771 2.7% 775 / 475
Note: Click on the links above to read our view on the company/sector

Now, let us look at some of the key gainers and losers during the week. Among the gainers, while the optimism towards MTNL was on the back of renewed developments pertaining to the merger of the company with telecom behemoth, BSNL, gains in HDFC were largely a factor of the institution’s announcement to hike home loan rates by 25 to 50 basis points. We have maintained the view that the management's conservative approach towards growing its loan portfolio, low delinquencies and significant cushion from its holdings in subsidiary companies are a positive for the housing major.

Some key losers over the week (NSE-50)
CompanyPrice on
Nov 5 (Rs)
Price on
Nov 12 (Rs)
%
Change
52-Week
H/L (Rs)
RANBAXY 1,150 1,096 -4.7% 1,171 / 867
BHEL 634 615 -2.9% 685 / 375
DABUR 90 88 -2.5% 98 / 60
SUN PHARMA 460 450 -2.2% 472 / 262
GAIL 211 207 -1.9% 312 / 101
Note: Click on the links above to read our view on the company/sector

On the losers’ front, Ranbaxy and Sun Pharma saw weakness, which was largely a profit taking exercise. The pharma sector in general and the above two stocks in particular, have been the key gainers on the indices over the past one-month. Selling in Dabur was also for similar reasons. Gail was among the losers owing to the fact that the petroleum ministry has proposed a 12% increase in natural gas prices for fertilizers and 26% for power plants. The gas prices are capped at Rs 2,850 per thousand standard cubic meters (tscm) currently. The international gas prices are ruling at almost double the current prices. If gas prices were to go up, it will be a negative for GAIL, as it consumes natural gas for its petrochemicals business.

Going forward into Samvat 2061, while we continue to remain supporters of the long-term growth story of India Inc, over the short to medium term, we believe that valuations have started looking somewhat stretched and one should steer clear of companies with weaker balance sheets, as these would be the ones that are likely to be the most affected in case of a bear hug. Also, prices of key inputs have been rising in recent months and margins are expected to take a hit. Therefore, be patient and invest in a staggered manner in companies with strong track record and a credible management. To conclude, Equitymaster wishes you a happy, safe and prosperous new year for investing!

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