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Bears tighten grip - Views on News from Equitymaster
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  • Nov 15, 2003

    Bears tighten grip

    The bear scent felt last week on the bourses became all the more prominent this week with the indices closing the week on a negative footing. While the Sensex closed lower by 1.2%, the Nifty lost 1.8%. Index heavyweights of the likes of Sail, Infosys, State Bank Of India (SBI) and Reliance were amongst the key culprits, which dragged the indices lower into the red. It must be noted that it was an extended trading week this week as markets remained opened on Saturday for a couple of hours.

    This weeks trading pattern was very much similar to that of last week with the markets opening the week on a positive footing only to witness a bout of profit booking during the latter half of the week. After the substantial fall on Friday, markets seemed to show signs of stability on Monday and Tuesday. Though there was some initial weakness seen on the bourses on Monday owing to the fact that derivative margins on certain stocks (including ACC, Satyam, SBI and Tisco) had been increased in the region of 15%-18%, which led to some unwinding of positions, markets soon bounced back on the back of selective all round buying to break the previous weeks 3-day losing streak.

    Top 5 gainers over the week
    COMPANY Price on
    November 7 (Rs)
    Price on
    November 15 (Rs)
    % CHANGE 52-WEEK H/L (Rs)
    BSE-Sensex 4,972 4,912 -1.2% 5,135 / 2,904
    S&P CNX NIFTY 1,592 1,563 -1.8% 1,630 / 920
    India Cements 31 42 35.0% 44 / 13
    EXIDE INDUSTRIES 109 136 24.5% 137 / 36
    EIH ASSO. HOT. 20 24 22.5% 29 / 7
    APOLLO TYRES 231 279 20.5% 287 / 111
    THOMAS COOK INDIA 291 350 20.1% 392 / 185

    However, for the next three days, akin to last week, investors again stepped up their profit booking exercise as the indices lost over 3% in just 3 trading sessions. Apart from the margins being imposed last week on derivatives trades, the effect of which was witnessed even in the current week as investors squared off their open positions in the F&O segment, the fall could also be attributed to the fact that there are concerns doing the rounds of the markets that FII money, the prime driver of the current rally, could slow its inflow into the country in wake of the year ending. Historically it has been noticed that FII money tends to cool off at the end of a calendar year, as apart from being the holiday season for them, they tend to book profits as their bonuses are linked to the same. However, thanks to the final trading day (Saturday), the indices managed to recover their first 5-day trading losses to a certain extent.

    Top 5 losers over the week
    COMPANY Price on
    November 7 (Rs)
    Price on
    November 15 (Rs)
    % CHANGE 52-WEEK H/L (Rs)
    SILVERLINE TECH. 7 5 -17.4% 32 / 4
    KINGFISHER PROP. 28 25 -11.4% 42 / 15
    PENTAMEDIA 8 7 -11.0% 33 / 6
    JAIPRAKASH I. 116 104 -10.1% 125 / 27
    SAIL 47 42 -10.0% 61 / 7

    Now let us look in brief at some key developments during the week:

    • It is to be noted that the composition of the Sensex has been changed this week. As a result of this, stocks like Wipro, Tata Power, HDFC Bank, Oil and Natural Gas Corporation Ltd. (ONGC) and Bharti Tele have been added to the Sensex. On the other hand, Glaxo, Nestle, Colgate, Castrol and HCL Tech have been removed from the same.

    • The steel sector was particularly in the news this week for a spate of developments that took place. One being the announcement of the merger of Jindal Iron & Steel (Jisco) with group company, Jindal Vijaynagar Steel, which will form one of the largest domestic steel companies. However, the merger ratio seemed to be tilted in favour of the former, which was evident from the stock price movement of the companies. Further, it must be noted that Sail is embarking on a cost cutting drive and is aiming at bringing down production costs by around Rs 5 bn, thus improving the margins for the company. Further in the sector, domestic galvanized steel players are planning to raise prices in the region of about Rs 500 - Rs 1,000 per tonne over the next few weeks. Also, there are talks that import duty on steel could be brought down in the near future if the domestic players increased their prices above international prices. For the week, while the key gainers included Jisco (20%) and Sesa Goa (16%), the losers included Sail (10%), Tisco (3%) and Essar Steel (8%).

    • Telecom stocks witnessed heightened activity this week with the introduction of the unified licensing regime. Tata Teleservices Maharashtra was up by 25% during the week. This was mainly due to the fact that the new telecom policy envisages full mobility to the WiLL service providers like Tata Teleservices Maharashtra. This means that the company is now in a position to provide full mobility for its users by paying a fee. Tata Teleservices Maharashtra and the other WiLL player, Reliance Infocomm, paid the fees this week in order to migrate to the new unified license regime. Cellular major, Bharti, however, was down marginally, as this means that the value proposition of GSM networks, i.e. full mobility, will be diluted considerably. Consumers going forward may increasingly choose the less expensive WLL services.

    • According to a leading business daily, the latest data published by SIAM shows car sales having improved by 24% in the month of October 2003 as compared to the same period last year. Notably, this is the 7th consecutive month of growth in car sales and a part of this could be attributed to the reduction in the excise duty announced in Budget 2003-04. Amongst the other segments in the industry, while the commercial vehicles segment improved 32% YoY, the two-wheeler segment registered a YoY growth of 25%. Auto stocks were a mixed bag for the week.

    Going forward, it seems that the next week will continue to witness volatility with a cautiously upward bias. This is because, after achieving their multi-year highs on November 4, 2003, the indices had corrected almost 6% before recovering ground on Saturday. However, for the immediate short-term, it must be remembered that the month of December is largely characterised by lower FII money activity owing to their annual vacation. But, with the outlook for the economy remaining considerably positive, further foreign money cannot be ruled out in 2005. So, hold on to your investments and consider the corrections in the markets as an opportunity to build a fundamentally strong portfolio. Happy Investing!



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