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Swinging at the top...

Nov 17, 2007

Markets felt the heat as the US sub-prime mortgage crisis continued to plague global equity markets. However, positive developments in the political arena and better than expected results from the US heavyweight Wal-Mart helped assuage worries leading to the highest single-day gain in the Sensex on Wednesday. In fact, this even made up for most of the decline in the other trading sessions. Thus, for the week ended November 16, 2007 the BSE-Sensex gained 4.2% while the NSE-Nifty gained 4.3%The week began on a pessimistic note on weak global cues as the Sensex declined by 171 points while the Nifty lost 46 points on Monday. There was a restoration of positive sentiment on Tuesday as the indices recovered to end in the green by 298 points on the Sensex and 78 points on the Nifty. Aided by global clues, the markets shot up 894 points on the Sensex and 243 points on the Nifty on Wednesday. Banking, metals and engineering sectors registered the highest gains. While pharma, software and power stocks weighed heavy on the indices on Thursday, buying interest was seen in select energy, auto, metals and telecom stocks. The Sensex closed 145 points down while the Nifty declined 26 points. Friday witnessed considerable volatility as the benchmark indices started on a negative note in the early hours, went on to swing upwards and subsequently languished in the red. The Sensex lost 87 points while the Nifty pared 5 points. Thus the markets gained in 2 out of the 5 trading sessions in the week.

On the institutional activity front, between 8th November and 15th November, Foreign Institutional Investors (FIIs) were net buyers to the tune of Rs 8 bn while mutual funds bought equities worth Rs 1 bn.

(Rs m)MFs FIIs Total
8-Nov(2,188)(2,869)(5,057)
12-Nov55 (8,200)(8,145)
13-Nov(1,394)1,222 (172)
14-Nov(128)9,520 9,392
15-Nov4,830 7,884 12,714
Total1,175 7,557 8,732

On the sectoral indices front, BSE FMCG (up 11%), BSE Smallcap (up 8%) and BSE Oil & Gas (8%) featured among the key gainers.

IndexAs on November 8As on November 16% Change
BSE FMCG2,011 2,231 10.9%
BSE SMLCAP9,611 10,381 8.0%
BSE OIL AND GAS11,594 12,480 7.6%
BSE PSU9,847 10,571 7.4%
BSE MIDCAP7,946 8,512 7.1%
BSE BANKEX10,353 11,003 6.3%
BSE METAL17,050 17,498 2.6%
BSE AUTO5,229 5,284 1.0%
BSE HEALTHCARE3,859 3,885 0.7%
BSE IT4,299 4,159 -3.3%

Now let us have a look at some of the key stock/sector specific developments during the week.

Auto stocks closed mixed with Ashok Leyland (8%) leading the pack of gainers, while M&M (1%) closed in the red. Tata Motors closed marginally higher. Tata Motors, is readying a slew of launches in the commercial vehicle segment during 2008 to counter increasing competition and also revive demand. The Indian auto market has been hit in recent months by a sharp rise in interest rates, which have risen almost 3-4% since December last year. Almost 95% of CVs are purchased on credit in the country. It would also roll out a new range of passenger cars during 2008. The company would first introduce a new range of pick-up trucks early next year. The pick-up launch is important as that particular segment is gaining popularity in India as seen in the success of Mahindra & Mahindra's 'Maxx' pick-up truck. The company is also working on a 15 tonne plus commercial vehicle that will be rolled out during the later part of next year.

Stocks of the oil marketing companies closed strong with BPCL (22%), HPCL (19%) and IOC (17%) leading the pack of gainers. Buoyancy in these stocks seems a result of the announcement that the government is considering an excise duty rejig to minimise the impact of soaring crude oil prices on both consumers and oil companies. At present, the excise duty on petrol and diesel has two components - a 6% ad valorem duty that varies with the basic price and another duty specified per litre. This ad valorem duty may be replaced by a larger specific duty and the new specific duty rate should be lower than the combined duty by Rs 2 per litre. Currently, the excise duty is 6% plus Rs 13 per litre for petrol and 6% plus Rs 3.25 per litre for diesel. This development comes on the back of recommendation by Standing Committee of Parliament on Petroleum for the removal of the ad valorem component of the excise duty on petroleum products.

Top gainers during the week (BSE A)
CompanyPrice on November 9 (Rs)Price on November 16 (Rs)% Change 52-Week H/L (Rs)
BSE SENSEX18,908 19,698 4.2% 20,238 / 12,316
S&P CNX NIFTY5,663 5,907 4.3%6,012 / 3,555
CHAMBAL FERTILISER48 72 51.9%77 / 30
MRPL87 130 50.4% 149 / 32
BONGAIGAON REFINERY72 105 45.9% 117 / 39
MIRC ELECTRONICS20 29 45.6% 30 / 16
RCF58 81 39.8% 85 / 33

Real Estate stocks closed strong with Unitech (8%) and DLF (3%) featuring among the key gainers. As per a leading business daily, India's largest real estate company DLF is acquiring the Singapore-based privately-held super luxury resorts and spa chain, Amanresorts, for around US$ 250 m. In addition to this payout, DLF will assume debt of approximately US$220 m as part of the deal. The US $220 m debt will remain on the Amanresorts balance sheet and be paid off from its future revenues. The 20-year-old Amanresorts has 18 operational properties under its belt in Indonesia, Cambodia Bhutan, India, the Philippines, the United States, French Polynesia and France. All Amanresort properties have a room tariff of over $600 per night, giving it a hugely exclusive tag. The acquisition also entails DLF taking over a prime property at Delhi's Lodhi Road. DLF is getting an opportunity to gain access to the super-luxury hospitality market with this acquisition. The 'Aman' brand name will continue even after the acquisition. DLF forayed into hospitality segment last year. It has a 74:26 joint venture agreement with Hilton International for developing 50 to 75 properties in the long term.

Top losers during the week (BSE A)
CompanyPrice on November 9 (Rs)Price on November 16 (Rs)% Change52-Week H/L (Rs)
GUJARAT MINERAL DEV604555-8.0%634 / 67
IPCA LABS660609-7.7%794 / 411
MRF LTD.7,8057,235-7.3%8,956 / 3,100
HEXAWARE TECH9891-7.3%205 / 77
NESTLE1,4651,371-6.4%1,663 / 876

With the markets registering a huge gain after having declined in six consecutive sessions, now is perhaps the right time to have a re-look at one's attitude towards stock prices. Warren Buffett's letter to shareholders in 1991 points out "think about long-term business prospects rather than short-term stock market prospects, a perspective likely to improve results. It's true, of course, that, in the long run, the scoreboard for investment decisions is market price. But prices will be determined by future earnings. In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard."

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