Nov 18, 2006|
In choppy waters!
Markets edged higher for the fourth week in a row, but not before being subjected to heightened volatility. For the week ended November 18,2006, both the benchmark indices, BSE-Sensex as well as NSE-Nifty closed higher by 1% each.
In contrast to the trend witnessed in the previous week, markets remained buoyant early on, but as the week wore on, volatility continued to rise and put pressure on the indices. Barring the strong close on Monday, markets never really looked comfortable and despite the Sensex edging higher for the next three days, there was always a feeling that a sell off was round the corner. The trend was finally broken on Friday, when selling pressure on heavyweights led to both the indices closing the day in the red. However, the magnitude of the gains of the first four days was enough to enable both the indices to close in the positive for the fourth week in a row. The market breadth on the other hand was disappointing as nearly 60% of the stocks on the Nifty ended the week
with erosion in their market value.
As far as the institutional activity on the bourses was concerned, <Foreign Institutional Investors (FIIs) were net buyers this week to the tune of nearly Rs 33 bn (data till 15th Nov). Domestic mutual funds (MFs), on the other hand, turned out to be net sellers to the tune of Rs 2.8 bn.
As far as the sectoral indices are concerned, this week again, it was the Bankex that emerged on top and that too by a long shot. Led by gains in heavyweights such as ICICI Bank and HDFC Bank, the index edged higher by nearly 6%. Just to put things in perspective, 6 of the top 10 gainers on the BSE 'A' index this week were banking stocks. Gains in ICICI could be attributed to the positive feelers emanating from the management with regards to expansion plans and new projects being launched. In another important news, Reserve Bank of India (RBI)gave its permission to the bank to open new branches and set up off-site ATMs, which incidentally was banned in lieu of its involvement in the IPO allotment scam in January 2006. Notably, ICICI Bank is the first amongst its peers to receive this approval while the likes of HDFC Bank would soon be allowed to open new branches once the central bank is convinced about the improvements in the risk control systems. ICICI Bank and HDFC Bank, between them, have plans to open 500 new branches in FY07. While the imposition of ban on new branches has not visibly impacted ICICI Bank's and HDFC Bank's performance in terms of credit growth in the last 3 quarters, the same had limited their ability to grow the CASA portfolio. The new branches are expected to lend the bank additional penetration and customer access, besides offering lower cost funds that will relieve the margin (NIM) pressures.
Among the losers, BSE Metal index witnessed strong selling pressure as nearly 5% was shaved off from its previous week levels. With prices of some key metals on the wane, the sector's profitability is likely to take a hit going forward.
||As on November 10
||As on November 17
|BSE OIL AND GAS
Having looked at the institutional activity and the movement in key indices in the last week, let us consider some sector/stock specific developments:
Cement major ACC was among the top gainers on the Nifty during the week. The gains could be attributed to the continued strength in cement prices in the domestic market. Cement prices are currently ruling at close to Rs 235 per bag (Mumbai) currently, which incidentally is very high. The all India dispatches also increased by almost 8% YoY in October 2006 month and the industry capacity utilisation has touched 93% levels. In this context, we expect cement prices to remain robust in the near term, as incremental capacity additions are minimal as compared to the demand side equation. After reporting outstanding performance in 2QFY07, cement companies may post good results for the next quarter as well. However, once the new capacities start flowing in (mid 2007 to FY08), prices are expected to soften. Gujarat Ambuja, the other major cement company also edged higher by 1% during the week.
Top gainers during the week (BSE A)
Nov 10 (Rs)
Nov 17 (Rs)
|S&P CNX NIFTY
|MPHASIS BFL SOFT
Telecom major Reliance Communications also edger higher by 2% during the week. The gains could be attributed to the company's plans of expanding its GSM footprint in India. As per news, the company plans to have GSM operations in 23 circles soon. It currently has GSM operations in 8 circles, mainly in eastern India. RCOM has earmarked Rs 20 bn for Mumbai and Delhi circles, and Rs 60 bn for the rest of the country. It may be noted that India's mobile subscriber base is around 130 m with over 6.6 m subscribers added just in October 2006. Of this pie, GSM accounted for 96 m and CDMA 33 m. India's mobile user base is expected to triple to 385 m by FY10 and mobile service revenues as a percentage of GDP will rise from 1.0% in FY06 to around 2.2% by FY10. Reliance Communications' move of foraying into the GSM segment is based on the fact that the GSM margins are better compared to CDMA and getting the required spectrum is a hurdle to growth in CDMA space. The company's peer, Bharti, also ended higher 7% during the week.
Top losers during the week (BSE A)
Two-wheeler major, Hero Honda, was among the top losers on the Sensex with a decline of 4% during the week. The company's stock price has been under pressure of late as its market share has taken a hit in recent times. Intense competition from rivals such as Bajaj Auto and TVS Motor is making things difficult for the company, which till recently was enjoying close to 50% market share in the motorcycles space. With prices of key inputs rising, the margins have also come under pressure, as it has not been able to pass on the price hike to the end user, fearing still further fall in market share. These are indeed difficult times for the company, but given its track record, we do expect the company to do better in the long term. Although it might lose market share and margins may not touch the levels of yore, the profits should continue to grow at meaningful levels. Among its peers, Bajaj Auto also witnessed selling pressure and ended 1% lower for the week.
Given the recent volatility and current valuation levels, we believe markets should remain under pressure in the coming weeks. Infact, we are of the opinion that after strong bouts of gains, a meaningful correction is always healthy. While we have always maintained that timing the markets is a difficult task, for the investor, who sets aside a small part of his money every month for investment in stock markets, corrections of the kind we just mentioned, do help in lowering his investment costs and makes him better positioned to take advantage of the longer term rise in market levels. In other words, don't get perturbed if indeed there is any correction, for we believe the long-term prospect of the Indian stock market is indeed bright.
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