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Back, up there. Almost...

Nov 19, 2005

The bulls seemed to have gone back into their euphoric mood once again. What else, otherwise, would explain the meteoric rise of the Indian stock markets, which has helped them notch near 13% gains in mere three weeks. This is seemingly also one of the biggest gains witnessed by the Indian stockmarkets, in the last many years, in such a short span of time. As far as this week's gains are concerned, while the Sensex gained 2.5%, the NSE-Nifty ended the week higher by 2.8%, making it their highest weekly close. The CNX Mid-cap Index gained 2% this week.

Riding high on the back of the 5% gains last week, 2% of which came on Friday itself, the Indian bourses witnessed a strong start to Monday's trading. However, considering that the markets had gained almost 12% by this time, investors thought it wise to book some profits. This saw the markets nose-dive into the negative territory as the Sensex lost 150+ points and charted into the negative territory. However, emergence of buying support at these lower levels helped the markets find a footing as they recovered ground to end the day with respectable gains. Wednesday saw the bulls come back in full force (Tuesday being a holiday) in vengeance of their near defeat during Monday's trade. This, couple with the lack of selling pressure, helped the Sensex breach the 8,600 mark during Wednesday's trade as it closed with near 100-points gain. The buying continued well into the following two trading sessions, which helped the Sensex breach the 8,700 mark on Friday. Thus, the 4-days of sustained buying saw the markets close at their all-time highs on a weekly basis.

What has been helping the markets scale back their peaks again since the last 3 weeks has been incessant buying by Foreign Institutional Investors (FIIs), who have invested about Rs 17 bn (US$ 375 m). However, it is not the FII camp alone that has been investing. Domestic mutual funds (MFs), which have supported the markets right through the October 2005 carnage when FIIs were net sellers to the tune of Rs 37 bn and MFs bought Rs 27 bn worth of equities, have been net buyers to the tune of Rs 4.4 bn in this period. What have seemingly helped FII sentiments are the noises emanating from the Centre (read government) regarding 'some' reforms and divestment. Apart from this, the sharp correction in international crude oil prices, which are currently hovering the US$ 56 per barrel mark, much lower than their historic peak of US$ 70 per barrel a few months ago, has helped soothe fears of a sharper rise in inflation and its impact on interest rates, which otherwise would have affected India Inc.'s growth prospects to some extent.

Top gainers over the week (NSE-30)
CompanyPrice on
Nov 11 (Rs)
Price on
Nov 18 (Rs)
H/L (Rs)
BSE-SENSEX 8,471 8,687 2.5% 8,822 / 5,878
S&P CNX NIFTY 2,549 2,620 2.8% 2,669 / 1,845
HDFC BANK635 699 10.1%765 / 429
BAJAJ AUTO1,869 2,001 7.1% 2,024 / 975
VSNL312 333 6.7% 445 / 161
TATA MOTORS514 546 6.3% 577 / 400
GUJ. AMBUJA 75 79 5.3% 79 / 46

Now let us consider some sector/stock specific developments this week:

  • Amongst the key gainers this week was Tata Motors (up 7%). A couple of positive news pertaining to the company seems to have had led to the optimism towards the stock. The company, which is the market leader in the commercial vehicle segment, is setting up an assembly unit in South Africa. It is also scaling up its operations in 7 countries. The move is in line with company's strategy to double its revenues in 5 years and consolidate its position in all segments. It is also planning to set up a bus-building facility in Turkey as it's got a high growth potential. The company has presence in UK, Russia, Italy, Spain, Senegal and West Asia where it is planning to scale up its operations. Apart from this, it has entered into an alliance with Fiat to explore areas of cooperation in the passenger car segment. Telco is in need of newer engine technology, especially for its diesel cars. Also, it does not have Euro-IV engines and this would restrict its exports, as the Euro-IV norms would be implemented on January 1, 2006. With this alliance, Telco will get a breather, as the latter would provide the requisite technology. Other auto stocks

  • Cement stocks shot into the limelight this week on the back of reports of a further Rs 7 per bag rise in cement prices from next month. While this rise is to offset the cost pressures that cement manufacturers would face owing to a recent Supreme Court ruling disallowing goods transport vehicles to carry excess weight (overloading), the previous couple of cement price hikes in October and November 2005 was on the back of robust cement demand in the country, which is linked to the housing sector boom.

  • Prithvi Information Solutions Ltd. (PISL) made its debut on the bourses this week. The stock, which was allotted at the price of Rs 270, made a high of Rs 340 (26% premium to allotment price) on the BSE on the day of listing. It ended the week with gains of about 13%. PISL is a provider of Technology and Process Outsourcing services. It is a mid-sized software company that earns its revenues from a variety of service lines. The bulk of PISL's revenues are derived from the technology vertical. It is heavily US-focused and as much as 90% of its revenues are derived from the US. To read what was our view on the PISL IPO, click here

  • Pharma stocks had a mixed week. Ranbaxy was amongst the gainers, up 4%. The company has increased its stake in Nihon Pharmaceutical Industry Co, a joint venture with Nippon Chemiphar Co Ltd, from the current 10% to 50%, in a bid to tap the generic potential in the Japanese pharmaceutical market. Currently, the Japanese market, at US$ 65 bn, is the second-largest pharma market in the world. However, the generics market in the country stands at a relatively lower US$ 4 bn, which indicates the huge potential for generics to grow in this region. Further plans on the anvil include increasing its product filings through this joint venture to capitalize on the emerging opportunities in the Japanese generics market. In other news, Ranbaxy is planning to launch 15 new products in US, its major market, in each of the next two years. This news is a positive for the company, as it will enable company to increase its presence in the US.

    Top losers over the week (NSE-30)
    CompanyPrice on
    Nov 11 (Rs)
    Price on
    Nov 18 (Rs)
    H/L (Rs)
    SAIL 53 52 -1.7% 70 / 47
    DR. REDDY939 925 -1.5% 975 / 605
    L&T1,575 1,560 -1.0% 1,599 / 831
    HPCL330 327 -0.8% 417 / 282
    SATYAM651 646 -0.7% 662 / 349

Going forward, with volatility at its peak, without any change in underlying fundamentals of the Indian economy, it is time once again that investors exercise extreme caution. The long-term India story continues to remain attractive and while across the board buoyancy is unlikely to continue for long, the story going forward would be more stock specific. Invest in companies with strong fundamentals, proven track record with a long-term horizon in mind. Staggering your investments will also be a useful strategy. Happy and safe investing!

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