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Samavat 2061 blues!

Nov 20, 2004

The Indian indices ended at from where they started off this week. Both the Sensex and the Nifty closed marginally below last Friday’s levels. The volatile movement of the indices displayed signs of apprehension and lack of investor confidence at the high index levels. Near-term concerns in the form of rise in interest rates and strong commodity prices also seemed to have played on investor’s minds.

The Indian indices started Samavat 2061 on a rather cautious note with volatile moves in early trades on Tuesday (Monday was a holiday on account of Ramzan Id). However, the markets gathered momentum as the trading day progressed backed by support from FIIs, which was sustained right through the following day’s trade, helping the Sensex to ‘close’ at over the 6,000 mark. It must be noted that during muhurat trade on Diwali, the index had only managed an intra-day high of 6,000, but profit booking at higher levels pushed it to close at lower levels. However, the next two trading days were largely in the nature of profit booking, though buying at lower levels on Thursday had helped the indices to close in the positive. Finally, the indices ended the week with practically no change.

The big news this week, which also proved to be a drag on the indices in Friday’s trade, was that of the differences existent between the Ambani brothers that came out in the open. However, the Reliance management has stated that the functioning of the company will not be affected in any manner and investors need not worry. Nonetheless, investors opted to adopt a cautious approach towards the issue, which was evident from the profit booking witnessed in the Reliance group stocks on Friday. During the week, barring Reliance Capital (up 3%), Reliance Industries (down 3%), Reliance Energy (down 2%) and IPCL (down 4%) closed lower for the week.

Key gainers over the week (NSE-50)
CompanyPrice on
Nov 12 (Rs)
Price on
Nov 19 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-SENSEX 5,964 5,962 0.0% 6,250 / 4,228
S&P CNX NIFTY 1,873 1,872 0.0% 2,015 / 1,292
PNB 260 320 23.2% 397 / 164
OBC 242 275 13.5% 367 / 149
TATA CHEM 131 143 9.4% 189 / 94
SUN PHARMA 449 490 9.3% 495 / 275
ABB 815 886 8.7% 898 / 451
Note: Click on the link above to read our view on the company/sector

Banking stocks were in particular favour during the week, which is evident from the near 6% gains witnessed in the BSE Bankex index. As far as individual stocks are concerned the top gainers were Centurion bank (28%), Dena Bank (26%), PNB (24%), UCO Bank (20%) and BOI (18%). The government's assurance that banking sector reforms would be accelerated seemingly led to the euphoric buying in banking stocks over the week. With the government intending to further strengthen banks by way of modifications to the Securitisation Act (to make it more effective) banks will be in a much better position to improve their NPA levels. This will enable banks to become more aggressive on the lending front. Also, with interest rates on the rise, market participants seemed to have turned positive about the growth prospects of the core banking business in terms of higher interest income on the back of strong credit growth in the economy.

Key losers over the week (NSE-50)
CompanyPrice on
Nov 12 (Rs)
Price on
Nov 19 (Rs)
%
Change
52-Week
H/L (Rs)
RANBAXY 1,096 1,036 -5.5% 1,171 / 867
DABUR 88 83 -5.4% 98 / 60
CIPLA 279 265 -4.8% 302 / 194
IPCL 191 184 -3.7% 240 / 106
ONGC 816 787 -3.6% 1,000 / 510
Note: Click on the link above to read our view on the company/sector

Going forward, while we are positive that India Inc. (on a broader scale) will continue to perform well in the medium to long-term, it is time to sit back and re-look at stock specific fundamentals and valuations. Over the short term, we believe that valuations have started looking somewhat stretched and one should steer clear of companies with weaker balance sheets.

Further, with interest rates now showing clear signs of upward movement, investors should exercise caution with respect to companies/industries, which are capital intensive and have a high debt to equity ratio, as these are likely to be the worst hit. Also, inflationary pressure in the form of higher crude and commodity prices and the relative inability of companies to pass on the price hike to consumers due to stiff competition might see corporate margins coming under pressure, thus reducing corporate earnings. However, considering the various positives working for India and Indian stocks, it would not be wise to stay out of Indian equities. The need of the hour is to follow a bottom-up and staggered investment approach. Happy investing!


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