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Bulls have a blast!

Nov 25, 2006

Markets continued to defy gravity and for the fifth week in a row and moved into higher territory. While the BSE benchmark 'BSE-Sensex' edged higher by 2%, gains in NSE-Nifty were a tad higher at 2.5% for the week ended November 24, 2006.The week's proceedings started on a rather dispirited note on Monday, as markets seemed to take a leaf out of the previous week's close. The Sensex tumbled by as much as 200 points within the first couple of hours. While it continued to stay rangebound throughout the day, it recovered miraculously in the final hour to shed all its losses and close at breakeven levels. However, there were no such worries over the next two days as led by gains in heavyweights, bulls literally went on a rampage and the Sensex edged higher by a mind numbing 275 points. Considering the levels the indices are at, the gain of such a magnitude is indeed staggering. After a mild profit booking on Thursday, indices resumed their northbound journey on Friday and recouped most of the gains it had pared the day before.

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 31.6 bn. Domestic mutual funds (MFs), on the other hand, turned out to be net sellers to the tune of Rs 3.4 bn.

(Rs m)FIIsMFsTotal
17-Nov-0613,026 858 13,884
20-Nov-06580 (2,858) (2,278)
21-Nov-06 6,422 (788) 5,634
22-Nov-06(210) 2,062 1,852
23-Nov-0611,788 (2,762) 9,026
Total31,606 (3,488)28,118

As far as sectoral indices are concerned, this week it was the turn of the BSE IT index to emerge as the frontrunner as it closed higher by 4%, comfortably above the rest of the pack. Sector majors like Wipro and Satyam played pivotal rules in propping up the IT index as they ended higher 8% and 7% respectively for the week. With valuations among other heavyweights looking rather stretched, relatively safer havens like software stocks seem to be once again propping up on the radar of investors.

Among other indices, the midcap and small cap indices gained 2.8% and 2.6% respectively. As large caps are looking rather expensive, investors seem to be moving towards mid cap and small cap stocks in a view to further improve upon their investment results. However, one need to keep in mind that the high returns on these stocks are directly proportional to the higher risks involved. Hence, caution needs to be exercised to that extent.

IndexAs on November 17As on November 24% Change
BSE IT 4,949 5,157 4.2%
BSE MIDCAP 5,501 5,655 2.8%
BSE SMLCAP 6,359 6,523 2.6%
BSE METAL 8,790 9,015 2.6%
BSE Auto 5,211 5,339 2.5%
BSE PSU 6,139 6,289 2.4%
BSE HEALTHCARE 3,707 3,744 1.0%
BSE Bankex 7,125 7,150 0.4%
BSE OIL AND GAS 6,167 6,178 0.2%
BSE FMCG 2,006 2,001 -0.2%

Having looked at the institutional activity and the movement in key indices in the last week, let us consider some sector/stock specific developments:

As per a leading business daily, the dispute between Reliance Industries (RIL) and power generation major NTPC, over the supply of natural gas to the Kawas and Gandhar power projects may be resolved, as the two companies are working out a limited liability formula to cover the eventuality of non-supply of gas or NTPC not buying the gas it contracted for. RIL was to supply 132 trillion British thermal units (BTU) of gas to NTPC's 2,600 MW expansion plans for the Kawas and Gandhar power plants at a price of US$ 2.97 per MMBTU for 17 years. Reliance is proposing a fresh price discovery after every 2 to 3 years, reflecting market trends. The new price of gas would then be US$ 4.3 per MMBTU. However, it needs to be noted that power companies cannot afford to pay energy cost above US$ 4 per MMBTU, which is likely to make the power generation cost uneconomical. NTPC stock emerged as the highest gainer on the Sensex for the week by notching up gains of 8%. Other energy stocks

Top gainers during the week (BSE A)
CompanyPrice on Nov 17 (Rs)Price on Nov 24 (Rs)% Change52-Week H/L (Rs)
BSE Sensex 13,429 13,703 2.0% 13,791/8,655
S&P CNX NIFTY 3,853 3,951 2.5% 3,977/2,596
ADANI EXPORT155 202 30.2%202/48
BOM DYEING721 819 13.6%989/309
HINDUJA TMT505 572 13.2%867/343
PIDILITE103 116 13.1%123/74
UNITED PHOSPHORUS292 329 12.7%334/204

In what could be termed as another landmark event in the Indian stock market history. dotcom major, Info Edge made its debut on the bourses during the week, and what an opening it was! The stock opened with 41% gains over its offer price of Rs 320 and went on to make the opening day's high of Rs 624. It finally closed the week at Rs 583, a rise on nearly 82% over the offer price. As a matter of fact, Info Edge is a leading provider of online recruitment and matrimonial classifieds and related services in India, and owns brands like 'Naukri.com' and Jeevansathi.com'. Other software stocks

Top losers during the week (BSE A)
CompanyPrice on Nov 17 (Rs)Price on Nov 24 (Rs)% Change52-Week H/L (Rs)
SUPREME INDUSTRIES216203-6.2%241/122
TATA ELXSI256242-5.5%270/147
APOLLO HOSPITALS489465-4.9%589/340
CORPN BANK416398-4.3%445/205
GTL LIMITED133 127 -4.3%181/101

Engineering major Siemens earlier this week gained a huge 11% in just one trading day as it won a huge Rs 36 bn order from a Qatar based company. However, the stock closed 1% lower for the week as its FY06 results although buoyant, fell short on expectations, thus sparking a sell off. Consolidated revenues and net profits grew by 64% YoY and 27% YoY respectively. This strong performance was specifically aided by traction in the company's power and telecom divisions. The company board has recommended a dividend of Rs 3.8 per share for the fiscal (dividend yield of 0.3%). Other engineering stocks

Despite the satisfactory performance of India Inc. and positive news emanating with respect to organic and inorganic growth across sectors, there is no yardstick that seems to justify the current level of valuations. At the current levels, markets have more than factored in the growth prospects of India Inc. from a medium term perspective. Nevertheless, a bottom up approach, longer investment tenure and selective stock picking with cognizance of one's risk profile will stand investors in good stead. Happy investing!

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