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Second innings recovery...

Dec 1, 2007

Indian markets suffered some setbacks in the first half of the week but made a smart recovery thereafter. Three out of the five sessions during the week ended in the green even though Foreign Institutional Investors (FIIs) turned out to be net sellers. Thus, for the week ended November 30, 2007, both the Sensex as well as the Nifty gained 2.7%The week began on a positive note, with the markets carrying on from where they left off in the previous week. The BSE-Sensex gained 395 points while the NSE-Nifty gained 123 points on Monday. Tuesday witnessed a reversal of sentiments as selling pressure in telecom, commodity and power stocks caused the indices to close in the red. The Sensex shed 120 points, while the Nifty lost 34 points. Despite select stocks in the engineering and auto sectors managing to hold ground on Wednesday, intense selling activity in the other index heavyweights caused the Sensex to close 189 points lower while the Nifty shed 80 points. Indices closed in the green on Thursday, although it was a session marked by considerable volatility especially during the later trades. After opening to a jittery start on Friday, on the back of apprehensions about the release of the GDP growth numbers, the benchmark indices added to their gains at a nimble pace in the subsequent hours. On the back of firm global cues and confidence inspired by the economic growth rate for 2QFY08, investors showed buying interest across sectors. The Sensex closed at 19,363 (up 360 points) while the NSE Nifty closed at 5,763 (up 128 points).

On the institutional activity front, between 23rd November and 29th November, FIIs were net sellers to the tune of Rs 14 bn while mutual funds bought equities worth Rs 8 bn between 23rd November and 28th November.

(Rs m)MFs FIIs Total
23-Nov3,347 (1,734)1,613
26-Nov2,529 4,702 7,231
27-Nov1,286 (2,637) (1,351)
28-Nov571 (4,500) (3,929)
29-Nov NA (9,776) NA
Total7,733 (13,945)3,564

On the sectoral indices front, BSE METAL (7%), BSE IT (5%) and BSE BANKEX (4%) featured among the key gainers.

IndexAs on November 23As on November 30% Change
BSE METAL16,594 17,731 6.8%
BSE IT 4,017 4,198 4.5%
BSE BANKEX10,414 10,871 4.4%
BSE AUTO 5,257 5,470 4.1%
BSE MIDCAP 8,229 8,554 4.0%
BSE SMLCAP10,171 10,526 3.5%
BSE OIL AND GAS11,987 12,360 3.1%
BSE FMCG 2,111 2,155 2.1%
BSE PSU 9,502 9,613 1.2%
BSE HEALTHCARE 3,811 3,823 0.3%

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

As per a leading business daily, HDFC is planning to dilute 10% of its stake in HDFC Standard Life Insurance, 74% subsidiary of HDFC, through an initial public offer (IPO). HDFC Standard Life Insurance is a joint venture between HDFC and UK-based insurer Standard Life, which has an 18.1% stake in the JV. The life insurance business of HDFC needs capital of around Rs 6 bn for sustaining its growth. The capital to be raised through the IPO is expected to be to the tune of Rs 1 bn, which will part fund the life insurance venture's capital requirements. This will also help HDFC unlock some value from the insurance company for its own shareholders. The stock of HDFC closed higher by 4%, while its peer IDFC (up 8%) also found favour.

NTPC is planning to infuse Rs 55 bn in Mauda Thermal Power Project (2x500 MW) in Maharashtra. The company would also undertake renovation and modernisation works at Kawas Gas Power Station (645 MW) in Gujarat at an estimated cost of Rs 5.9 bn. Further, it would make an equity investment of up to Rs 12 bn in its subsidiary Bhartiya Rail Bijlee Company for the implementation of Nabinagar Thermal Power Project (4x250 MW) in Bihar. However, the project is subject to prior proportionate equity contribution by the Indian Railways. The move is in line with the company's strategy to add over 22,300 MW of additional generation capacity in the next 5 years by way of greenfield projects, brownfield expansion, joint ventures and acquisitions. The stock closed flat while its peer Reliance Energy, closed 1% higher.

Top gainers during the week (BSE A)
CompanyPrice on
November 23 (Rs)
Price on
November 30 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX 18,853 19,363 2.7% 20,238 / 12,316
S&P CNX NIFTY5,609 5,763 2.7% 6,012 / 3,555
ISPAT INDS. 39 51 31.6% 53 / 10
NIRMA LTD. 196 237 21.0% 255 / 143
VSNL 526 627 19.2% 642 / 342
HINDUSTAN ZINC 685 810 18.2% 982 / 545
GSK CONS. 616 718 16.6% 723 / 500

As per a leading business daily, GAIL has got the rights to market the entire gas produced by the joint venture partners - Reliance Industries, British Gas and ONGC - from the Panna-Mukta-Tapti (PMT) fields. GAIL has been allowed to market the entire 17 mmscmd gas produced from these fields. Currently, GAIL has the right to market only 4.8 mmscmd from the fields and is not entitled to marketing margins. The marketing and transmission company is now allowed to levy a marketing margin of US$ 0.12 per million British thermal unit (mBtu) on the entire output of about 17 mmscmd from April 2008. This decision is positive for the company, as it would push the company's revenues by about Rs 50 bn. The stock closed 2% higher, while its peers IGL (up 1%) and GGAS (down 3%) were a mixed bag.

Top losers during the week (BSE A)
CompanyPrice on
November 23 (Rs)
Price on
November 30 (Rs)
%
Change
52-Week
H/L (Rs)
HEXAWARE TECH 8978-12.4%205 / 71
GSK PHARMA 1,034948-8.3%1,340 / 935
INDO RAMA SYN. 5752-7.5%71 / 44
D-LINK INDIA 9992-6.7%108 / 59
FEDERAL BANK 337315-6.5%398 / 150

With the Sensex hovering within a 1000-point range on both sides of the 19K mark, it is a good time to ponder over what Warren Buffett mentioned his 1997 letter to shareholders, "Now, we have a very cheery consensus. That does not necessarily mean this is the wrong time to buy stocks: Corporate America is now earning far more money than it was just a few years ago. Today's price levels, though, have materially eroded the "margin of safety" that Ben Graham identified as the cornerstone of intelligent investing." So the prudent course of action at this juncture is be on the look out for the margin of safety provided by fundamentals and stock prices, which haven't been cheered up to unsafe levels.

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