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For the record! - Views on News from Equitymaster
 
 
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  • Dec 4, 2004

    For the record!

    It was sheer euphoria on the bourses with the indices gaining a handsome 5% this week. There was buying witnessed across most sectors as FIIs continued to pour money into Indian equities. There was ample buying witnessed in the mid-cap segment too, which is evident from the gains witnessed in the BSE-200 (5%) and BSE-500 (4%) indices. Strong fundamentals of India Inc. and good growth prospects have seemingly helped attract foreign money. However, a weaker dollar also aiding the money flow to Asian markets for better returns cannot be ruled out.

    The indices opened the week on a firm footing and proceeded to achieve higher ground throughout Monday’s trade with the Sensex ending the day with over 120 points gains. This momentum continued even in the subsequent days trading with the Sensex re-visiting history by nudging (6,248) the previous high (6,250 in intra-day) it had achieved on January 9, 2004. Nonetheless, a new ‘record’, which was to be broken soon, was created on the Bombay Stock Exchange as the Sensex closed for the first-time ever over the 6,200 mark on Tuesday. This two days of euphoria was followed by a day of consolidation on Wednesday before the bulls got back into action on Thursday with the Sensex notching gains of 100 points again!

    It must be noted that the indices have moved in almost a vertical fashion gaining near 12% in the past 6 weeks and in the process have broken previous and created new records. In early trades on Thursday, the Sensex not only breached the 6,300 levels (a record!) but also managed to close convincingly above this level (one more record!). The Nifty also managed a close of over 2,000 (another record!). It must be noted that the key drivers behind the current bull rally are FIIs (see chart above) who continue to favour Indian equities. Just to update readers on this, while the FII community had pumped in close to US$ 6.6 bn in calendar year 2003, they have already invested near US$ 7.5 bn in the current calendar year to date (one more for the record!).

    Key gainers over the week (NSE-50)
    COMPANY Price on Nov 25 (Rs) Price on Dec 3 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 6,035 6,323 4.8% 6,362 / 4,228
    S&P CNX NIFTY 1,901 1,996 5.0% 2,015 / 1,292
    PNB 326 379 16.1% 408 / 175
    OBC 291 335 15.3% 367 / 149
    SBI 513 578 12.7% 690 / 390
    HPCL 335 373 11.3% 542 / 262
    ICICI BANK 318 354 11.2% 359 / 212

    Now considering some stock specific action on the bourses, the gainers table above shows that 4 of the 5 top gainers amongst the Nifty stocks this week were from the banking sector. Apart from the consolidation theme existent in the sector, the prospects of banks seem strong on the back of revival in corporate credit offtake as well as improvement in lending rates, which would aid their core business growth. Further, with the treasury portfolio having been shifted to the Held-To-Maturity (HTM) category, it will help arrest the decline in treasury income of banks. All this has seemingly led to the continued strong buying in banking stocks. As far as the losers’ list is concerned, the weakness in these seemed primarily in the nature of profit booking. However, it must be noted that there was some weakness in software stocks owing to the depreciating US dollar, which is likely to put pressure on software export companies.

    Key losers over the week (NSE-50)
    COMPANY Price on Nov 25 (Rs) Price on Dec 3 (Rs) % CHANGE 52-WEEK H/L (Rs)
    SUN PHARMA 520 496 -4.6% 544 / 278
    HDFC BANK 499 483 -3.3% 504 / 276
    SATYAM 425 412 -2.9% 442 / 230
    GLAXO 754 733 -2.8% 784 / 489
    ZEE TELE 154 151 -2.1% 175 / 100

    However, going forward, having now breached the all-time highs, caution needs to be exercised with respect to equity investments, as much of the good news in the medium term seems to have been already factored into most of the stocks. Further, with interest rates on the rise, stocks, especially from industries, which are capital intensive and have a high debt to equity ratio, should be avoided. 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 India Inc. margins come under pressure.

    While market players attribute the current rally on the bourses to various fundamental reasons, we believe that FII money flow has been the key factor that has been driving valuations higher. With interest rates expected to increase in the key developed markets (including US), there are risks to this flow of money in the near-term. We suggest investors to book profit if the price target is achieved and not to wait for the 'next 100 points upside'. It is pertinent to look at both the upside and the downside with a fundamental view i.e. earnings growth and relative valuations. However, we continue to remain positive over the longer-term prospects and we believe that a selective and staggered investment approach is apt for investing into equities at the current juncture. Happy investing!

     

     

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