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The streak's snapped!

Dec 9, 2006

Finally its over! The six-week positive ending streak of the markets came to a halt during the week, thanks mainly to a huge selling pressure on the last trading day. Thus, for the week ended Dec 8, 2006, the benchmark BSE-Sensex ended marginally lower while the decline in NSE-Nifty was a tad higher at 1%.After ending the week agonizingly close to the 4,000 mark, the 'Nifty' breached the barrier once again in early trade on Monday and this time around, even managed to close above the coveted mark. However, that was the only bright spot on what was otherwise a volatile day on the bourses. Volatility continued to rear its head for the remaining days of the week as nervousness at higher levels on the part of investors never really allowed the indices to move into top gear, a trend that was witnessed in the previous week. Tuesday was the only exception as led by heavyweights; both the indices witnessed strong gains. The bloodbath that was however witnessed on the last trading day was more than enough to wipe off all the gains earned during the first four days.

As far as the institutional activity on the bourses was concerned, Foreign Institutional Investors (FIIs) were net sellers this week to the tune of nearly Rs 18 bn. Domestic mutual funds (MFs), on the other hand, turned out to be net buyers to the tune of Rs 2 bn.

(Rs m)FIIsMFsTotal
1-Dec-063,493 3,043 6,536
4-Dec-06 (28,138)432 (27,707)
5-Dec-064,332 505 4,837
6-Dec-062,442 (1,774)668
7-Dec-06 101 42 143
Total (17,770) 2,248 (15,522)

As far as sectoral indices are concerned, with the exception of the metal and small cap index, all the others ended the week in the red. Worst hit were the auto and the FMCG index, both of which lost 1.5% each. Gains in the metal index could be attributed to the buying interest in heavyweights such as Tata Steel and Hindalco as both of them account for nearly 50% of the total index.

IndexAs on December 1As on December 8% Change
BSE METAL8,913 9,041 1.4%
BSE SMLCAP6,719 6,730 0.2%
BSE IT5,142 5,130 -0.2%
BSE MIDCAP5,775 5,746 -0.5%
BSE OIL AND GAS6,130 6,095 -0.6%
BSE PSU6,251 6,215 -0.6%
BSE BANKEX7,290 7,214 -1.0%
BSE HEALTHCARE3,770 3,725 -1.2%
BSE Auto5,473 5,393 -1.5%
BSE FMCG2,051 2,021 -1.5%

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

Software stock closed mixed for the week with major gainers being I-Flex Solutions (up 22.1%), Polaris Software (up 16.7%) and Sonata software (up 13.6%). TCS, the software behemoth announced a landmark US$ 100 m deal from Bank of China (BOC) during the week. As a matter of fact, the BOC deal is one of the major IT-related deals signed by a Chinese bank ahead of the opening up of the country's banking sector to foreign competition by December 11, 2006 under Beijing's commitment to the WTO. All major Indian IT giants, including TCS, Infosys, Satyam, Wipro, NIIT, and i-flex have set up bases in China, servicing their multinational customers in the country and targeting the huge domestic software market as well as the Japanese and South Korean markets.

Top gainers during the week (BSE A)
CompanyPrice on
Dec 1 (Rs)
Price on
Dec 8 (Rs)
H/L (Rs)
BSE Sensex 13,845 13,799 -0.3% 14,035/8,799
S&P CNX NIFTY 3,998 3,962 -0.9% 4,047/2,596
I-FLEX SOLUTIONS 1,678 2,049 22.1% 2,055/840
POLARIS SOFTWARE126 147 16.7% 149/52
IDBI 74 85 14.2% 110/49
INDUSIND BANK 45 50 10.2% 64/27
ADANI EXPORT215 236 9.6% 244/48

RCL, the telecom major ended 1.2% higher for the week. As per reports, the company has floated an US$ 8-bn telecom tender. This is touted as one of the biggest ever tender for equipment, floated by any telecom operator in the world. The contract is likely to be split in between 3-4 players in as no single player can cater to it alone. The winners are likely to be announced 4-5 months later and the first batch of equipment is expected to be supplied 5-6 months after the contract is awarded. This is a forward looking move on the part of RCL as it currently has a CDMA capacity for 30 m subscribers and it already has a subscriber base of about 24 m. This move is in keeping with RCL's foray as a GSM based operator. Currently the GSM network services 70% of telecom subscribers in India. With RCL having issued Request for Proposal for nearly 70-75 m GSM lines, we believe this move will largely help it to increase its presence in most GSM circle s across the country. RCL currently has a presence in 8 circles and has a subscriber base of 3.2 m GSM subscribers, earlier this year it had applied for license in 21 GSM circles.

Top losers during the week (BSE A)
CompanyPrice on
Dec 1 (Rs)
Price on
Dec 8 (Rs)
H/L (Rs)
CORPN. BANK397358-9.8%455/205
ZEE TELE378347-8.3%381/149
PIDILITE INDUSTRIES129118-8.0%144/74
BIRLA CORP 364 337 -7.2%413/164
INDO RAMA SYN5652-6.7%82/43

FMCG behemoth HLL has indicated its keenness towards further acquisitions, which fit in well with its core areas of business. This comes after its parent Unilever clarified that the company would stick to its core areas of strength while taking a decision on acquisitions. The management indicated that it wishes to learn from the past mistakes (of acquiring non-core businesses such as Nihar that was later sold to Marico, and tea estates), which did not do well with the company. However, select acquisitions like that of Lakme, Kissan and Kwality have enabled the company foray into newer businesses, acquire higher market share and improve margins. HLL's turnover, at Rs 110 bn in CY05, was over one third of the total branded/organized FMCG market in India. In the last couple of years, the company has embarked on a major restructuring exercise focusing on improvement in quality of earnings, pruning brand portfolio and securing a viable future for its non-core businesses through JVs or spin-offs. The stock ended the week 2.8% weaker.

With markets poised at higher levels, it is not surprising to see increased volatility as investors continue to look for direction. As mentioned time and again, while we might be concerned with the medium term valuations of quite a few companies, over the long-term we are bullish on India Inc's ability to continue to deliver robust returns to its shareholders. However, strong business model and a competent management are of the essence here.

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