Dec 10, 2005|
The Indian stock markets continued their record run on the bourses this week also, as the bulls remained in total control of the market proceedings for a major part of the week. However, the only difference was the fact that the bulls were Indian this time around (discussed later). While strong investor interest in index heavyweights helped propel the benchmark indices into higher orbit with the BSE-Sensex and the NSE-Nifty gaining 1% and 2% respectively, the buying was broad-based, with investors lapping up mid-cap and small-cap stocks also. Thus, while the BSE Mid-cap Index gained 2.4% this week, the BSE Small-cap Index ended 3.6% higher.
The markets began the week on a weak note, seemingly on the back of the strong run witnessed over the past 5 weeks, which saw them gain a hefty 16% and create new lifetime highs last week. Profit booking was witnessed during the first two trading sessions of the week (Sensex had lost 140+ points), which may have made the bears assume, once again, that the markets were poised for a correction. However, this turned out to be a false indication, as the bulls came back with renewed vigour in the following 3 trading sessions of the week, taking the Sensex past its previous lifetime highs.
However, unlike the past, this week around, it was 'not' the institutional players making a beeline for Indian equities, as is evident from the chart above. In the first four trading sessions of the week, while the Foreign Institutional Investors (FIIs) were net sellers to the tune of Rs 835 m, domestic mutual funds (MFs) sold equity worth Rs 1.4 bn. However, it must be noted that this could change considerably, as the above figures do not include the figures for Friday's trading session (Sensex up 160 points). Further, this week's institutional behaviour does not take away the credit (for the Indian stockmarket rally) from them, with FIIs and MFs having pumped in Rs 390 bn (US$ 8.9 bn) and Rs 141 bn (US$ 3.2 bn) in 2005 to date.
Now let us consider some sector/stock specific developments this week:
- Piramyd Retail made its debut on the bourses this week and listed at a 33% premium to its offer price of Rs 120 per share. The company is one of India's largest retailers, with a presence in lifestyle retail and food, home and personal care (FHPC). It currently operates 12 stores spread across 4 cities occupying over 210,000 sq. ft of retail space. The company had raised money for capital expenditure and deposits for setting up 13 new Piramyd Megastores and 61 TruMart stores by 2008, upgradation of IT infrastructure and repayment of bridge loan. The stock finally ended the week higher by 8%. Other FMCG stocks
Top gainers over the week (NSE-50)
Dec 2 (Rs)
Dec 9 (Rs)
|| 9,081 / 6,069
|S&P CNX NIFTY
|| 2,761 / 1,894
||1,137 / 762
|| 1,695 / 1,093
|| 170 / 108
|| 445 / 161
|| 195 / 81
ONGC was the star of the week, as the stock of this Indian oil giant turned out to be the biggest gainer amongst index stocks, up 9%! A couple of announcements seemingly helped create positive sentiments towards the stock. These included reports of Indian firms expected to be invited to buy stakes in oil companies in Russia and also work along with these companies to jointly carry out exploration and production activities in third world countries. In another development, ONGC Videsh, the overseas arm of ONGC, is reportedly close to acquiring a 45% stake in the Akpo oil and gas field, which has estimated reserves of 1.6 bn barrels of oil. These are positives for companies like ONGC, which has been looking aggressively for overseas oil and gas assets because of its growing energy needs. Other energy stocks
Software stocks witnessed considerable buying this week, with TCS making it to the top gainers' list this week. Again, gains in TCS were seemingly on the back of positive news pertaining to the company. These included the company having signed a partnership deal with SAP of Germany to deliver manufacturing solutions worldwide. This partnership shall go a long way in bringing together SAP's technology platform and TCS' global delivery model. Another development that could have aided sentiment was the news that TCS is close to acquiring a couple of BPO companies in Europe. The company is also hopeful of clinching two outsourcing deals of over US$ 100 m each. TCS is targeting to increase its revenue from the BPO business to US$ 200 m over the next two years, up from US$ 45 m at present.
Auto stocks too were in favour this week. While gains in Maruti (up 4%) were fuelled by the news that the company is planning to go for a price hike of upto Rs 15,000 in January 2006 across all models to combat rising input costs, Tata Motors (up 2%) also gained ground for similar reasons. It has hiked prices of its medium and heavy vehicles by 2% to 2.25%. As far as the gains in auto ancillary major, Bharat Forge (up 4%) were concerned, the news of this second-largest forging company in the world having picked up a 52% stake in FAW Forging Ltd of China brought the stock in the investors' radar. Bharat Forge was scouting for a suitable opportunity for making its entry in the Chinese market. The acquisition will further strengthen the company's 'dual shore' strategy, as now it will have two low cost manufacturing bases, the other being Indian operations. Top losers over the week (NSE-50)
Dec 2 (Rs)
Dec 9 (Rs)
|| 475 / 339
|| 417 / 282
|| 382 / 230
|| 1,810 / 890
|| 1,168 / 677
As far as the losers this week were concerned, weakness in BPCL (down 7%) and HPCL (6%) could be attributed to rising crude oil prices, which have once again started to flirt with the US$ 60 per barrel mark, which would, in turn, put pressure on margins of these oil marketing companies, as traditionally, they have not been allowed to pass on the burden to the consumers owing to political compulsions. On the other hand, weakness in L&T seemed largely in the nature of profit booking, as the stock has gained considerable ground over the last few weeks.
To conclude, while market players attribute the current rally on the bourses to various fundamental reasons, we believe that excess global liquidity and a sudden penchant for Indian equities as amongst the most favoured destinations has been driving valuations higher, now at 18 times trailing 12-month earnings for the Sensex. With interest rates increasing in the US, there are risks to the sustained flow of (FII) money.
We suggest investors to book profits 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 and safe investing!
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