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From strength to strength… - Views on News from Equitymaster
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  • Dec 13, 2003

    From strength to strength…

    The bull-run continued on the bourses this week also with both the indices gaining significant ground. While the BSE-Sensex gained 3.6% during the week, the gains on the NSE-Nifty were at 3.2%. Thus, including the current week, the indices have gained almost 10% in just the last 3 weeks alone to scale new 44-month highs. It must be noted that prior to that, the markets had gone into a correction mode for a couple of weeks in mid-November. However, since then, the upmove has been strong.

    The indices opened the week on a rather subdued note, which was primarily a continuance of the weakness seen on Friday last week when a strong session of profit taking had dragged the indices deep into the red, as they lost about 2% each. The indices closed flat on Monday after witnessing substantial bouts of volatility during the day. However, the story was different from thereon. After a couple of lull trading sessions (Friday and Monday), the bulls found rather hard to control themselves from pushing the indices into a higher territory. The bulls charged ahead on Tuesday and Wednesday as significant buying was seen amongst FMCG, software and banking stocks. Infact, the underlying bullish current was strong enough to attract buying at every dip, which helped the indices to recover from their intra-day losses. However, Thursday and Friday was more of a consolidation period, as the indices just managed to maintain their head in the positive.

    Top 5 gainers over the week
    COMPANY Price on
    December 5 (Rs)
    Price on
    December 12 (Rs)
    % CHANGE 52-WEEK H/L (Rs)
    BSE-SENSEX 5,132 5,316 3.6% 5,344 / 2,904
    S&P CNX NIFTY 1,646 1,699 3.2% 1,706 / 920
    DSQ SOFTWARE 9 12 26.8% 21 / 5
    EIH ASSO. HOT. 24 30 26.2% 32 / 7
    HEXAWARE TECH 327 412 26.0% 422 / 90
    WOCKHARDT LIFE 32 41 25.9% 44 / 20
    SHREE RAMA MULTI 6 7 25.0% 12 / 4

    As mentioned above, this week was witness to some buying amongst the FMCG stocks. This seemed primarily due to the fact that stocks from this sector did not form a major part of the overall stock market rally seen in recent times, and that many companies from this sector still command attractive valuations. Further, the good monsoons this year have improved the growth prospects of FMCG companies going forward. The other sector in favour this week was the software sector. It must be noted that the software sector has underperformed the benchmark indices by a huge margin in the current rally and as a result, it has been attracting the investors' attention in recent times. As far as the banking stocks were concerned, last week's euphoria triggered by HSBC acquiring a stake in UTI Bank, which fuelled the expectations of further consolidation in the sector, continued well into the current week.

    Top 5 losers over the week
    COMPANY Price on
    December 5 (Rs)
    Price on
    December 12 (Rs)
    % CHANGE 52-WEEK H/L (Rs)
    STERLITE IND 1460 1267 -13.3% 1630 / 137
    IDBI 59 52 -10.6% 66 / 16
    P&G 510 462 -9.4% 549 / 206
    INGERSOLL RAND 272 255 -6.5% 306 / 191
    APOLLO HOSP. 184 173 -6.2% 188 / 91

    Now, looking at some key news events this week:

    • ITC's paperboards and specialty papers division is planning to invest around Rs 2.6 bn in its unit acquired from BILT in November 2003. This move would help ITC increase its plant's output by 65,000 tonnes within a year and is a way at de-risking its revenues from the tobacco and related businesses (around 81% of the total revenues). Also, the company has announced the merger of its hotels business with itself. The stock gained over 6% this week.

    • According to reports, Zee Telefilms is likely to acquire Rajshri Productions for roughly Rs 500 m. However, investors need to exercise caution, as the company has not confirmed the same. The acquisition, if successful, will help Zee make a foray into film-making and strengthen its distribution business. Zee currently has distribution presence through its subsidiary, Padmalaya Telefilms. The stock closed the week with gains of 6%.

    • Oil and gas major, Oil and Natural Gas Corporation Ltd. (ONGC), is expected to bag contracts worth US$ 750 m (Rs 34 bn) next month from Sudan. The deal involves two projects - one would be oil-products pipeline from the country capital Khartoum to the seaport and other an up gradation of the Port Sudan refinery. The company expects to complete these projects by January. The Sudanese government also hopes to team up with the Indian firm for overseas oil project. The investors reacted positively to the news and pushed the stock higher by 12% for the week.

    • India's leading housing finance company, HDFC, is now focusing on the Middle East countries to cater to NRIs and expand its housing finance business. The company has already disbursed loans worth Rs 5 bn in these countries and is bullish on the Middle East region with over 3.5 m Indians working in the region. The company is also emerging as a 'consultant on housing needs to third world countries' and has entered into joint ventures with local banks in countries like Egypt to set up a housing finance company. The stock was amongst the top gainers amongst the index stocks notching gains of over 9% for the week.

    Going forward, with the indices having gained over 80% since their lows in April 2003 and that their valuations having improved from about 11x-12x trailing twelve months (TTM) earnings to the current 16x-17x TTM earnings, it is now time to adopt a more selective approach to investing in the stock markets rather than investing in an ad hoc manner on the expectations of the bullrun continuing at the similar blistering pace as witnessed in the last 3 quarters. However, considering the strong bullish undercurrent in the markets supported by the continuous FII inflow into Indian equities (US$ 5.8 bn to date in 2003), the Indian story is far from over. Hence, we continue to maintain our stand that Indian equities continue to remain appealing for a long-term portfolio build-up. Though there could be short-term concerns, long-term investors should not be deterred by temporary blips and keep their eye on the larger picture.



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