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Markets: In the last one month

Dec 13, 2004

It's a new week! Though the stock markets in India lost around 1.4% last week, the mood on the streets seems to be buoyant. The above 10% growth in the manufacturing index in the recent month has only added to the optimism. We take a closer look at the performance of the stock markets over the last one-month. There are some interesting insights!As is evident from the table below, the BSE Sensex has gained by over 4% in the last one month with the NSE Nifty outperforming by around 70 basis points. Another aspect to note is that the list of the top five gainers in the BSE 'A' group is occupied by banking stocks. As a matter of fact, of the top gainers in the same index, 7 are banking stocks! What is aiding this interest is not just the overall buoyancy in the stock markets, but also the fact that demand for credit from corporates has been growing at a faster clip.

Top gainers…
(Rs)10-Nov-0410-Dec-04Change52-week H/L
BSE Sensex 6,234 5,974 4.3%6,386 / 4,228
NSE Nifty 1,969 1,876 5.0%2,015 / 1,292
Andhra Bank 54 76 41.0%79 / 30
PNB 261 355 36.1%405 / 176
Union Bank 77 105 36.0%107 / 43
Ramco Systems 324 440 35.7%452 / 182
J&K Bank 258 350 35.6%525 / 226

As per the latest monthly economic report by the government "non-food credit during the financial year so far (i.e. till November 12th 2004), registered a growth of 18.6% as compared with an increase of 7.0% during the same period of the last year. The annual growth rate was 31.2% as compared with 16.0% on the corresponding date of last year". This, combined with the hike in interest rates by most of the banks has enthused investors. While we believe that the underlying demand for credit from corporates and for other infrastructure related activities shows promising prospects, not all players will benefit from the same. To understand the prospects of the banking sector in detail, read our latest report on Banks: Where to from here?.

The top losers in the BSE 'A' group will not raise eyebrows of most investors considering the uncertainty of the ongoing ownership tussle between the two Ambani brothers. Other two key losers in the list are Chennai Petroleum and Bongaigaon Refineries. With crude prices softening in the global markets, petroleum products prices have also weakened off late. This would mean lower gross refining margins for standalone refineries like Chennai Petro and Bongaigaon. Having said that, we believe that the third quarter performance of the standalone refineries are likely to be robust given the fact the weakness in the regional refining margins is only recent. Though there is some softening of petroleum product prices, on a YoY basis, refining margins are still high. As a matter of fact, Chennai Petroleum is among the top gainers in the BSE 'A" group in the last one year (up 164%).

Top losers...
(Rs)10-Nov-0410-Dec-04Change52-week H/L
Reliance Energy 633 506 -20.1%817 / 426
Bongaigaon Refinery 106 92 -13.4%107 / 42
Chennai Petro 243 220 -9.6%261 / 72
Hexaware 544 495 -9.1%570 / 309
Tata Infotech 409 375 -8.5%542 / 288

Besides the aforesaid stocks, mid-cap technology majors are also among the key losers. The Rupee appreciation has raised apprehensions among investors. Since the software sector is highly dependent on exports, there could be a negative impact on margin front. Having said that, investors have to bear in mind few factors. One, the risk is only with respect to the dollar denominated contracts (read revenues from US markets). Secondly, most of the top rung majors hedge against exchange rate volatility and to that extent, the impact in the near-term is likely to be minimal. However, one cannot understate the significance of this factor in the medium-term. Read our special report on Rupee appreciation: Hits and misses.

What does one gather from the gainers and the losers list?

  1. While the overall markets may be buoyant, there are sector specific risks and opportunities, which need to be viewed on a balanced scale. The major index outperformers in the calendar year 2003 were auto and banking stocks. But in calendar year 2004-till date, standalone refineries, hotels, technology, textiles and engineering stocks have outperformed major indices. So, the outperformers of the previous year need not be the favorites in the future!

  2. There are investment opportunities available for the long-term even now. But given the run up in the stock markets, investors would be well off going for a staggered investment plan as opposed to exposing themselves to one stock and sector instantly. This will enable investors to ride over the volatility.

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