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Scaling the 20K peak

Dec 15, 2007

The Sensex scaled the 20,000 peak during the first half of the week but felt the impact of the less than anticipated Fed rate cut in the second half. Three out of the five sessions during the week ended in the red as mutual funds turned out to be net sellers. Thus, for the week ended December 14, 2007, the BSE-Sensex gained 0.3% while the NSE-Nifty gained 1.2%The week began on a cautious note, with the Sensex losing 35 points and the Nifty down by 14 points on Monday. Tuesday witnessed a reversal of sentiments as buying action in aluminium, energy and telecom stocks led the Sensex to scale the 20K summit. It gained 383 points while the Nifty added 130 points. Asian, American and European indices indicated negative cues on Wednesday as the US Federal Reserve cut its Fed funds rate by 0.25% against an expectation of 0.5% from some large investors.

However, the Indian markets did not follow the cues as the Sensex closed 40 points higher while the Nifty gained 62 points. Thursday witnessed the true impact of the Fed rate cut. Even the Reserve Bank of India (RBI) governor, Dr. Y.V. Reddy's comment that the decision by the US Federal Reserve to cut interest rates is relevant to Indian monetary policy but not a determining factor, did not enthuse the Indian investors enough. The Sensex closed 271 points lower while the Nifty lost 101 points. Friday turned out to be a fairly volatile day of trade with software, banking and telecom stocks bearing the brunt of profit booking. The Sensex closed at 20,031 (down 74 points) while the NSE Nifty closed at 6,048 (down 10 points).

On the institutional activity front, between 7th December and 13th December, Foreign Institutional Investors (FIIs), were net buyers to the tune of Rs 21 bn, while mutual funds sold equities worth Rs 554 m.

(Rs m)MFs FIIs Total
7-Dec724 52 776
10-Dec(2,921)3,006 85
11-Dec 3,081 6,899 9,980
12-Dec371 598 969
13-Dec(1,809)10,821 9,012
Total(554)21,376 20,822

On the sectoral indices front, BSE Smallcap (8%), BSE Healthcare (8%) and BSE Metal (6%) featured among the key gainers.

IndexAs on December 07As on December 14% Change
BSE SMLCAP11,342 12,196 7.5%
BSE HEALTHCARE 4,007 4,308 7.5%
BSE METAL18,738 19,763 5.5%
BSE MIDCAP 9,022 9,472 5.0%
BSE FMCG 2,177 2,264 4.0%
BSE PSU 9,869 10,079 2.1%
BSE OIL AND GAS12,735 12,981 1.9%
BSE AUTO 5,651 5,744 1.6%
BSE BANKEX11,378 11,335 -0.4%
BSE IT 4,425 4,260 -3.7%

Now let us have a look at some of the key stock/sector specific developments during the week.

Reliance Industries (RIL) struck a deal to explore uranium in Australia. RIL, through its subsidiary RIL (Australia) Pty, signed an agreement with Uranium Exploration Australia (UXA) to buy 49% in eight exploration blocks owned by the company in South Australia and Northern Territory. The company is expanding its range of exploration activities to include areas where it can add value by its internal technology skills or in development. RIL will pay US$ 3.5 m to UXA and contribute 49% share of future exploration expenditure which is estimated at about US$ 19.4 m. The move is significant in the light of soaring demand and prices for this highly radioactive commodity. Spot uranium prices hit a record of US$ 136 per pound earlier this year, compared with US$ 7 in 2000. With prospects of higher demand from new nuclear power plants the move would benefit RIL in long run. The stock closed higher by 2%, while its peer ONGC (up 4%) also found favour.

Stock broking major, Edelweiss Capital listed on the exchanges at Rs 1,444, a premium of 75% to its issue price of Rs 825. The company had come out with a public issue of 8.4 m shares. The issue was subscribed around 111 times. The company provides investment banking, institutional equities, private client broking, asset management, wealth management, insurance broking and wholesale financing services to corporate, institutional and high net worth individual clients. It plans to use the proceeds of the issue for enhancing the margin maintained with stock exchanges, setting up additional offices and acquiring office infrastructure, enhancing existing technological capacity and prepaying loans. The stock of Religare closed 3% lower while its peer Motilal Oswal also closed lower by 4%.

Top gainers during the week (BSE A)
CompanyPrice on
December 07 (Rs)
Price on
December 14 (Rs)
%
Change
52-Week
H/L (Rs)
BSE SENSEX19,966 20,031 0.3% 20,498 / 12,316
S&P CNX NIFTY5,974 6,048 1.2% 6,185 / 3,555
GILLETTE INDIA 853 1,323 55.2% 1,323 / 762
FINOLEX IND. 88 109 23.1% 110 / 65
THOMAS COOK INDIA 74 91 22.7% 91 / 46
NALCO 380 449 18.4% 467 / 199
BALLARPUR INDUS. 156 180 15.3% 188 / 97

Engineering major, L&T announced its plans of setting up a joint venture with French offshore energy services firm Technip to expand its play in the offshore exploration sector. Technip's JV with L&T will be mainly for EPC activities in offshore exploration and production, establishment of crude oil and chemical storage terminals, setting up of fuel handling facilities and refineries and installation of plants and equipment. After the deal, L&T would start receiving international orders through Technip. Technip has a presence in 115 countries and is in the business of constructing oil production and refining facilities. As the engineering, procurement and construction (EPC) activities in oil and gas sector are booming worldwide, L&T is expected to benefit from the alliance. Further the move is also a part of its strategy to increase the international share to 25%, from the current 20%, by 2009. The stock closed 2% lower, while its peer BHEL closed 7% lower.

Top losers during the week (BSE A)
CompanyPrice on
December 07 (Rs)
Price on
December 14 (Rs)
%
Change
52-Week
H/L (Rs)
SATYAM 444411-7.4%525 / 402
THERMAX LTD. 892841-5.7%968 / 341
RAMCO SYSTEMS 174167-4.3%233 / 119
INFOSYS 1,7181,647-4.2%2,439 / 1,511
GEOMETRIC SOFT 8784-4.1%145 / 69

With the markets remaining buoyant and valuations looking stretched, perhaps it is the right time to consider investment returns in light of Warren Buffett's observations on bull markets. In his 1997 letter to shareholders, he mentions, "Any investor can chalk up large returns when stocks soar, as they did in 1997. In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond." So stay focused on the businesses, dear reader, no rainstorm lasts forever.

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