Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
The boon in disguise! - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 16, 2006

    The boon in disguise!

    The indices were back in the reckoning during the latter half of the week and as a consequence, the damage that initially appeared substantial, turned rather muted towards the end. For the week, while the BSE-Sensex shed a little more than 1%, at 2%, the losses in NSE-Nifty were a little more pronounced.

    It is widely acknowledged that a correction after a strong rally is always a healthy sign as it helps curb excessive optimism. Hence, when the Indian stockmarket indices touched all time highs recently after a rather prolonged bull rally, thoughts of a correction had started gathering momentum. The RBI announcement of a two-stage hike in CRR only added fuel to the fire and although the central bank had intended to avoid a knee-jerk reaction by the Indian bourses by opting to announce the decision on a weekend, it seemed to have failed to have its desired effect as the markets tanked heavily on the first two days of the week, losing 400 points each. Investors who were waiting on the sideline all this while, pounced on the opportunity and the heavy buying that ensued over the next three days helped the indices erase around 75% of the losses it witnessed over the first two days of the week.

    Index As on December 8 As on December 15 % Change
    BSE IT 5,130 5,182 1.0%
    BSE HEALTHCARE 3,725 3,702 -0.6%
    BSE SMLCAP 6,730 6,668 -0.9%
    BSE MIDCAP 5,746 5,661 -1.5%
    BSE OIL AND GAS 6,095 5,974 -2.0%
    BSE AUTO 5,393 5,262 -2.4%
    BSE METAL 9,041 8,803 -2.6%
    BSE BANKEX 7,214 6,995 -3.0%
    BSE FMCG 2,021 1,952 -3.4%
    BSE PSU 6,215 5,968 -4.0%

    As expected, all the major indices were swathed in a sea of red during the week. The sole exception was the IT index that edged higher by a respectable 1%. Relatively higher insulation from the Indian economy helped the index avoid the coat of red. Sector bellwethers, Infy and Satyam were among the few gainers on the Nifty during the week and also contributed to most of the gains in the index as together they account for nearly 70% of the index value. The BSE PSU index was the worst hit as it edged lower by 4% during the week. Another heavy loser was the Bankex as it lost 3% following the drubbing received by the sector stocks on account of the CRR hike.

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

    Banking stocks across-the-board faced selling pressure with three banks featuring among the top 5 losers on the NSE Nifty during the week. The decline was largely a result of the RBI's decision to hike the cash reserve ratio (CRR) by 50 basis points to 5.5% in two tranches of 25 basis points each, seemingly to contain inflation expectations. As per the Reserve Bank of India (RBI), as a result of the hike in CRR, an amount of about Rs 135 bn of banks' resources would be absorbed. The same is expected to have a cascading effect on banks' lending rates, especially, that on the sub-PLR portfolio. It may also be noted that the RBI had in a policy measure earlier this year had withdrawn the interest of 3.5% payable on the CRR. The further sucking out of funds in the non-remunerative CRR basket would also mean margin pressures for the banking entities. Major PSU banks such as SBI, PNB and OBC lost in the region of 6% to 8% during the week.

    COMPANY Price on Dec 8 (Rs) Price on Dec 15 (Rs) % CHANGE 52-WEEK H/L (Rs)
    BSE Sensex 13,799 13,615 -1.3% 14,035 / 8,799
    S&P CNX NIFTY 3,962 3,889 -1.9% 4,047 / 2,596
    MOSER-BAER INDIA 247 269 8.8% 292 / 162
    HMT LTD 75 81 8.3% 101 / 38
    DENA BANK 37 40 8.0% 42 / 20
    GUJ IND POW 58 62 6.8% 83 / 45
    BHARAT ELEC 1,209 1,283 6.1% 1472 / 815

    Engineering major L&T was among the few gainers on Nifty. The company, during the week bagged the Rs 54 bn Delhi airport modernization contract. The order involves design and construction of a passenger terminal and a 4.43 km runway, which is expected to be one of Asia's longest. The new passenger terminal will be named as Terminal 3 and will be built adjacent to the existing international terminal. It is expected to have the capacity to handle 37 m passengers a year, which is more than double the existing volume of traffic. It must be noted that at the end of September 2006, L&T's Engineering and Construction (E&C) division's order backlog stood at 293 bn, almost 2.5 times the segment's full year sales in FY06. This move is part of the company's strategy to focus on projects in sectors such as airports, ports, power and upstream oil and gas. The company's peers, ABB and Suzlon Energy, lost 5% and 3% during the week.

    COMPANY Price on Dec 8 (Rs) Price on Dec 15 (Rs) % CHANGE 52-WEEK H/L (Rs)
    CROMPTON GR 266 208 -21.5% 284 / 142
    INDUSIND BANK 50 43 -12.9% 64 / 27
    IDBI 85 76 -10.0% 110 / 49
    ROLTA INDIA 264 241 -8.6% 285 / 124
    PNB 554 507 -8.4% 585 / 300

    In another headline grabbing news during the week, Tata Motors and Fiat are envisaging a joint venture with an investment of over Rs 40 bn to make cars and engines and possibly expand it to produce trucks as well. The annual capacity will be more than 100,000 cars and 200,000 engines and transmissions and production will start from the beginning of 2008. Tata Motors will distribute the cars through the Tata-Fiat dealer network, which is also set to expand to 100 outlets from the current 42. Fiat had, earlier this fiscal, announced that it would manufacture Tata Motors' new 1-tonne pick-up truck at its plant in Argentina for Latin American and overseas markets from 2HFY08. Tata Motors (Telco) is India's largest commercial vehicle (M/HCVs and LCVs) manufacturer, with a market share of 62% in FY06 (59% in FY04) and second largest producer of passenger vehicles. The stock lost 1% during the week along with its peers Maruti and M&M (each down 3%).

    Going by the mood of the market during the last days of the week, the CRR hike effect seems to be behind it and is now effectively waiting for the next catalyst to once again trigger significant movement on either side. While the current correction may look big from a week's perspective, over the long term, it is most likely to form a small blip on the bourses, whose fortunes are otherwise on the ascendant. In other words, there is still a lot left on the table for long-term investors provided they stick to quality stocks at reasonable valuations.



    Equitymaster requests your view! Post a comment on "The boon in disguise!". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)