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Bye-bye 2007!

Dec 29, 2007

Terrorism had its impact on global markets this week as the former Prime Minister of Pakistan, Benazir Bhutto, was assassinated on Thursday evening. However, post a knee-jerk reaction, the Indian markets recouped much of their losses and not much damage was done at close. Overall, for the week, the BSE-Sensex and the NSE-Nifty closed with gains of 5.5% apiece.

Monday saw the Indian stock markets take positive cues from the global markets, which had earlier found some reprieve (from the credit crisis) in the upcoming holidays. Stocks from the IT sector were particularly in favour with the BSE's technology index posting gains of 6%, followed by banking and energy indices (each 3% up).

Post the Christmas holiday on Tuesday, Wednesday saw the markets take positive cues from global peers and anticipations of better third quarter results. The momentum saw the Sensex managing to add over 300 points above Monday's close, and end near the 20,200 levels.

Thursday saw some volatility returning to the markets on account of the expiry of derivative contracts (which happens on the last Thursday of every month). While the benchmark indices had opened the day on a firm note, alternate bouts of buying and selling restricted their movement. The tables turned in the final trading hour and intensified selling pressure led the indices to close barely above the dotted line.

Friday saw the markets mirroring the trends in the global markets, which dipped into the red following the assassination of Benazir Bhutto, as the benchmark indices opened below breakeven and languished into the red for most of the trading session. While the morning session saw the indices struggling to stay afloat, selling pressure intensified in the afternoon session dragging the indices deeper into the negative. While trading for a large part of the day remained volatile, the final trading hour saw some buying activity, which helped the markets recoup considerable amount of their losses to close marginally below the dotted line.

On the institutional activity front, between 20th and 27th December, while FIIs bought stocks worth Rs 10 bn on a net basis, mutual funds were buyers to the tune of Rs 30 bn.

(Rs m)MFs FIIs Total
20-Dec6,582 (10,925)(4,343)
24-Dec8,300 (5,158)3,142
26-Dec7,427 1,674 9,101
27-Dec7,160 24,205 31,365
Total29,469 9,796 39,265

On the sectoral indices front, BSE-Metal (up 8%) and BSE-Bankex (up 6%) were the lead gainers.

Index20-Dec-0728-Dec-07% Change
BSE Smallcap11,813 12,901 9.2%
BSE Metal18,273 19,948 9.2%
BSE Oil & Gas12,246 13,202 7.8%
BSE PSU9,515 10,244 7.7%
BSE Midcap 9,025 9,575 6.1%
BSE Bankex10,738 11,386 6.0%
BSE IT4,321 4,552 5.3%
BSE Capital Goods18,726 19,645 4.9%
BSE FMCG2,198 2,283 3.9%
BSE Healthcare4,243 4,339 2.3%
BSE Auto5,541 5,595 1.0%

Let us now look at some key stock specific news for the week -

Engineering and construction major, L&T received three orders worth over US$ 190 m from Dhofar Power Company (DPC) and Muscat Electricity Distribution Company (MEDC) for electrical substations and associated works and for executing the Muscat golf course in Oman. As a matter of fact, DPC and MEDC are the major power distribution companies existing in Oman. The projects include development of a township, strengthening various transmission and distribution systems, construction of a new substation, modernisation and expansion of existing network and construction of associated overhead lines and cabling works. These projects will be executed by the Power Transmission & Distribution division of L&T Oman and are to be completed in a time span of 7 to 16 months. Larsen & Toubro (Oman) LLC is a joint venture of Larsen & Toubro FZE and the Zubair Corporation. The stock closed the week with 4% gains. Among other stocks from the sector, Bharat Electronics (15%) and Punj Lloyd (10%) closed with strong gains.

Top gainers during the week (BSE A)
CompanyPrice on
December 20 (Rs)
Price on
December 28 (Rs)
%
Change
52-Week
H/L (Rs)
BSE-Sensex19,163 20,207 5.4% 20498 / 12316
S&P CNX Nifty5,766 6,080 5.4% 6185 / 3555
Ramco Systems163 214 31.3% 233 / 119
Adani Export900 1,094 21.6% 1094 / 179
Orchid Chemicals246 295 19.9% 298 / 176
Mirc Electronics 30 35 16.7% 36 / 16
BASF India265 314 18.5% 323 / 184

Real estate stocks also gained during the week. Major gainers here include Ansal Housing (27%), Parsvnath Developers (23%) and DLF (10%). This was seemingly a result of reports that the mutual fund regulator, AMFI and the Institute of Chartered Accountants of India, cleared the path to the launch of India's first real estate mutual fund (or REIT, Real Estate Investment Trust). This shall enable small investors, who wish to be a part of the buoyant real estate sector without having to purchase properties, to benefit from the long-term opportunity in the sector. On the other hand, REITs shall allow real estate firms to raise more capital to fund their expansion and development plans. For the uninitiated, the principle activity of a REIT is to invest in diverse portfolio of properties with the main objective to earn an attractive return from rental income and long term capital growth.

Power sector stocks also traded strong and major gainers included Reliance Energy (11%), Tata Power (8%) and NTPC (6%). Gains in Reliance Energy were a result of reports that the company's power generation SPV (special purpose vehicle), Reliance Power, got a go-ahead from the SEBI for floating its initial public offer (IPO). The company has yet to price the issue but plans to raise around Rs 70 bn for funding its various generation projects. As a matter of fact, Reliance Power is part of the Reliance Anil Dhirubhai Ambani (Reliance ADA) group and was established with the purpose of developing, constructing and operating power projects domestically and internationally. The company is currently in the process of developing 12 medium and large sized power projects with a combined planned installed capacity of 24,200 MW.

Top losers during the week (BSE A)
CompanyPrice on
December 20 (Rs)
Price on
December 28 (Rs)
%
Change
52-Week
H/L (Rs)
Gillette India1,4401,325-8.0%1525 / 0
Bajaj Auto2,7932,611-6.5%3172 / 2063
Thomas Cook121115-5.0%144 / 46
Nicholas Piramal359350-2.5%383 / 195
Mastek334329-1.5%419 / 242

What to look forward to?
As we close in on the last full week of 2007, there's one phrase that reminds us of the situation prevailing around - "Human nature is human nature and human nature would continue to remain human nature till human nature remains human nature." - (Late) Nani Palkhivala. Now, one would ask why this quote on a website dedicated to equities. Well, this phrase, when used in context of equity investing, holds true to a very high extent. History is replete with examples when greed and fear (key ingredients of human nature) have taken over discipline, resulting into windfall gains and, of course, 'windfall' losses for investors. And more sadly, small investors are the biggest losers in these phases of indiscipline.

While greed results into bulls taking the centre-stage and leading markets towards nauseatingly high levels, fear brings them back to ground zero. And small investors suffer in both these situations. As we are about to enter the year 2008, Indian equity markets are at their all-time highs. While such a situation brings in factors that cause the 'greed' element to rear its face, investors need to practice utmost caution and not give in to temptations that rising markets like these bring with them. This calls for high levels of 'discipline' and, in these times, this should be like a resolution for the New Year.

We shall soon update readers with our reflections on the stock market performance in 2007 and an outlook for 2008. This shall, however, be after the close of trading for this year on Monday, December 31st 2007.

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