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Markets end the year on a high!

Dec 30, 2006

The three-week bear streak was finally snapped this week and quite fittingly, both the benchmark indices ended week as they ended the year, on a high. For the week ended December 29, 2006, while the gains in BSE-Sensex stood at 2.3%, NSE-Nifty closed with a tad higher growth rate of 2.5%.Although the indices edged lower for the last two days of the holiday shortened week (markets were closed on Monday on account of Christmas), the gains in the first two days were more than enough to enable the indices to close the week with sizeable gains. Just to put things in perspective, while the Sensex cumulatively gained close to 400 points on the first two days, only 72 points were shaved off in the last two days, resulting into a net gain of close to 325 points for the benchmark index. On Tuesday, where the index gained the highest, the markets seemed to be literally on tech tonic as strength in IT heavyweights sent the indices soaring. The rally was however more broadbased on the next day as stocks from banking, energy, FMCG and telecom sectors also participated in the rally. The decline on the last day where the markets fell the most for the week was largely led by banking stocks apart from heavyweights like Gujarat Ambuja and HLL.

As far as the institutional activity on the bourses was concerned, Foreign Institutional Investors (FIIs) were net sellers this week to the tune of nearly Rs 2.5 bn. Domestic mutual funds (MFs), on the other hand, turned out to be net buyers to the tune of Rs 17.0 bn.

(Rs m)MFs FIIs Total
22-Dec3,479 2,648 6,127
26-Dec3,364 82 3,446
27-Dec3,561 (1,530)2,031
28-Dec6,771 (3,682)3,089
Total17,174 (2,482)14,692

As far as sectoral indices are concerned, tables seemed to have completely turned as last week's laggards, IT and Bankex emerged as the top sectors, while the Oil & Gas and the FMCG index that were among the top gainers last week, occupied the last position in this week's pecking order. For the IT index, all the three behemoths namely, TCS, Wipro and Infosys logged in impressive gains, thereby helping the index to surge an impressive 4% during the week. Gains in HDFC Bank, ICICI Bank and SBI on the other hand helped Bankex to grow by a similar margin. Reliance was among the few stocks that declined during the week and hence not surprisingly, the Oil & Gas index, where the company has close to 60% weightage, occupied the last place on the list.

IndexAs on December 22As on December 29% Change
BSE IT5,055 5,273 4.3%
BSE BANKEX6,829 7,086 3.8%
BSE AUTO5,346 5,519 3.2%
BSE MIDCAP5,649 5,805 2.8%
BSE SMLCAP6,721 6,892 2.5%
BSE METAL8,838 9,040 2.3%
BSE PSU5,917 6,034 2.0%
BSE FMCG1,902 1,934 1.7%
BSE HEALTHCARE3,746 3,792 1.2%
BSE OIL AND GAS6,127 6,180 0.9%

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

Software stocks edged higher during the week and major gainers included TCS (6%), HCL Tech (6%) and Wipro (6%). Infosys closed with 3% gains, which seemed a fallout of reports that the company has entered into talks with ten international banks, in different countries, for implementation of its universal core banking software 'Finacle'. Currently, Finacle contributes to less than 4% of Infosys' total revenues. As reported, the deals are expected to be largely with tier I and tier II banks and are likely to be finalised in the next couple of months. Finacle already has a good foothold in the country, with more than 30 banks using the software. However, when it comes to the international marketplace, the product trails i-flex's 'Flexcube' by quite a distance. Infosys is expected to announce its 3QFY07 results on January 11 2007.

Top gainers during the week (BSE A)
CompanyPrice on Dec 22 (Rs)Price on Dec 29 (Rs)% Change52-Week H/L (Rs)
BSE Sensex 13,472 13,787 2.3% 14,035 / 8,799
S&P CNX NIFTY 3,871 3,966 2.5% 4,047 / 2,596
RAMCO SYSTEMS 190 223 17.6% 345 / 142
HINDUJA TMT 630 737 17.0% 867 / 343
D-LINK INDIA82 93 14.0% 150 / 64
IPCA LABS 525 594 13.1% 600 / 235
CENTURY IND 658 740 12.5% 746 / 260

Strong buying was also seen in stocks from the auto sector. Major gainers here included Punjab Tractors (11%) and Tata Motors (5%). Gains in Punjab Tractors seemingly followed reports that the company might see a change in its ownership with its tractor competitors M&M and Tafe eyeing the private equity fund Actis' 29% stake in the company, for an approximate consideration of Rs 4.1 bn. While the news remains unconfirmed, the acquisition might fit well into M&M's strategy of growing its tractor business, where it has a 27% market share in India. M&M edged 4% higher for the week.

Top losers during the week (BSE A)
CompanyPrice on Dec 22 (Rs)Price on Dec 29 (Rs)% Change52-Week H/L (Rs)
J&K BANK673 620 -7.9%695 / 306
NOVARTIS372 355 -4.7%635 / 350
BALAJI TELEFILMS133 127 -4.5%197 / 95
G.E.SHIPPING209 200 -4.2%268 / 113
TATA CHEM223216-3.4%280 / 183

Dr. Reddy's, which announced the grant of final approval by the US Food and Drug Administration (US FDA) for the abbreviated new drug application (ANDA) of Ondansetron Hydrochloride tablets, closed 1% higher during the week. As a matter of fact, Ondansetron Hydrochloride tablets are the generic equivalent of GSK's Zofran tablets, a product indicated for the prevention of nausea and vomiting associated with cancer treatment. With six product introductions to date in the current year, Dr. Reddy's is making good progress in building a sustainable base in the generics business in the US markets. We take this as a long term positive.

With the gains in the week gone by, Sensex extended its YoY gain to 48%, no small feat considering the fact that it had gained more than 40% in 2005 as well. While the rise does have fundamental and very valid justifications behind it, dark clouds in the form of inflationary concerns and tightening liquidity have started gathering in the horizon, putting the near term outlook in jeopardy. That's the view from the top. For a bottom up guy, there are still good quality stocks out there with a strong balance sheet, honest and competent management and above all reasonable valuations from a long-term perspective that can keep earning sizeable returns on your investments. Look out for these hidden gems and you will reduce the risk of losing your capital manifold. Happy investing in 2007!

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