Late buying props up markets

Thu, 25 Mar Closing

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After remaining rather lackluster for most part of the day, the benchmark indices really took off during the closing hours and this resulted in the indices ending the day on a rather positive note. A welcome change from the ending that was being envisaged earlier in the day.

Thus, while the BSE Sensex closed the day with gains in the region of 110 points (up 0.6%), NSE Nifty edged higher by around 35 points. Midcap and smallcap indices bucked the trend today and closed virtually flat today. As far as the breadth of the gains is concerned, it turned out to be quite good with 2 stocks gaining for every 1 that declined on the Sensex.

Gains were also seen amongst most Asian markets today whereas Europe has also opened on a positive note. The rupee was seen trading at Rs 45.5 to the dollar at the time of writing.

Hero Honda and Bajaj Auto, the two big daddies of the two-wheeler space ended rather strong today. In fact, Hero Honda was amongst the top gainers across index stocks and touched another lifetime high. Two major factors seem to be driving the company’s stock price of late. One is its plans of building a fourth plant in order to augment capacity. The other is a news item doing the rounds that the company could consider motorcycles exports to Africa in a big way. We believe both these factors are positive for the company in the long run. Greater capacity would help the company grow its revenues as well as profitability in the domestic market whereas exports, if at all they materialize, would give further impetus to the company’s growth. It should be noted that the two-wheeler market is a lot more concentrated than the passenger car market and there is no threat of an imminent price war or a war for market share looming large. Thus, Hero Honda can safely be assumed to increase investor wealth for quite some time to come. What also seems to have worked to the advantage of the stock price is the announcement by the management that it would consider a special interim dividend on the stock this fiscal.

Another stock that has been doing well of late is Bharti Airtel, India’s largest provider of telecom services. The stock has moved up sharply over the past few weeks, nearly undoing the decline that it had seen over the preceding the current upmove in the stock. What has happened for the investor to have a change of heart? We believe it is the growing clarity with respect to the company’s future endeavors.

While investors were largely negative on the Zain deal, the mood seems to have shifted to the positive side a bit. The company has really put in place some loan package for the funding of the deal and positive vibes from Zain management also augur well for the success of the deal. While we believe that Bharti has not put its balance sheet at too much of a risk, it remains to be seen whether it can replicate its low cost model with a fair degree of success in Africa. And this would be the key determinant whether Zain Africa is a value accretive or a value destructive deal.