• JANUARY 6, 2007

'Bull'ish start to 2007!

The indices continued to edge higher for the second week in succession, although the gains were a lot muted as compared to the previous week. While the BSE-Sensex edged higher by 0.5% during the week, gains in NSE-Nifty were a tad lower at 0.4%.

Bulls and bears shared the spoils during the holiday-shortened week as while the markets edged higher for the first two days, they edged lower for the next two. However, in absolute terms, the gains in the first two days were enough to enable the benchmark indices to end the week on a high. The 14,000 mark seems to have become a new psychological barrier as everytime the bulls make an attempt to push the Sensex significantly beyond it, bears just about pull it back. This week was no different as while the Sensex just about edged past the 14k mark courtesy the gains on Monday and Tuesday, selling in the next two days pulled it back inside the coveted levels. The 3QFY07 results season that is about to kickstart towards the fag end of next week will hold the key to whether the Sensex finally manages to go significantly beyond the 14k barrier. Gains in indices this week were led by HPCL (up 7%), Bajaj Auto (up 6%), Ranbaxy (up 6%) and GAIL (up 6%).

As far as the institutional activity on the bourses was concerned, Foreign Institutional Investors (FIIs) were net buyers this week to the tune of nearly Rs 28 bn. Domestic mutual funds also turned out to be net buyers to the tune of Rs 3.9 bn.

(Rs m)MFs FIIs Total
29-Dec2,252 (10,497)(8,245)
2-Jan (80)3,319 3,239
3-Jan1,939 33,533 35,472
4-Jan(214)2,078 1,864
Total3,896 28,433 32,329

As far as sectoral indices are concerned, last week's worst performer, the 'Oil and Gas index' emerged as the second best this week with gains of 3%. Reliance, ONGC and GAIL, which together account for nearly 90% of the total weightage, gained during the week and thus also helped the index to post gains. Further, HPCL, another index constituent emerged as the highest gainer on the Nifty during the week. The stock seems to have gained on the back of fall in global crude oil prices, which will help marketing companies like HPCL to cut their losses. BSE FMCG index continued to languish in the bottom three as it went further down during the week and lost 3%. The losses were on account of a sizeable 6% decline in ITC, the FMCG major that accounts for as much as 50% of the total weightage of the index. Investors dumped the stock on the back of news that the duties on cigarettes, ITC's mainstay, would be further hiked in the forthcoming budget, thus resulting into a revenue loss for the company.

IndexAs on December 29As on January 5% Change
BSE SMLCAP6,892 7,192 4.3%
BSE OIL AND GAS6,180 6,339 2.6%
BSE MIDCAP5,805 5,937 2.3%
BSE PSU6,034 6,144 1.8%
BSE HEALTHCARE3,792 3,850 1.5%
BSE AUTO5,519 5,595 1.4%
BSE IT5,273 5,344 1.3%
BSE BANKEX7,086 7,154 1.0%
BSE METAL9,040 8,980 -0.7%
BSE FMCG1,934 1,875 -3.1%

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

Auto majors like Tata Motors (up 4%) and Maruti (up 1%) ended the week on a high, presumably on the back of strong sales numbers for the month of December. The show stealer in the pack however was Bajaj Auto, the two-wheeler major that ended 6% higher for the week. The optimism was again on the back of robust sales numbers where the company continued to outperform the industry. The company sold 26% more motorcycles than December last year and in the process took its market share upto 36%. Further, at 7,38,000 two & three wheelers, Bajaj sales in October December 2006 were the highest ever in history. Gains in the share price could also be attributed to the news that the company may demerge its finance division soon, thus resulting into significant value unlocking for the investors.

Top gainers during the week (BSE A)
CompanyPrice on
Dec 29 (Rs)
Price on
Jan 5 (Rs)
52-Week H/L
BSE Sensex13,787 13,861 0.5% 14,060 / 8,799
S&P CNX NIFTY3,966 3,983 0.4% 4,047 / 2,596
IGATE SOLUTIONS347 406 17.0% 432 / 145
WELSPUN GUJ93 107 15.0% 108 / 47
INDUSIND BANK47 54 13.4% 64 / 27
J B CHEMICALS90 102 13.3% 140 / 74
GE SHIPPING200 225 12.4% 268 / 113

Pharma majors like Ranbaxy and Cipla also ended higher for the week. While the former gained an impressive 6% during the week, gains in latter stood at a modest 1%. Optimism with regards to Ranbaxy could be attributed to the fact that the company, in alliance with IPCA labs received US Food and Drug Administration approval to sell Atenelol tablets in the US. The total annual sales for the tablets stand at US$ 134 m. This was the second positive news for the company within a span of 30 days as last month the company, along with Aurobindo Pharma and Zydus Cadila got the US FDA approval to market Cholesterol lowering drug Simvastatin in strengths of 5 mg, 10 mg, 20 mg and 40 mg. Thus, the recent spate of positive news has enabled the stock to bounce back from recent lows.

Top losers during the week (BSE A)
CompanyPrice on
Dec 29 (Rs)
Price on
Jan 5 (Rs)
H/L (Rs)
TVS MOTOR87 82 -6.1%187 / 78
ITC 176 166 -5.9%213 / 140
HCL TECH649616-5.0%707 /362
HEXAWARE TECH 200 190 -4.7%205 / 110
HINDUSTAN ZINC824785-4.7%1,119 / 260

Tanla Solutions, the telecom solutions provider made its debut on the BSE and NSE on Friday and listed with a huge 42% premium to its offer price. Considering the oversubscription of around 39 times, the gains has not come as much of a surprise. The stock finally ended the day close to its listing price. The company has presence in the non-voice segment of the mobile telecom segment. It is provider of integrated telecom infrastructure solutions and products. The company had said that it will utilise issue proceeds for expansion and upgradation of existing research and product development facilities, setting up an infrastructure facility for a development centre at Hyderabad and a backup and disaster recovery centre at Bangalore.

We would like to end by quoting Equitymaster's founder Ajit Dayal's outlook on the Indian markets:

"We are very optimistic on the long-term growth potential but with a few caveats. We think that interest rates will increase in India in 2007. Although I have little idea what the GDP growth rate will be in 2007, we believe that the GDP growth rate will be closer to 6.5% on a sustainable basis, unless we get power plants up and running very quickly. And we still think that the risk for India remains a lack of a "population improvement" policy, per se. While many others applaud India for its potential because of its large population, we feel there must be a concerted effort to create a sustainable living standard for many of the 300 million who are below the poverty line. At a more micro level, we have been extremely concerned about the lack of experienced people in many industries and what we term as the "execution risk" - can the jobs and projects get done on time and within budgets when there is little job-stability in most companies? Overall, we are strong believers in India's future but we also like to price risk before we make any investment decisions."

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