• JUNE 10, 2003

Heavyweights in demand

It has been a gala time for the Indian stocks markets in the last one month and as yet, the party does not seem to be over. One aspect that stands out among all this optimism is the fact that this rally has been broad based, i.e. it includes large as well as the mid cap stocks. Index heavyweights too have been part of the rally.

Index heavyweights over the month
COMPANY Price on May 9, 2003 (Rs)Price on June 9, 2003 (Rs)%CHANGE52-WEEK H/L (Rs)
SBI28636326.9% 368/221
HLL13816922.5% 208/135
Reliance26130717.6% 317/218
ITC6647137.4% 725/597
Infosys2,9292,9841.9% 4,873/2,420

If one were to look at the prominent gainers among the index heavyweights, SBI, Reliance and HLL have been the major gainers over the last one-month. Also one can see that among them, except for HLL, both SBI and Reliance are close to their 52-week high levels. Infosys and ITC on the other hand have not gained as much as one would expect. However, while the limited gains in Infosys can be justified to an extent, ITC's gains continue to be hampered owing to its diversification concerns.

In case of HLL, investor sentiment has steadily strengthened since the forecast of a normal monsoon for 2003. Also, HLL was close to its 52-week low level just a month ago. Ever since it was declared that monsoons were poor in 2002, the stock has been losing ground on expectations that the company's top-line will be severely affected by the fall in demand. And justifiably so! However, with the monsoons expected to be better this year the sentiment has revived on this counter. However, in our view, it seems more like a value buying exercise than anything else.

SBI (which did not see gains when there was a rally seen in other PSU bank stocks) has been gaining ground on account of the fact that there have been rumours that the government is likely to increase the FII limit in the bank. Apart from this, SBI will also benefit significantly from the technology implementation drive that is currently on within the organization. This is one of the fundamental reasons for the stock witnessing buoyancy. Moreover, there is increasing acceptance that SBI will be the biggest beneficiary of the securitisation bill passed by the government once the judicial roadblocks are cleared.

Reliance, another heavyweight has also gained significantly in the last one month and is close to its 52-week high levels. While the company has announced FY03 results that are in line with expectations, investor sentiments seem to have been buoyed by the fact that the petrochemical cycle is in an upturn. On the refineries front, the company is venturing into the retail segment where it is expected to gather better margins as more production is diverted to the domestic market rather than exports.

One can see that the heavyweights that have gained in the last one-month have corrected back owing to fundamental strengths. As the Indian economy becomes more and more outward looking, its reliance on the monsoon will continue to lessen. But that still seems some time away. Meanwhile, overall optimism continues among market movers. Adopt a pick and choose strategy.

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