In search of direction!

The fact that markets are lacking a sense of direction is apparent from the volatility today. After opening in the red, indices recovered sharply only to plummet later in the day. Towards the end of the day however, buying interest in select index heavyweights enabled markets to close in the positive. The rupee continues to exhibit volatility against the greenback.

The BSE Sensex was trading at 6,381 (up 13 points) and the NSE Nifty was trading 1,999 (up 15 points). The rupee was trading at 43.80 to the dollar.

Without sounding doomsayers, we believe that the recent decline in the Indian stockmarkets is more influenced by global factors than anything else. This includes higher crude prices and some worrying signals on the US economy front. Like the stockmarket went up in the last two years because global money flows into emerging markets like India were strong, there are reasons to believe that the inflows going forward may not be as strong as we have witnessed in the past. Since the markets are banking on FIIs big time for further upsides, even at the slightest hint of FII outflow, markets can overreact. On the balance, while we continue to believe in the India story, we suggest investors to ascertain the downside risk before making investment decisions at the current juncture. If you have three to five year view on stocks, there are enough opportunities available.

Among the key gainers in the BSE 'A' group today were Essel Propack, Alstom (ALST.BO, news) Power, HDFC, Asahi India, Ashok Leyland (ASOK.BO, news) , Abbott, Hero Honda (HROH.BO, news) and Exide Industries. On the back of a sharp rise in crude prices recently and in light of firm steel prices in the international markets, auto stocks have come under significant pressure in recent days. In our view, we believe that the robust growth in volumes in the last three years is unlikely to sustain. It is likely to trace GDP growth over the long-term. As far as margins are concerned, it is better to keep a downward bias on margins, barring upside from lower steel prices in the future. In another news related to the auto sector, M&M has sold its 15.8% stake in Ford India to Ford. Though the consideration is not available, the stake sale is on expected lines. All auto stocks closed in the positive.

Ranbaxy, Merck, LIC Housing, ICICI Bank (ICBK.BO, news) , Bharti Tele (BTEL.BO, news) , Gujarat Ambuja, Gujarat Gas and Wockhardt (WCKH.BO, news) were the key losers in the BSE 'A' group. Ranbaxy has just announced that the New Jersey district court has asked the company and Teva to stop selling 'Quinapril' tablets, while hearing an injunction plea brought about by Pfizer (PFIZ.BO, news) Inc. Pfizer had asserted that the tablets, which have been marketed through an exclusivity relinquishment arrangement with Teva, were infringing US patents. The company has stated that while it will comply with the preliminary injunction, it will also immediately file an appeal to get the injunction lifted. In another news, with the parent of Merck planning to set up a 100% subsidiary in India, the decline in the stock price of E-Merck is not surprising. This is because most of the new products could be introduced through the subsidiary as opposed to the listed company.

HDFC was the biggest gainer amongst the index stocks today having gained over 6%. This must be viewed in the backdrop of the fact that the stock had lost almost 16% over the last couple of weeks in line with the near 8% fall in the markets. However, there is no specific news today that would warrant the strong rise in the stock today. HDFC is India's largest housing finance company with strong brand equity and a market share of almost 37%. The company has been amongst the leaders to capitalise on the boom being witnessed in the housing loan market in the country. With investments in strong subsidiaries, which cater to the asset management, insurance and banking segments, and maintenance of strong asset quality over the years, the company seems to be on a strong footing.

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