Finance News

A roller-coaster week!

It was status quo on the bourses last week but not without a rather heightened volatility. Thus, for the week ended March 9, 2007, both the widely tracked indices - Sensex and Nifty - ended at previous week's levels.

If one were to aptly describe the week's movement of the indices, the only word that comes to mind is `Yo-Yo'. Indeed, the movement was akin to that of a Yo-Yo, down one day, up another. While the markets ended in the red for three days out of five, the gains in the remaining two days exactly offset the losses. Events, both national as well as international, weighed heavy on the markets during the week. On the back of weakness across major Asian indices, the week's proceedings got off to a poor start and resulted into the Sensex losing more than 500 points in a single day. With the markets coming off almost 16% from its peak levels, bargain hunting at lower levels enabled the indices post gains the next day. The euphoria, however, was short lived as markets tumbled yet again on Wednesday. Bulls stamped their authority yet again on Thursday and this time the gains that occurred turned out to be the highest intra day gains since May 2006. As a result, the indices turned positive and just as it was being felt that the bears would end a two-week winning streak, markets tumbled yet again on Friday, indicating that the bear run would be rather prolonged than previously expected.

(Rs m)	MFs	FIIs	Total
2-Mar	(1,253)	3,249	1,996
5-Mar	1,661	(3,127)	(1,466)
6-Mar	684	(5,704)	(5,020)
7-Mar	(3,796)	841	(2,955)
8-Mar	(398)	1,158	760
Total	(3,100)	(3,583)	(6,683)

As far as the institutional activity is concerned, both FIIs as well as mutual funds remained net sellers during the week and sold equities worth Rs 3.6 bn and Rs 3.1 bn respectively.

Index	As on March 2	As on March 9	% Change
BSE IT	4,954	4,974	0.4%
BSE BANKEX	6,447	6,451	0.1%
BSE HEALTHCARE	3,490	3,463	-0.8%
BSE OIL AND GAS	6,193	6,118	-1.2%
BSE PSU	5,686	5,557	-2.3%
BSE AUTO	5,016	4,844	-3.4%
BSE FMCG	1,756	1,689	-3.8%
BSE METAL	8,423	8,092	-3.9%
BSE MIDCAP	5,466	5,228	-4.4%
BSE SMLCAP	6,646	6,251	-5.9%

As far as the performance of the sectoral indices is concerned, unlike the earlier two weeks, not all indices ended with a coat of red during the previous week. However, the gains in the only two indices that managed to stay above breakeven were nothing to write home about as they edged higher only marginally. In case of IT, all the three bellwethers viz. Infosys, Satyam and TCS ended the week with gains and thus also enabled the index to close in the positive. Ditto for the Bankex as majors like ICICI Bank (ICBK.BO, news) and HDFC Bank (HDBK.BO, news) were among the few stocks that gained during the week and in the process also pushed the index higher. Among the losers, the small cap index came in for some really harsh treatment as it lost nearly 6%.

Let us have a look at some key company specific developments during the week:

Suzlon Energy, the world's fifth-largest wind turbine maker, received the approval from BaFin, the financial markets regulator in Germany, for its US$ 1.35 bn offer to buy out Portugal-based REpower Systems. Suzlon's all-cash offer for REpower valued the German firm at 1.02 bn euros or 126 euros per share, which was about 20% higher than the offer by France's state-owned nuclear group Areva made on February 5. The purchase will be partly financed by raising long-term and short-term debt arranged by a consortium of banks led by ABN AMRO and the rest will be raised through internal accruals. The offer by Suzlon is subject to merger control clearance from Germany and the absence of certain material adverse changes. The stock however continued to trade weaker and lost 4% on the bourses during the course of the week. Peer ABB also ended lower, albeit marginally.

Reliance Industries, India's largest private sector refining company is considering merging group firm IPCL with itself. The boards of both the companies met on March 10 to consider the plan. The merger will complete the entire value chain of petrochemical products for Reliance. Post-merger, Reliance would offer end-to-end product solutions, which would give it a pan-Indian presence. IPCL's two crackers in Nagothane in Maharashtra and Gandhar in Gujarat use gas (a feedstock) to produce polymers and plastics. Reliance will be able to supply IPCL's gas requirements from its gas field in KG basin, when it starts piping gas from 2008. The gas supply will then be an internal one and will not attract any of the levies. Thus, the merger augurs well for both the companies. Buoyed by the news, both Reliance as well as IPCL ended higher for the week. While the former was up marginally, IPCL gained 5%.

Auto stocks closed lower for the week. Major losers were Maruti (down 6%) and Tata Motors (down 2%). Mahindra and Mahindra (M&M), India's largest tractor manufacturer has won the bid to acquire the 43.5% stake in Punjab Tractors held by Actis and the Burman family. It outbid close rival Ashok Leyland. The offer price was at an 18.4% premium over Thursday's closing price of PTL stock. M&M will now command a market share of 40% of the domestic farm equipment units. It will also help the company to gain further foothold in the low HP tractor segment, a manufacturing capacity in North and access to facilities of Punjab tractor units such as Swaraj Mazda in which PTL had a stake. For the week however, both M&M and Punjab Tractors ended lower by 5% and 4% respectively.

One look at the movement of the indices in the last week and one would realise that the markets clearly seem to be looking for direction. At present, they look like a rudderless ship, being swayed on either side by both the bulls as well as the bears. If one has a short-term outlook to the markets then he or she is also likely to be drawn into the current quagmire as not only do the valuations look stretched but the volatility is also on the higher side. No wonder one would be hesitant to take positions in such an environment. However, if one is a believer in long-term investing as we are, every correction will be deemed an opportunity to buy into quality stocks at reasonable prices and with an adequate margin of safety. And the current correction is no different. So go out and invest but please be wary of valuations and invest only in companies with strong fundamentals.