Finance News

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After a one-week respite where the markets ended largely flat, it was business as usual for bears in the week gone by. As a consequence, for the week ended March 16, 2007, while the benchmark `Sensex' lost 3.5%, losses in `Nifty' were a tad lower at 3%.

While the key indices ended lower during last week, if one were to consider the movement on a daily basis, markets did end in the positive on three days out of five. However, the wrecker in chief was the decline on Wednesday, where the bears delivered such killer punches in early hours that the markets found it difficult to fully recover from it. The reason behind the decline was however largely global in nature and no major market was spared from it. With the liquidity tap running dry, investors seem to be steering clear from high-risk stories and India, by virtue of being one of the more steeply valued markets among emerging markets definitely seems to be bearing the brunt of it.

(Rs m)	MFs	FIIs	Total
9-Mar	(3,843)	3,957	114
12-Mar	(1,458)	(2,043)	(3,501)
13-Mar	(135)	(840)	(975)
14-Mar	382	(8,614)	(8,232)
15-Mar	(2,064)	185	(1,879)
Total	(5,054)	(7,355)	(12,594)

As far as the institutional activity is concerned, between the 9th and 15th March, MF's sold equities worth Rs 5.1 bn combined, while the FIIs pared their positions by Rs 7.4 bn combined.

Index	As on March 9	As on March 16	% Change
BSE SMLCAP	6,251	6274.64	0.4%
BSE MIDCAP	5,228	5235.57	0.1%
BSE HEALTHCARE	3,463	3459.06	-0.1%
BSE METAL	8,092	8071.82	-0.3%
BSE AUTO	4,844	4794.72	-1.0%
BSE OIL AND GAS	6,118	6049.3	-1.1%
BSE IT	4,974	4879.46	-1.9%
BSE PSU	5,557	5443.75	-2.0%
BSE FMCG	1,689	1625.99	-3.7%
BSE BANKEX	6,451	6047.43	-6.3%

As far as the sectoral indices are concerned, it were the smaller indices like `Midcap' and `Smallcap' that edged out their bigger counterparts and ended with marginal gains during last week. All the sectoral indices however, were once again drenched in a coat of red. Worst hit was one of last week's best performers, the `Bankex' as it lost 6% during the week. ICICI Bank (ICBK.BO, news) and HDFC Bank (HDBK.BO, news) , key constituents of the index were down by 6% and 8% respectively during the week and this could explain the fall in the index. FMCG was the other worst hit, losing 4% during the week. Weakness was attributable to weaknesses in ITC (ITCd.BO, news) and HLL as these account for nearly 77% of the index and lost 6% and 4% in the week.

Let us have a look at some key stock/sector specific news during last week:

The largest retail banking entity in the country, ICICI Bank has acknowledged a slowdown in retail credit from over 40% YoY witnessed in FY06 to around 20% to 25% YoY currently. The slowdown is the combination of base effect and rising interest rate on loans. ICICI bank has identified consumer loan, corporate segment, SME, rural and international banking as growth engines for future. Also, the healthy corporate credit demand would help ICICI Bank to grow its balance sheet despite slowdown in the consumer credit growth. The pipeline of corporate and infrastructure loan is about US$ 450 bn. Having said that, given that ICICI Bank is the largest player in the consumer credit segment, the slowdown in the segment will impact the incremental growth of ICICI bank going forward. The bank, along with its peer HDFC Bank, ended significantly lower for the week. While it lost 6%, HDFC Bank was down by as much as 8%.

The government is setting up a mega PSU of around US$ 2.3 bn to acquire coal assets abroad. The steel ministry has finalised to set up a special purpose vehicle (SPV) in partnership with five PSU's- SAIL, NTPC, Coal India (CIL), Rashtriya Ispat Nigam (RINL) and National Mineral Development Corporation (NMDC). The five coal-producing and consuming companies would together put in an equity component of around Rs 40 bn in the proposed venture. As per the proposal, SAIL, NTPC and CIL would contribute Rs 10 bn each as equity for the new entity while RINL and NMDC would put in Rs 5 bn each and debt of about Rs 65 bn. However, the exact equity and debt components would be worked out later. The new entity may also rope in private sector companies such as Tata Steel and reputed MNCs as partners in specific projects. The move is to satisfy rising coal demand in the country. Both the steel behemoths mentioned here ended lower for the week.

Suzlon Energy, the wind power major lost 5% during the week. The decline could be attributable to the fact that Areva SA, the word's largest maker of atomic power stations, has raised its bid for REpower to Euro 140 per share, compared to Suzlon's bid of Euro 126 per share. The latest bid by Areva has valued REpower at Euro 1.4 bn. It should be noted that Areva already owns a 30% stake in REpower, a Germany based wind turbine manufacturer. Engineering stocks that also ended weak were BHEL (down 7%) and L&T (down 3%).

With equities having performed phenomenally over the last 3-4 years, we believe expectations should be tempered down a bit in the near term. Most of the large cap stocks are looking adequately valued from an FY09 perspective. However, there does exist some opportunity in the mid cap and the small cap space but investors need to be extra cautious while investing money in these stocks as risks are on the higher side. Please ensure that the companies you invest in have a good long-term track record of profits growing at a reasonable pace and an honest and a shareholder friendly management at the helm. Last but not the least, invest in only those companies where valuations are reasonable so that it protects you to a certain extent from the downside, if any.