Finance News

The party continues…

It was a week filled with optimism and euphoria as the bulls continued to fire on all cylinders and the benchmark indices continued to leap higher during the action packed trading week. For the week ended 20th April 2007, the BSE Sensex was up 3.8%, while Nifty edged higher by 4.2%.

Proceedings for last week started on a strong note with the Sensex gaining more than 300 points on the first day of the week. After a breather on Tuesday, markets continued its upward journey on Wednesday. Caution was seen amongst the participants on Thursday on the back of weak global cues and concerns over slowing down of Chinese economy. However, bulls bounced back with vengeance on the last day of the week's trade as they reigned in gains of a whopping 278 points.

As far as the institutional activity on the bourses was concerned, FIIs as well as mutual funds were net buyers last week to the tune of nearly Rs 25 bn and Rs 2 bn respectively.

(Rs m)	MFs	FIIs	Total
13-Apr	2,622	4,756	7,378
16-Apr	2,049	7,883	9,932
17-Apr	(2,511)	6,485	3,974
18-Apr	190	6,401	6,591
19-Apr	(258)	(734)	(992)
Total	2,092	24,791	26,883

Amongst the sectoral indices last week, it were the BSE Oil and Gas and the BSE Metals indices that registered maximum gains. While the former was up 7.4%, the latter was not left behind and soared by 4.3%. Decent gains were also registered in the BSE Bankex that was up 4.1%. The rally was a broad based one as the BSE Smallcap index registered a gain of 3.2%. Gains in Oil and Gas index could be largely attributed to gain in heavyweights of the likes of Reliance (up as much as 9.3%) and ONGC (up 5.7%). BSE Metal index was propelled by gains in heavyweights like Tata Steel (TISC.BO, news) (up 4.5%), SAIL (up 6.7%) and Hindalco (up 4.7%).

Index	As on April 13	As on April 21	% Change
BSE OIL AND GAS	6,565	7052.08	7.4%
BSE METAL	9,304	9702.28	4.3%
BSE PSU	6,099	6352.88	4.2%
BSE BANKEX	6,640	6914.37	4.1%
BSE SMLCAP	6,756	6974.37	3.2%
BSE HEALTHCARE	3,687	3792.99	2.9%
BSE MIDCAP	5,577	5699.08	2.2%
BSE FMCG	1,774	1811.71	2.1%
BSE AUTO	4,818	4831.34	0.3%
BSE IT	5,072	5055.09	-0.3%

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

Wipro (WIPRd.BO, news) , India's third largest software services exporter, has announced strong results for the fourth quarter and full year ended March 2007. For FY07, revenues and net profits have grown by 42% YoY apiece. The company's strong topline performance during the fiscal has been led by its global IT services business, which grew by 33% YoY. Operating margins have shrunk by 110 basis points (1.1%), chiefly due to a rise in employee costs (as percentage of sales). For 4QFY07, topline and bottomline has grown by 9% QoQ and 12% QoQ. The stock of Wipro ended with the marginal gains during the week. Mphasis BFL (up 10.9%), HCL (HCLL.BO, news) Tech (up 8.8%) and I-flex (up 7.8%) were amongst major gainers in the sector.

Asia's largest software services provider, TCS, has announced strong results for the fourth quarter and full year ended March 2007. For FY07, the revenues grew by 41% YoY, thus crossing the US$ 4 bn mark, net profits too recorded a strong 42% YoY growth. Operating margins have, however, recorded a marginal 10 basis points contraction over the same period. The topline growth was due to an improvement in billing rates and continuation of strong volume momentum. As for the future, although the company does not provide any specific guidance, the management has indicated that the pricing environment is relatively stable and it is also confident of successfully renegotiating the existing contracts at 3% to 5% higher rates. In case of new contracts, it estimates a pricing upside of 5% to 10%. TCS ended the week lower (down 1%) along with its peer Infosys (down 1.5%).

UTI Bank announced results for the fourth quarter and full year ended March 2007. The topline has grown by 58% YoY for the year led by strong growth in advances and fee income. Despite a sizeable advance book, UTI Bank showed no signs of slowing down in its incremental advance growth, clocking over 50% YoY growth for the seventh consecutive quarter in 4QFY07. The delinquency figures suggest that the bank has taken the step at re-working its retail strategy given the high-risk weightage of incremental retail assets. Both retail and corporate segments contributed an appreciable proportion of the fee income growth. While the bottomline for both the periods under review grew in excess of 35% YoY, offering no disappointment on the fee income and asset growth front, operating costs and treasury losses have proved to be dampeners. However, the 200 basis points fall in net profit margins point towards inability to sustain high profits along with growth. The stock of UTI Bank, however, ended weak (down1%), while its peers SBI (up 7.5%) and PNB (up 5.2%) ended the week on a positive note.

Biocon has announced strong results for the fourth quarter and year ended March 2007. Biocon's topline clocked an impressive 25% YoY growth during the year chiefly led by its biopharmaceutical and contract research businesses. The biopharmaceutical business reported a strong 21% YoY growth in sales with strong growth witnessed in the second half of the year after the subdued first half. The contract research business grew at a scorching pace (63% YoY growth), which could be attributed to revenue generation from new contracts signed by the company during previous quarters While operating margins have improved during the fourth quarter, the same have come under pressure for FY07. Bottomline growth (up 15% YoY) for the year has been relatively slower due to the rise in depreciation charges and interest costs. Biocon ended weak on the bourses during the week (down 1.5%), while gains were witnessed in Glenmark Pharma (up 8.7%), Sun Pharma (SUN.BO, news) (up 7.7%) and Lupin (up 7.3%).

Reliance (RELI.BO, news) Communication, the country's largest CDMA based technology player is planning to invest Rs 150 bn for the set up additional 15,000 towers across the nation. Currently Reliance Communication has approximately 15,000 towers supporting a subscriber base of over 28 m while the market leader Bharti Airtel has approximately 40,000 towers supporting over 37 m. The cost of setting up towers varies depending on the site and terrain. However, in general, a land-based tower could cost up to Rs 10 m. The setting up of towers is a part of the company's ongoing efforts to expand its GSM and CDMA services. The company is already in talks with China's Huawei Technologies for the sourcing of telecom infrastructure. The company has set itself an ambitious target of putting these towers in place over the next three months. If it in doing so, it will be the fastest-ever roll out in the country. The stock ended firm during the week (up 8.3%) along with its peer Bharti Airtel (also up 8.3%).

Good sets of numbers from the IT majors have provided a boost to the markets and have fuelled the upmove in the benchmark indices. Going forward, the near term fortunes of the markets will largely depend upon the upcoming results across sectors. With the positives largely factored in into valuations, any negative surprises are likely to impact the investor sentiments. However, we wish to once again reiterate the fact that a single quarterly performance does not depict the long-term fundamental prospects of a company. In line with our investment philosophy, we advice investors to stick to the disciplined investment strategy and identify the good quality stocks by analyzing them across market cycles and avoid the herd mentality.

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