The Hindu : Business : Bourses end year with optimism

Online edition of India's National Newspaper
Monday, Jan 03, 2005

Business

Business

Bourses end year with optimism

BOURSES closed the year 2004 on a highly positive note with stocks registering handsome gains last week ignoring the havoc caused by the tsunami in the southern states of India. All round buying resulted in the Sensex (the benchmark index of the Bombay Stock Exchange) rising by 105 points or 1.60 per cent at 6602.69, a new closing high. The index has posted a gain of 13 per cent in a year and 47 per cent since May 17, when the market touched a new low.

The S & P CNX index registered a rise of 17 points during last week to close at 2080.50, also a new closing high. The Sensex and the CNX Nifty indices recorded intra-day high of 6617.15 and 2088.45 on Wednesday. Except in May, stocks had witnessed a bull run throughout the year mainly due to foreign fund inflows. Market players were optimistic especially in December on hopes of strong third quarter results by corporates with some leading companies making high advance tax payments. Foreign funds effected purchases to the tune of $8.75 billion in Indian stocks in 2004 and in December alone, their purchases were worth $1.50 billion.

Buying was particularly conspicuous in metal, banking, sugar, pharma, textile, automobile and select old economy stocks in December.

The easing of inflation to 6.5 per cent in the week ended December 18 from 6.73 per cent in the previous week was an additional stimulant for fresh buying on Friday last.

Focus on mid cap stocks

Mid-cap and small cap stocks attracted heavy buying during the year as investors felt that their valuations were low. Some mutual funds even came out with schemes oriented to mid and small cap stocks. According to fund managers, there is strong potential for appreciation in mid-cap stocks. They hope even a 0.5 per cent rise in price-earnings multiple of Sensex counters would result in the index rising by at least 500 points. The lowering of short-term capital gains tax and the nil tax on long-term capital gains along with poor returns from debt instruments have encouraged retail investors to invest their funds in stock markets.

Among stock specifics, sugar stocks were in the limelight following a 32 per cent decline in sugar production in the year ended September 2004 and a sharp rise in prices of sugar. Sakthi, KCP, Rajshree and Bannariamman were notable gainers.

Steel stocks rose on reports of another possible hike in steel prices. It is expected that prices of hot-rolled coils are likely to go up by Rs. 500 per tonne. Aluminium and zinc stocks attracted heavy buying following a firm-up in prices in the international markets. Hindalco, National Aluminium and Hindustan Zinc were notable gainers.

Banking stocks, especially old private sector banks, witnessed heavy buying and many of them were in the upper-circuit filter last week. Shares of Lakshmi Vilas Bank, Karur Vysya Bank, Kotak Mahindra Bank, Federal Bank, City Union Bank and Dhanalakshmi Bank in the private sector and Uco Bank, Syndicate Bank, Andhra Bank, Canara Bank and Oriental Bank of Commerce were in keen demand. Strong credit offtake, falling NPA (non-performing assets) levels and attractive valuations were among the reasons for the rise.

Among pharma stocks, Ranbaxy, Orchid Chemicals, Wockhardt, Aurobindo Pharma, Pfizer and Dr. Reddy's Labs scored good gains. The pharma sector has entered a new and challenging phase from January 1 when laws recognising product patents take effect.

On the initial public offering front the Bharti Shipyard IPO was oversubscribed 78 times and attracted heavy buying in the secondary market from investors to close at Rs. 144.20, gaining over 100 per cent of its issue price. Dwarakesh Sugar, which was listed on the Bombay Stock Exchange, saw buyers at Rs.134 for a handsome gain of Rs. 69 over its offer price of Rs. 65. Textiles and textile-related stocks gained further ground on sustained buying interest ahead of the dismantling of the quota regime from January 1, 2005.

Bond market weak

The bond market witnessed hectic activity with gilt prices falling by 90 paise towards the week end after the Reserve Bank of India announced its Rs. 7,000 crore bonds auction on January 4. The 7.38 per cent paper ended at Rs. 105.45 at a yield of 6.65 per cent. The 7.55 per cent 2010 paper fell 80 paise to end at 104.60 at a yield of 6.52 per cent.

Rupee spurts

A last session year-end surge drove the rupee to the highest ever close in five years at Rs. 43.45/47 a dollar, buoyed by robust FII inflows into the stock market amidst persistent global weakness of the dollar with sentiment upbeat for further gains in the new year. Gaining a massive 27 paise on Friday, the last session for 2004, the rupee has gained by 33 paise during the week from the previous week's close of Rs 43.78/79 and has appreciated by around 4.93 per cent in calendar 2004, driven up by strong FII inflows and a lingering weak dollar overseas.

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