India Market Bulletin.
Date : October 23, 1999
Time for the cyclicals ?
Major commodity companies like Reliance, Tisco, Hindalco, Nalco, Grasim, Sterlite, and Indo Gulf, Gujarat Ambuja (Q1) have declared their H1 results. Two trends are clear - firstly, cyclicals have bottomed out and margins have been maintained yoy and in most cases have increased over H2FY99. In most cases margin recovery has been due to a better pricing environment globally. Secondly, there is a marginal recovery in domestic demand and domestic sales volumes have increased after a gap of two years.
We believe that yoy the results of cyclicals in H2 will spring positive surprises. The time is ripe to overweight the cyclicals. On the other hand, select software stocks have disappointed as Y2K takes its toll. But more of that in our next story ?
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Y2K blues for "The Big Blue"
IBM has stated that it will miss analysts' forecasts during the next two quarters owing to Y2K related concerns. It is well known that major MNCs have postponed all hardware and software spending, except the all important Y2K expenditure, upto Q12000. Earnings of companies are herefore naturally going to be adversely impacted. Software companies with large exposure to Y2K will also see brakes in the stupendous growth rates exhibited in the past as they shift gears to other business opportunities. Hence, the software stocks are likely to continue to witness some selling pressure.
Also most funds have been large bets on the software sector and cyclicals have been underowned. As year end traditional sales are pushed and emerging market related Y2K concerns results in sales, it is the software sector, which will get sold down. Make no mistake, if the stratospheric valuations of software stocks have kept you away, you may get your opportunity once again to buy stocks like Infosys.
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Market Mood
The BSE Sensex declined by 2.1% during the week and closed at 4783 on Friday as against previous week close of 4884.
Net long position at BSE at the end of the week stood at Rs28.3bn (Rs27.3bn last week). Badla averaged around 21%.
FII's have continued their offloading. Cumulative net sales for the month of October has reached Rs5.02bn (US $115.4mn), of which Rs4.06bn has been sold during the last seven trading days.
Among sectors, shipping and cement continued to be in limelight. The Indiainfoline Shipping index has been the major gainer for the 3rd consecutive week. It registered a 14% rise in the current week. Cement stocks also continued their upward trend, with encouraging results.
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Investment Strategy
We recommend an overweigh on cyclicals. The first round of results for the commodity stocks like cement, fertilizer, petrochemicals and metals have been encouraging. The improved earnings growth is expected to be sustained.
Also, further correction in IT sector can be used as a good opportunity to pick up selected stocks.
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News Snippets (Domestic)
Laying cables to NYSE? Videsh Sanchar Nigam Ltd (VSNL) may opt for an American Depository Share offering for its Internet subsidiary, VSNL Seamless Services Ltd
Will Siemens AG's Indian subsidiary become a trading arm? Siemens AG of Germany has entered into a joint venture with Emco to manufacture transformers in India. Siemens AG will hold 51%. The joint venture will be engaged in engineering, designing, testing, marketing and service of high voltage transformers.
Will the Haldia dreams of Soros-Chatterjee group find fruition in Baroda?
Indian Oil Corp (IOC) has tied up with an affiliate of billionaire financier George Soros to bid for a 25% government-held stake in Indian Petrochemicals Corporation Ltd.
After Y2K revenues, it is e-commerce now. NIIT expects e-commerce revenues to contribute 40% of its total revenues in about two year's time. The contribution of e-commerce was 25% of the total revenues in the fourth quarter of 1998-99 compared to 15% in the third quarter.
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Key results announced during the week
Net sales PBIDT PAT Equity EPS
Reliance Industries
9909 (3) 48,360.0 10920.0 6,120.0 9,340.0 26.2
9809 (3) 37,290.0 8660.0 4,800.0 9,320.0 20.6
% yoy 29.7 26.1 27.5
Bajaj Auto
9909 (3) 9,170.2 2303.9 1,363.7 1,193.9 45.7
9809 (3) 8,814.6 2082.8 1,218.8 1,193.9 40.8
% yoy 4.0 10.6 11.9
Hindustan Petroleum
9909 (3) 75,898.0 3414.1 2,492.9 2,255.9 44.2
9809 (3) 56,972.7 3358.0 2,264.7 2,255.4 40.2
% yoy 33.2 1.7 10.1
ITC Limited
9909 (3) 19,560.0 3918.0 2,067.0 2,454.1 33.7
9809 (3) 18,993.0 3392.0 1,797.0 2,454.1 29.3
% yoy 3.0 15.5 15.0
Tata iron & steel Company Limited
9909 (3) 17,074.5 1051.5 653.9 3,679.7 7.1
9809 (3) 14,647.7 1180.2 692.3 3,675.6 7.5
% yoy 16.6 (10.9) (5.5)
[Courtesy:Probity] |
