Weekly Newsletter

Record week for Sensex, Nifty

 

It's something unpredictable, but in the end it's right.
I hope you had the time of your life.

 

Good time s just keep rolling for the bulls. All the talk of a possible correction has gone for a six, as relentless inflows from FIIs coupled with firm global markets propelled the key indices into new orbits. The Sensex traveled from 16k to 17k in a matter of just six days, recording the fastest 1000-point run ever. The Nifty too crossed the landmark of 5,000 during the week. Buoyed by huge buying by overseas investors and the aggressive Fed rate cuts has boosted the sentiment. FII inflows have crossed US$2bn in the past seven days, topping the US $11bn mark for the year.

 

Bulls were in total control during the week led by gains in Reliance stocks, Tata Steel, SBI and HDFC. Some action was also seen in mid-cap and small cap counters. A smooth rollover of positions into the October F&O series also helped the bulls. The cues from the F&O market continue to be encouraging, indicating that shorts have been squared off and fresh longs have been created.

 

Among the sectors, Auto, Banking, Real Estate, Fertilizers, Capital Goods, Cement and Telecom were the top gainers. The Sensex closed the week at an all time high of 17,291, adding 726 points or 4.4% over the previous week's close. The NSE Nifty recorded impressive gains of 184 points or 3.8% over the week to close at 5021.3.

 

Reliance Energy was by far the pick of the week. The scrip was the top gainer in the Sensex, adding over 19% to Rs1205, a 52-week high. Reports stated that the company won a Rs16-18bn order and plans to sell shares in its power generating unit. The scrip hit the week's high Rs1220 and low of Rs1010.

 

Sugar stocks declined this week amid a grim outlook for the sector. Balrampur Chini dropped 4.5% to Rs75, Sakhti Sugar slipped 3.5% to Rs85 and Bajaj Hindustan lost 2.3% to Rs171. However, Shree Renuka Sugar bucked the trend and added 3% to Rs706.

 

Metal stocks continued their impressive rally on the back of strong metal prices on the LME and bullish outlook for the sector. JSW Steel rallied over 17% to Rs853, Tata Steel surged by over 15% to Rs850. SAIL rose over 7% to Rs207 and Jindal Stainless added 5.6% to Rs169

 

For a change, IT stocks had a good week on speculation that recent measures taken by the RBI to increase dollar outflows could help curb the rise in the local currency. Index heavyweights led from the front. Satyam advanced nearly 6% to Rs443, Wipro gained over 4.5% to Rs459. TCS was up by 4.1% at Rs1056 and Infosys added 4% to Rs1896.

 

Gains were also seen across the banking stocks, as speculation increased about a possible easing of the RBI's monetary policy stance. ICICI Bank rose 10% to Rs1063, HDFC Bank advanced 8.7% to Rs1439 and SBI added 7.8% to Rs1950.

 

The bulls had an enjoyable time scaling Mount 17K. They seemed to be more or less in control throughout the week. With lower inflation rates and speculation about a cut in interest rates by RBI, the bulls had most things coming their way. However, after such a rally, we expect markets to consolidate at these levels before making a fresh upmove. The advance tax numbers announced so far point towards another robust earnings season. The big worry, however is the valuations, which don't look cheap by any means. Also, the rally may have already factored in the expectations of strong numbers. If the results fail to spring any surprise, we may see market taking a short-term u-turn from here. Hence, it pays to remain alert. A shortened weekend keeps many bulls on the sidelines. Usually loud bullish voices are getting softer. A directionless week is what we could expect.

 

The primary driver for the M&As has been the outbound cross border deals. In the first 8 months of 2007, there were 237 cross border deals valued at about US$45.95bn

 

Notwithstanding the slowdown in deals over the past couple of months due to the global market turmoil, the Merger & Acquisition (M&A) and private equity deals in India in the current year to date has been considerable, says the latest data from Grant Thornton. The M&A deals have touched nearly US$50bn and Private Equity (PE) deals have exceeded US$10bn. The primary driver for the M&A deals has been the outbound cross border deals. In the first eight months of 2007, there were 237 cross border M&A deals valued at about US$45.95bn.

 

The number of acquisitions made by Indian companies abroad (164 outbound deals) has been more than double the number of acquisitions made by international companies in India (73 inbound deals), according to Grant Thornton. The value of outbound acquisitions has been double the inbound acquisition value. "Indian companies are constantly making overseas acquisitions exhibiting their higher risk appetite, ability to acquire and in the process enhancing the foothold in international markets," says Grant Thornton.

 

Outbound deals have grown from US$9.9bn in 2006 to US$30.8bn plus this year so far. Inbound deals have grown from US$5.4bn in 2006 to US$15.15bn in 2007 year to date. Domestic deals have grown in volume from 214 in 2006 to 223 so far this year. But the deal values have significantly declined, from US$4.5bn (2006) and to US$2.45bn in the first eight months of 2007.

 

The major acquisitions by Indian companies abroad in the year (January-August 2007) are: Tata Steel's acquisition of Corus for US $ 12.2bn; Hindalco's acquisition of Novelis Inc for US $ 6bn; Suzlon Energy's purchase of 33.85% stake in RE Power for US$1.7bn; Essar Steel's acquisition of Algoma Steel Inc for US$1.58bn; United Spirit's acquisition of Whyte & Mackay for US$1.11bn; Tata Power acquisition of 30% stake in PT Kaltim Prima Coal for US$1.1bn.

 

The major acquisitions by foreign companies in India in the year (January-August 2007) are listed below: Vodafone's acquisition of 67% in Hutchison Essar for US$10.83bn; Vedanta Resources purchase of 51% stake in Sesa Goa for US$0.98bn; Mittal Investment's acquisition of 49% in Guru Gobind Singh Refineries for US$0.71bn. Vodafone-Hutchison deal accounted for 71% of the total inbound deal value during first eight months of 2007.

 

There were 121 M&A deals with a total value of about US$4.3bn in July and August 2007. Of these, the number of domestic deals has been 56 with a value of US$0.84bn. The number of inbound cross border deals has been 22 with a value of US$0.64bn and the number of outbound cross border deals was 43 with a value of US$2.82bn.

 

There have been some significant outbound acquisitions by Indian companies in the last two months, the largest being JSW Steel's acquisition of three USA companies (Jindal United Steel Corp, Saw Pipes and Jindal Enterprises LLC) and Wipro Technology's acquisition of Infocrossing and its subsidiaries. FirstSource Solution's acquisition of Medassist Holding and Reliance Communication's acquisition of Yipes Holding Inc were the other significant outbound deals.

 

The most significant inbound deal during the last two months have been Holcim's acquisition of 3.9% stake from Ambuja Cements, Imerys' acquisition of majority stake in Ace Refractories and Novozymes acquisition of Enzymes business of Biocon.

 

There have been 67 private equity deals during the last two months with an announced value of US$4bn.