Market had one more week of great rally. Huge liquidity inflow continued the rally in index heavyweights. It was just last week that Sensex touched 17k and today it was just at kissing distance from 18k but missed it. Globally too markets have overcome the subprime and recession worries. Clearly, two events consisting of UKs guarantee for Northern Rock and the large Fed cut had offset worries of a pending recesson. We believe that there is at least 4 - 5 months to live on this hope.. post which there will more clarity. The market also prices in the possibility that demand in Asia will be the engine of growth. Thus money flows have been strongly flowing into India which along with China and thats the reason to do well.
This was also the great week for Ambani brothers. Mukesh?s Reliance Ind and Anil?s Reliance energy were the stocks of the week. Reliance Energy is set to launch an IPO for the Power projects and that valuation had the Reliance Energy stock rerated. Reliance made a new high kissing 2500. Thats a huge move for the Sensex heavyweight.
The Oil index also coupled up. Capital goods index was another index mover with Larsen up 10% and ABB up 6%. Sensex gained 2.5% this week. Nifty up was 3%. Banking index however witnessed profit booking with SBI shedding 5%.
There were hopes that CRR/SLR may be cut. In one on our note earlier note we had argued that this cut is certainly not on cards.. given the flush of liquidity. RBI has been intervening. We believed that an excuse is building up for a rate cut and that is in a way to soften the rupee. This we believe will not happen before October 30th. The banks scaled highs on hopes of rate cuts last week. We would be surprised if the cut did happen earlier than October 30th. However on Thursday Govt. announced its intention to increase the ceiling on the MSS bonds (Market stabilisation bonds) which was in line with our thinking. The Auto monthly numbers?were not good enough to worth a discussion. All eyes are on October whether Bajaj can break out of that rut. whether Maruti can sustain its growth and whether the festival demand will pick. Of course its also the results season.
The Cement was one sector which saw strength amidst all negatives. In the strong demand sceanrio many companies increased price to take the advantage. ACC Ltd, India's second biggest cement producer reported that its September shipments rose 10.7% to 1.55 mn tonnes from 1.40 mn tonnes a year earlier up by 11%. Shree Cement reported its sales for the month of September at 0.47 mn tones vs 0.39 mn tones, up by 20% yoy. Ambuja cement sales for the month of Sept fell to 1.28 mn tones vs 1.34 mn tones, down by 5%. The reason for low shipments was that the plant had been shut down for few days in the month of September due to flooding. All the cement companies will report good numbers Valuations is where the worries are. We are positive on Kesoram Ind, Shree Cement and Madras Cement. Look for dips for investment opportunities.
We had a research note this week on Esab India and another one on SpiceJet. Esab is where there has been a wow call where the call captured the gains. This company manufactres welding equipment and consumables. The parent Charter Plc has increased stake through an open offer to over 55% from 37% and that a price higher than market price. We believe that its a good reason to be bullish.. and ofcourse there is much more than simply that which you will get when you read the report.
Spice Jet is a call which we booked this week with over 20% gains in a matter of 3 weeks. Its certainly good returns. However these are hopeful times for the airlines. The Industry has faced consolidation and thats a good reason to see Spicejet do better. The high crude prices is the negative..There are lots of hopes on this quarter. The stock is likely to see strength.
We had a research note on Allcargo global. Here we have a skeptical view.. and the reason is that the acquisiton of the global business of Eculine is unlikely to deliver much efficiency in the near term. Also the impendig merger of a promoter owned company will weigh on the stock till the merger ratio is indicated.
And there were more broker raps too on many upgrades and downgrades.. by large broking houses. !
Technically Speaking: Sesnex has taken support at the trending upline and thats at 17720. Should see some bounce there. The near supports are far and the markets are bit in the overbought zone. Worries to be seen only if Sensex breaks 17230 . The trend is up.
Fundamentally speaking: Vauations may appear expensive.. but it seems that the risk profile of India has been lowered and that because there is a domestic consumton economy. This is coupled with a scenario where rupee is getting stronger and flows continue to be strong. Thats driving up stocks and largely heavyweights. Next week will mark the beginning of the results season for September quarter. Normally the large cap stocks temper post the numbers.. but we believe that the mid caps will perform this time. 18000 for the Sensex is now only a formality and a matter of academics.. but fundamentally, these gains we believe would trickle down to the mid caps.
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