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Indian stock market monthly report - October 2009

By Nirmal Bang

 

Market Analysis

 

Markets ended on a Positive note amidst reports of improved data across global economies & festival season ringing in improved sales in consumer driven segments. Sensex ended positive gaining 9.32% & Nifty gaining 9.04%. Midcaps & Small caps however underperformed the benchmark indices gaining 7.5% & 8.48% respectively.

 

 

 

Sector Analysis

 

Amongst the sectoral indices, Bankex index outperformed all other indices gaining 18.11% on the back revival in demand for housing loans & Auto loans as sales in these segments went up due to the festive season buying. Metals sector was the other major gainer, up by 14.49% during the month amidst signs of revival in the construction activities & revival in economies of major developed countries. Auto gained 13.37% in the current month amidst robust demand in both the 2?]wheelers and 4?]wheelers due to festive season buying & better credit availability. Healthcare was up by 12.90% during the month on back of higher sales on account of Swine Flue concerns across the world. IT continued its good run in the markets gaining 9.55% during the month on the back of revival in the economies of developed markets. All other sectors ended in green however underperforming the benchmark indices, with Oil & Gas sector gaining 7.17% followed by Capital Goods 4.61%, power up 2.81%, Realty up 2.18% & FMCG up by just 0.87%.

 

 

 

 

Fund Activity

 

FII’s continued their selling spree in the month of September 2009. FII”s sold shares worth Rs. 5103 crs on increasing concerns of drought in the country and valuation concerns. However DII’s lent support to the markets and remained net buyers for last four consecutive months. DII’s were net buyers of Rs. 770 crs. Overall the secondary markets witnessed a net outflow of Rs. 4333 crs on the institutional front.

 

 

 

 

Currency Fluctuations

 

The partially convertible rupee ended at 47.86 per dollar. The rupee rose to its highest in nearly two months as exporter`s dumped dollars on a view that improving growth and robust foreign inflows would see the local unit strengthen in coming months. The rupee also gained momentum after the SEBI showed global funds bought more equities than they sold for a 15th straight day, the longest streak since 4 August. Foreign investment in the stock market reached an all-time high of $67.3 billion (Rs. 3.2 trillion) on 29 September. Traders said foreign buying of shares has lifted sentiment on the rupee. The flows have been a major driver for the rupee, which has rebounded from a record low of 52.2 in early March.

 

We feel that the US dollar will remain under pressure to depreciate while currencies in Asia will tend to rise given improving growth prospects in the region.

 

China started selling yuan-denominated sovereign bonds in Hong Kong for the first time on Monday (28th Sept. 2009), testing international demand for its currency with the $879 million (Rs. 4,219 crores) issue as it moves to widen the yuan`s exposure and appeal to markets abroad. The bonds are open to subscription until 20 October. China has been taking steps to promote the yuan in international markets this year, as the US dollar has weakened and Beijing`s foreign currency reserves have slid in value.

 

 

 

 

International Markets

 

G-20 stimulus pledge helps push Asia and US stocks as G-20 leaders pledged in a draft statement to keep some stimulus supports in place until a recovery is clearer. The consumer discretionary sector was a clear favorite among investors in the wake of the draft G-20 statements to promote more balanced current accounts.

 

Emerging economies looked to be the surprise winners as the leaders sought to finalize agreements on an ambitious agenda that included building a more stable world economy, reforming bank regulations and tackling climate change.

 

In another boost for countries such as China or India, the G-20 unexpectedly moved close to a deal shifting more voting power at the International Monetary Fund to some developing countries, recognizing their growing economic power.

The MSCI World stock index climbed to an 11-month high and emerging-market bonds rallied on growing signs of a global economic recovery and improvement in the financial system. The MSCI World Index has climbed 66% since March 9. Dow Jones climbed 216 points (2.27%) to end at 9712; Nasdaq composite added 113 points (5.64%) to 2122.

 

 

 

 

 

BSE 500 Review

 

Gainers

 

Central Bank of India gained 57.73% in the month of September 2009 reflecting the strong rally in the BSE Sensex and particularly in the Banking Sector. The BANKEX index increased 18.11% in the month of September 2009 reflecting optimism in the sector. Moreover, Central Bank of India paid Rs 79 Crs of advance tax for Q2 FY10 compared to Rs 53 Crs in Q2 FY09 which that the company is expected to post strong results for the quarter. Moreover, expectations that the HTM limit would be enhanced, led to a sharp rally in bond markets and, consequently, in stock prices for most of the PSU Banks.

 

Hinduja Ventures gained 57.73% in the month of September 2009on back of the announcement that its media subsidiary, IndusInd Media & Communications Ltd, plans to list through an IPO. Prior the IPO, the company plans to rope in an investor. The total fund-raising is expected to be close to Rs 5 bn.

 

Escorts gained 52.56% in the month of September 2009 reflecting the strong rally in the BSE Sensex. Moreover, the price increased after the promoters of the company revoked 3.45 lakh shares representing 0.38% of the equity capital of Escorts Finance & Investments, a promoter group company.

 

Zandu Pharmaceutical Works (Zandu) increased 52.04% in September 2009. The 12.09% increase Healthcare index in September 2009 led to a significant rally in the stock price of Zandu. Moreover, on 22 September 2009, Zandu Pharmaceutical Works announced that Court convened meeting of the equity shareholders of the company held on 11 September 2009 on direction, of the High Court of Calcutta have approved the scheme of arrangement between The Zandu Pharmaceutical Works, Emami and Emami Infrastructure. We believe that the anticipation of this approval led to approximately 44% increase in the stock price during 10 September 2009 and 11 September 2009.

 

Orchid Chemicals & Pharmaceuticals Ltd (Orchid) gained 51.40% in the month of September 2009. Orchid rose approximately 24.7% on 16 September 2009 after the US regulators approved its generic drugs, giving it 180-days exclusivity. Orchid will sell these products in the US in partnership with Weston, Ontario-based Apotex Inc.

 

 

Losers

 

Onmobile Global declined 12.0% in month of September 2009 reflecting the broader weakness in the telecom industry.

Hindustan Oil Exploration plunged 14.47% in month of September 2009 after increasing 259% in the previous month.

 

IBN18 Broadcast Ltd plunged 15.20% in the month of September 2009. On 24 September 2009, IBN18 Broadcast announced that the Board of Directors of the company (at its meeting held on 24 September 2009) has approved the Rights Issue of equity shares aggregating to Rs. 510 Crs. Following the news on the stock price declined 7.1% on the same day.

 

Tulip Telecom Limited fell 15.78% in the month of September 2009. The dip in the stock price was triggered after the reports that on 25 September 2009, Income Tax department conducted searches at various premises of the company for alleged evasion of taxes running into crores of rupee.

 

 

 

 

 

Economic Activity for the month of September 2009

Indian economy grew at 6.1% in the Q1CY09, the highest quarterly growth since the onset of the global economic slowdown in September 2008, primarily due to expansion in manufacturing and services sectors. However the drought situation in the country is a cause for concern. Till the end of August rainfall has been 25% below normal. The next two quarters may see a lower growth than 6.01% due to the impact of poor monsoons. Another concern is the mounting inflationary pressures, which would force the RBI to roll back monetary expansion. The CPI for the industrial workers rose to 11.89% in July, a sharp increase from June 9.29%.

The IIP continued to accelerate at a significant 7.8% growth in June 09 against 5.8% in June 08. A strong 7.3% growth in manufacturing sector accompanied by a robust 15.4% and 8% growth in mining and electricity sectors succeeded to push the overall industrial production growth to a 15 month high in June 09. Also rate of decline in exports moderated to 28% in July compared to 27.2% dip in June, suggesting some signs of stabilization in the exports demand. Contraction in imports was around 37% .India’s fiscal deficit reached a 40% of the target set for the fiscal year in the first 4 months as the government doled out a number of incentives to stimulate the economy. With drought forcing government to increase its spending, FM revised direct tax collection target to 4, 00,000 cores an increase of 8% over 3,70,000 crores mentioned in the budget.

 

Due to the government’s intervention and hefty stimulus packages across the countries, global economy appears to be stabilizing; however the degree of stabilization varies across countries. US GDP fell by 1.0% in the second quarter against the record fall of 6.4% in the first quarter, showing signs of easing. A better performance in the second quarter was on the back of an improved nonresidential fixed investment, exports, and private inventory investment, coupled with huge federal spending. Chinese economy grew by an impressive 7.9% during the quarter, up from 6.1% recorded in previous quarter. Chinese Industrial output grew by more than 10% YOY basis in June 2009 reflecting pickup in production activities in factories. However the worst came from UK which posted contraction of 5.6% in the second quarter resulting in the highest annual contraction in the recorded history of UK, dampening the hopes of early revival. However, based on seasonally adjusted quarterly series, there was an improvement over previous quarter as GDP dropped by an annualized 3.2% in Q2. Japans GDP expanded at an annual rate of 3.7% in Q2, first growth in five quarters.

 

 

 

Outlook For October 2009

 

Nifty has seen run-up of around 1000 points or 25% since low in July 2009. The run up started with better than expected Q1FY10 results supported by improving economic and corporate out look across the world. But this run up has taken the valuation ahead of fundamentals. To support these high levels, result for Q2FY10 need to be extraordinary.

 

 

 

Apart from this the month on month economic data during the month of September in Indian and even in US are showing sing of peaking-out.

 

 

What seems to be moving the equity market or even other assets class right now is devaluation of dollar against other currency, which is down by 13.4% in last seven months. Though fundamentally dollar depreciation is expected to continue in the longer run but in near term it can appreciate as the rate of decline was very sharp in short period and the other developed economy which are also facing huge deficit have started showing concern for this devaluation of dollar.

 

 

Market looks ahead of valuation and Q2FY10 result may not be able to meet expectations of investors. As such we expect markets to correct in the month of October.

 

 

Flashback Sept’2009

 

The Sept series opened at 35,613 cr. as against 33,460 cr. last month, where in the Nifty future was at 11,852 cr. and Stock futures were at 23,761 cr. The Sept month happened to be challenging as markets were trading at the resistance point of 4,730 from where markets were facing solid selling pressure for several times. But the undertone was bullish as there were huge IPOs to be listed on the pipeline. NHPC, India's largest hydro power generator, disappointed the street on its debut on 01st Sept. It started at Rs 39 on the BSE and traded around Rs 37 throughout the session and closed at 36.70. On 20th Aug Adani Power also did not see any extraordinary listing. It listed at Rs 105 on the BSE and closed just near to issue price at Rs 100.

Both Adani and NHPC have disappointed the streets and going forward there was very less positive surprise for the market from the Primary market. Oil India Ltd. (OIL), the second largest oil and gas company in India, opened its initial public offering (IPO) of 26.45 lakh equity shares of face value Rs 10 each for subscription on 07 Sept` 09. Its issue price has been fixed at Rs 950-1050 per equity share.

 

From 04th Sept the sentiments improved after the Asian and US markets surged which lifted the Indian sentiments and Nifty after making a double bottom of 4,580 rallied continuously with reasonable volumes. The market breadth remained positive for several days as major action was also seen in midcap and smallcap stocks. Among the sectoral IT, banks, auto, metals and oil & gas stocks outperformed in the entire month. For the Sept month Nifty rallied almost 500 points from its Sept low 4,580 to the high of 5,087. The rally was boosted by strong inflow by FIIs against new outflows by the local DIIs. On 30th Sept Oil India made its debut trading at a huge premium of 8.1% to its issue price of Rs 1,050 and ended the day at Rs 1,135. During the Sept month, the FIIs remained net buyers of Rs. 12,643 cr. while domestic institutions were net buyers of Rs. 769 cr.

In this Sept rally the most important indicators: the cash delivery volumes increased but the derivate volumes were lower as there was high probability of the market falling. Nifty put-call ratio rose to a 15-month high and implied volatility dropped to its lowest since Dec-07. FIIs flow in cash market positive for seven consecutive month.

 

Indices across the globe witnessed sharp rally in Sept. Dow Jones Ind rallied from 03rd Sept low of 9,252 and made a high of 9,937 on 23rd Sept and is currently at 9,487. Nasdaq Comp rallied from 1,958 on 03rd Sept and hit a high of 2,167 on 23rd and currently is at 2,048. S&P 500 has rallied from 01st Sept low of 992 and made a high of 1,074 on 17th Sept and currently trading at 1,026. Hang Seng rallied from its low of 19,425 on 02nd Sept and made a high of 21,827 on 17th Sept and currently is at 20,405. Nikkei, the Japanese index has indeed fallen from 01st Sept from its high of 10,572 and currently trading lower at 9,718. The Shanghai Comp also rallied from its 01st Sept low of 2,639 and made a high of 3,068 on 18 Sept, but currently trading lower at 2,779. But if we compare our Indian markets along with the globe, we are the strongest market which has not yet corrected from their Sept highs and are holding firm because of liquidity flow remain positive. For the Sept month both the indices closed up average 6%.

 

 

Road ahead Oct’2009

The Oct series opened at 41,204 cr. as against 35,613 cr. last month, wherein the Nifty future was 13,915 cr. and Stock futures were 27,289 cr. compared to Nifty Future 11,345 cr. and Stock Future 22,115 cr. last month. The rollovers in the Oct series were healthy as the advance tax numbers were very positive for most of the companies and the forecast for the second quarter results were slightly on the higher side and the US market trend were also improving.

 

Large acquisitions in corporate deal activity announced overnight by Abbott Laboratories and Xerox Corp. helped Wall Street break a three-day slide. The deals raised hopes of a rebirth in takeover activity and a recovery of the financial system. The global M&A activity in pharma space has lifted many Indian pharma stocks.

 

Though the current uptrend is matured and strong, we believe that there is still a lot of potential left in selective sectors like the cement, capital goods & infrastructure, telecom, textile and pharma. The markets are not giving any signals of topping out even though the daily oscillator RSI at 72 suggesting us an overbought indication. We believe that market has potential to move up further in the coming days and might test 5,210/17,550 on the next leg up where one can liquidate their positions and wait for a reasonable correction to re-enter.

Given that the benchmark indices are at a 16 month high, we believe that the undertone of the market is bullish and short-term traders can hold their long positions till this immediate trend break 4,980/16,800 on the closing basis.

 

Going forward in the medium term it`s very important for the markets to hold 4,735/16,000, so that the rally which started from the March low can extend further. The short term (21, 50) day moving average for Nifty is placed at 4,870 & 4,692 which could act as an important support area from where fresh buying can be done from an investment view. Even on the downside we don`t expect much of a breakdown as the 50-day moving average should act as a medium term support area for the Nifty.

Among sectors, banking, pharma and capital goods stock are looking attractive at this stage and deserve to be bought on dip from an investment view.

 

 

 

 

Commodity View

Commodity Market Overview:

 

The Commodity market remained side-ways last month, but the precious metals remained an exception with 5 % rise in Gold and Silver rallied 9.25 % backed by the Inflationary concerns and ETF buying Interest. The Base metals Complex rallied till early September, especially Lead reached 16-month high after China had shut down its smelters but later during the month metals corrected substantial.

 

While most of the Agri Commodities remained downwards, especially the Spices complex and the Oil Seed complex.

In the days to comes, the Precious metals are expected to rule the commodities market as the complex looks very attractive. The weakening Dollar, Buying Interest from ETF`s and rising Inflationary concern may drive the Gold prices to $ 1080 and $ 1100 in the Near Future. The Silver prices may also rally with rise in Gold Prices, while Silver is expected to outperform Gold in Medium term.