Sensex remains unscathed by RBI's rate hike

The RBI’s third quarter review of the Annual Monetary Policy was the highlight of the week. Anticipation of an interest rate hike and other credit policy measures influenced trading during the week on the stock exchanges.

The market corrected on the first two trading days of the week, and then bounced back remarkably on the following two. Both the Sensex and the Nifty closed at their all-time high levels on Friday, 2 February 2007.

The Sensex gained 121.05 points (0.84%), from the closing last week, to 14,403.77. The Nifty closed Friday at 4,183.50, up 35.8 points (0.86%) over the previous week’s closing.

The BSE Mid-Cap index gained a relatively lower 29.22 points than the Sensex’s gains. The BSE Mid-Cap index ended the week at 6,088.98.

The BSE Small-Cap index, however, ended in the red for the week. It ended at 7,576.13 on Friday, down marginally 15.41 points (0.20%).

On Monday, 29 January 2007, the Sensex lost 70.76 points on account of selling in banking counters. Interest rate sensitive banking shares weakened in the latter part of trading due to concerns of a rate hike. IT shares were subdued-to-weak throughout the day. Index heavyweight Reliance Industries did offer some support to the Sensex by holding strong. The bourses enjoyed a holiday on Tuesday, 30 January 2007, on account of Moharrum.

The market began Wednesday, 31 January 2007, in the correction mode. The fall was more severe on the day with a loss of 121.04 points on the Sensex. The hawkish stance taken by the Reserve Bank of India (RBI) at its monetary policy review meeting that day cast a shadow on trading. Tata Steel was a major loser on the day, crashing 10.65% after clinching the Corus deal, at a valuation deemed expensive by the market. Metal stocks across the board lost the same day.

The break through for the bulls came on Thursday, when the market soared on the back of RBI’s upgradation of 2006/07 GDP growth forecast to 8.5 - 9.0% from 8% on the previous day, and the US Federal Reserve’s stance of not raising interest rates in the absence of any serious pressure on the US economy.

The Sensex closed Thursday with a gain of 176.26 points. Market men opine that the gains in the derivatives segment were more so from short-covering than from a build-up of fresh long positions. So the day’s rally cannot be classified as the market’s strength, as not many fresh long positions were taken that day.

There was no respite to the bull-run on Friday with the telecom and IT stocks putting on good gains, and the overall market joining in the party. In the opinion of some market men, the pre-budget rally has now triggered off. The Sensex gained 136.59 points over the previous day. Both the Sensex and the Nifty closed at their all-time high levels.

Tata Steel finally managed to clinch the Corus deal this week, albeit at valuations which appear pretty much on the higher side of analyst estimations. The deal at 608 pence per share values the company at seven times its forecasted EBITDA earnings. The market reacted to the development by hammering the stock. Tata Steel's Q3 FY-2007 numbers, in line with market expectations, did not provide any buffer to the fall in the share price. It posted a 41.1% growth in net profit in the December 2006 quarter to Rs 1063.75 crore, on 21.4% growth in net sales to Rs 4469.98 crore. The stock fell for the week by 9.09%, to end at Rs 462.95 on Friday.

ITC, too, came out with its third quarter FY-2007 results. Net profits grew 33.6% at Rs 717.40 crore, while sales grew 23.8% at Rs 3165.57 crore. The stock was down 1.32% over the week and finished Friday at Rs 176.10.

Reliance Industries stayed flat over the previous week’s closing, or just gained marginally by 0.19%, to close Friday at Rs 1372.30.

ACC came out with an impressive set of December quarter results, its bottom line rising 106.7% to Rs 358.46 crore over the corresponding last year's quarter. Sales grew 27.4% at Rs 1619.90 crore. The stock ended the week, losing marginally by 0.04% and closing Friday at Rs 1040.50.

Reliance Communication ’s consolidated net profit jumped 198% in Q3 December 2006 quarter to Rs 924.42 crore, on 26% growth in consolidated revenue to Rs 3755.30 crore. It emerged a big gainer with a 12.22% gain over its previous week’s closing and settled at Rs 490.55.

Infosys Technologies stayed more or less flat over the week, gaining marginally 0.83%. The stock closed Friday, at Rs 2259.85.

State Bank of India (SBI) was in the news after the Union Cabinet agreed to transfer RBI’s 59.73% stake in SBI to the Central Government. India's top moneylender, SBI, and private sector ICICI Bank may soon qualify for a full-banking (QFB) status in Singapore, which will enable them to open up to 15 branches and ATM centres in the island country. This qualification falls under the comprehensive economic cooperation agreement (CECA) between India and Singapore, implemented in August 2005, which calls for grant of QFB status to three Indian banks in Singapore and vice-versa.

SBI, over the week, remained near flat, gaining a mere 0.47% to close at Rs 1181.35 on Friday. ICICI Bank, however, lost Rs 40.70 (4.13%), to close at Rs 944.55.

Ratings agency Standard & Poor’s including India in the investment grade category was another important development during the week. A lot of funds, for instance, pension funds in foreign countries, which were not allowed to invest in Indian equities hitherto, will now become eligible to purchase Indian equities. The development can be instrumental in the stock market’s further rally.

FIIs were net purchasers of Indian equities worth Rs 492.10 crore in January 2007.

On the contrary, mutual funds were net sellers of equities worth Rs 1342.14 crore in January 2007.