Weekly Close: FY 06-07 ends..what about 2007-08?

It has been a volatile and tough Month of March. Markets have closed virtually flat for the month. The Financial year has been quite good though the fall from the highs seems to have taken the shine off. There are more worries and unanswered questions about the global economies. India seems to be treading along fine but its the impact of slowing US economy which is worrying markets. It has been a year replete with interest rate hikes, inflation, high crude prices and escalating metal prices. Economy witnessed growth of around 9% which is really great but it was followed by worries like inflation. Infrastructure and manufacturing sector showed robust growth for the financial year but agriculture growth was disappointment, mere 1.5-2% growth and was the actually cause of inflation. FM had made some attempt to enhance agriculture growth but time will only tell how successful the attempts were. 2006-07 continued to shower favour on large cap but mid caps and small caps were away from the lime light. We believe that mid caps are the one where the actual value lies..2006-07 was the year of liquidity driven stocks but now its time for value pick particularly mid caps.

This was holiday shortened week. To add to that this was also F&O settlement week which kept session extremely volatile. The markets had recovered almost 1000 points from the lows in week before this week and certainly direction was upward biased ,however, F&O settlement kept the index extremely volatile. The markets have corrected sharply and also recovered from its low in last month. At such time it really requires some strong news flow or trigger which is for now lacking. Today, however, market saw some strength probably on MF buying so as to support prices to prop up NAV at the end of the financial year.

This week was also a disappointment for Indian cricket fans. India was out of world cup and advertisers where the one who put up with big brunt. The telecast rights are with Set Max. Indian team out of world cup certainly means gains in TRP for others. Zee is the main player and our pick here.

Sensex ended down by 1.8% for the week. Weighing on the index were Bank's -4%, IT -3.5%, Auto index -3.5% while FMCG gained +3% and Health care +2%. Ranbaxy +6.97, Zee Tele +6.20%, Dabur +4.2%, ITC +4.2% and Dr.Reddy's +5.57% were the major gainers. Tata Motors -8%, Wipro -7.22%, HDFC bank -6.76%, ICICI Bank -4.7% and HDFC -4.67% lost the shine for the week.

Though the market were hammered badly after the budget some stocks recovered from there worst. HLL gained by 16% for the month. The performance of the stock really did not seemed attractive. Competition is red hot and company is really advertising aggressively to remain at top. Advertising spent has been increased to 15%-20%. Again this makes us more positive on media particularly Zee. ITC was also a worst hit this month on talks of VAT. The bill has been passed and it has been left with the state to levy VAT (and also what %) on cigarettes. But really price hike in cigarette will hit volume is big debate !

This week was a watershed for the Rupee. It did play out largely as we imagined though the RBI even surprised us holding out to as much as Rs 43.05 to a Dollar and then the jump was sharp amidst all the short covering. So now the point of Rs 43.05 will be the touch me not point for a couple of months. We, however, are getting more bullish on the Rupee. India's energy dependence on Imports will reduce over the next couple of years. At one point in the week we wondered whether the RBI had changed stance to a strong Rupee policy. That would have been good news really.. but its certainly not the case. The love for the greenback remains embedded strongly in the Indian Administration mind. IT stocks were the worst hit, as the Dollar slipped till Rs 43.05 versus the Rupee, its lowest since June 1999. Also to add to this was the weak consumer confidence report with brought in concerns about a slowdown in the US Economy where these companies generate their maximum revenue. The report has compounded the woes of Indian IT companies just after the new found strength of the Rupee. However, RBI intervened at 43.05 and some weakness was seen in Rupee against the Dollar.

Crude was hot commodity for the week...Iran's capture of 15 British sailors and marines on March 23 was the prime catalyst which moved crude prices higher every day since. The transport counter and Refineries who were seeking some relief for low crude price where once again under pressure. Technically crude is headed towards $ 70.. pressure may continue here unless and until Iran tension eases. Things ahead depends on time. Till then wait and watch !

However, high crude prices will help alternate fuel. Sugar will be the one to be watched on back of Ethanol. Some news papers have reported that Sugar production will be bumper.. however, there was also news that the Government is bailing out the sugar manufacturers in a big way to help the farmers in UP where the payments have not been going. As per reports the Government would create a buffer stock for the next two years and also provide subsidy for exports. Govt. sweet attitude towards the stock helped this counter to trade firm for the week. High crude may keep interest buoyant.

Sensex has closed at 13072, yet it failed to hold above previous week's close. The support for the sensex lie at 12800 and 12650. On the higher side it is likely to face resistance at 13400. With the result season to start in the 2nd week of next month, we might see some stock specific movement. Markets likely to remain in the current range unless and otherwise we have any major development. The News which came out late in the eveing on Friday wa that the RBI has raised the CRR by 0.50 bps to 6.50% which will be in two phases and Repo Rate by 0.25 bps to 7.75%. This is bad news for the banks and the shortage of Liquidity in the market could be see.