Weekly Close: Highest weekly gains ever !

It was the best week ever for the markets in absolute terms with gains of 6.85% which is a gain of almost 850 points. Such high gains in a week have been registered for the first time ever. Out of the 5 days in the week, market saw gains in the last 4 sessions.

It was a mild start for the week with decent gains but volumes were very muted without conviction. However then a strong bounce in the US had the Indian Markets rallying and that accompanied with some decent volumes.

China Central bank, People's Bank of China (PBOC) raised lending and deposit rates by 0.27 percentage point last week end. The benchmark one-year lending rate was increased to 6.39 % while the deposit rate was set at 2.79 %. Apparently this was to balance growth, stabilise prices and improve the overall structure of the economy. China has been seeing major growth even in a tightening environment. This sets the stage for slower growth. We expected metals / crude to see softness on the back of this. They softened only to make a comeback later.

Inflation last week was 6.46% and this week too the number did not change. We expected the banks to be weak but they rallied. The Banks were the big gainers this week which really remains a surprise. Markets are smart and they realised that this is a temporary phenomenon and probably that brought in the big buying. Inflation remains a bit of a worry in a sense . The rupee was strong this week and touched a low of 43.45 before closing at 43.75. The benefit of that is to an extent due to the inflation and may be thats the reason the RBI has been quite sanguine about it. The software stocks were a bit cautious on this and hence the gains in the large caps softwares were a bit muted.

The gains were across board and the major gainers of the Nifty were Bharti Airtel +8%, BHEL 16%, Cipla 8%, Dabur 9.8%, HDFC 5.4%; HLL 12%; ICICI 10%, Jet 11%, Larsen 12%, Mahindra 7%, Maruti 7%, ONGC 10%, Oriental Bank +16%, PNB + 15%, Rel com +13%, Satyam +6%; SBI 13%; Sail 9%, VSNL 9%. Among the losers were ITC and Tata Power but marginally.

We had a research note on Blue star. The company is into central Airconditioning. We believe that the stock is extremely expensive. The Markets seem to be expecting much stronger growth than they can deliver. At 34 times FY07 we are not convinced on the valuations. Look for lower levels but over the long term things could get better.

It was not a very positive week for cement though hopes were high. The Cement manufacturers met the FM this week but met with little success and the issue of high cement prices still remains hanging. The FM requested the Manufacturers to control the prices and has asked for proposals for the same. We were hoping for a rollback by the FM and thats not happened. However this has brought in some level of discomfort as long as inflation numbers come in high. We believe all this will be forgotten once inflation numbers start coming lower.

ITC was on the receiving end with West Bengal applying 12% Vat on tobacco products and then followed by Maharashtra. This is a hit below the belt for the cigarrette major. Cigarettes account for 60% of revenues and about 80% of profits. ITC will thus diversify less as cashflows are expected to be impacted badly and the plans for expansions in soaps and FMCG products have been put on the backburner. This was seen as a positive for HLL.. ITC lost 1% this week where as HLL gained 12%.

We had a research note on ICRA the second largest Rating agency in India. Moodys is the dominant shareholder here. Sebi norms on IPO grading gave the ICRA IPO a boost in the arm. This brings in another set of grading. So when a company has to raise money either through equity of debt, the rating agencies will get business. ICRA IPO is valued at 18 X FY07 earnings. Important to understand that the business is completely dependent on the macro environment. However its a good service business with annuities. We believe the pricing has been kept low so as to benefit the Employee trust. The big fallout of this IPO would be that the employees could be offered an incentive package. Thats good news. We thing its a good idea to subscribe to the issue. In the current environment where most IPOs have listed below offer price, there is hope of getting what one bids for.



Technically speaking: We maintained that Sensex supports were placed at 12300- 12400 and the resistance was at 13000 and above that around 13300- 13400. Thats where the Sensex has taken resistance. We are near the upper end of the range. Expect Markets to have some level of reversal from here. and supports are around 13000 before the next direction. 13520 is the next resistance level to be crossed with targets of 13804. Clearly the negative trend will be negated above 13520.

Next week is the FNO expiry for March and that should bring in some volatility. Also we are near the year end and some level of NAV propping is a possibility. Volumes are low and the liquiidity will be limited. So its likely to be a lacklustre week.