Markets in search of new highs

Tue, 1 Dec Closing

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Markets appeared in no mood to let the pedal off the accelerator even during the closing hours today. And this meant that they inched even higher and closed firm on yet another occasion. While the BSE Sensex edged higher by around 270 points (up 1.6%), NSE Nifty saw gains of around 90 points (up 1.8%). BSE Midcap and BSE Smallcap indices also witnessed strong buying interest as they closed with gains of 1.8% and 2.2% respectively. Auto and banking stocks emerged amongst the top favorites today. Advance to decline ratio on the Sensex was overwhelmingly in favour of the former as just one stock declined for every nine that gained.

While most Asian indices closed strong today, Europe is also trading in the positive currently. Rupee was poised at Rs 46.2 to the dollar at the time of writing.

17th October 2009. This was the date when the Sensex closed at its highest if one were to consider the recent rally that started in March 2009. With today’s gains, the BSE benchmark has come pretty close to that mark. In other words, one more day like the one we had today, and the Sensex would be perched comfortably at its new high of the recent rally.

This turnaround in sentiments has been largely made possible due to the greater than expected GDP growth of 7.9% that we managed to log in during the September quarter. And this in turn has elicited comments from experts that India’s GDP for the full year may have to be revised upwards. From an earlier expectation of 6%, a figure of 7% is now being floated around and this seems to have enthused investors. While the upward revision in GDP is indeed a welcome sign, we would like some more clarity to emerge on this front, most notable being the growth in third quarter GDP where the biggest impact of drought is going to be felt. Also, rather than getting caught in such near term game of upgrades and downgrades, investors could do well to focus on long-term trends for making their investment decisions. And one is unlikely to go wrong here if a company with strong competitive advantage and reasonable valuations is chosen.

With gains of 25%, Tata Motors is the highest gainer on the Nifty in the past one month. Infact, it ended amongst the strongest on the bourses even today. Taking into account today’s gains, the stock has turned out to be a near 6-bagger from its year ago levels. Indeed, very few stocks have managed such a swift turnaround. A combination of factors made this possible. While the company did a great job on the capital raising front, mopping up money whenever it saw an opening, the government stimulus package that revived demand for passenger vehicles and commercial vehicles also came to the aid of the company. And now with credit markets thawing in Europe where it has its JLR operations and economic scenario in the developed economies improving, the worst seems to have been over for India’s largest automotive company.

Auto ancillary majors closed mostly strong today with leading gainers being NRB Bearings, Asahi India and Bharat Forge. Exide, India’s largest storage battery manufacturer also ended on a high note today. The company which is close to touching its three year highs, is seeking shareholder approval to issue 50 m equity shares and/or any securities convertible into equity shares, with or without warrants, through the QIP route. The current round of fund raising seems to be a little baffling as the company has pretty comfortable liquidity position and hence, there seems to be hardly any need for equity dilution. Perhaps, the fund raising has to do with injecting money into its insurance subsidiary ING Vysya Life Insurance Co as the latter has still not become self sustaining and hence, is in need of frequent capital injection. Thus, while the fund raising is likely to be value destructing in the near term, given the strong growth prospects of the insurance sector, it could turn out to be value accretive over a long term period.