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Infosys COO buys 1% stake in BSE
After last week's resurgent rally Indian shares could mount an assault on all-time highs in the coming days, powered by easing inflation and a strong corporate earnings outlook.
- By Geetha Bhaskaran, Special to Gulf News
- Published: 00:00 May 20, 2007
Mumbai: After last week's resurgent rally Indian shares could mount an assault on all-time highs in the coming days, powered by easing inflation and a strong corporate earnings outlook.
Underpinning the optimism is a growing belief that India's nearly two-year-long interest rate tightening cycle may have peaked. Little surprise then it was financial stocks like ICICI Bank and HDFC Bank that were among the big gainers last week.
The prospect of stable interest rates over the near term improves the outlook for spending - a key factor for boosting the profitability of companies.
"The market is taxiing for a take-off," said equity salesman Nipul Vasa. "We should see a new high this week."
The benchmark Sensex index rose nearly four per cent last week to 14,303.41. It is just three per cent shy of the record peak of 14,723.88 reached on February 9.
Technical indicators show the marker could face resistance at around 14,400 and as it nears the historic high, but chartists say there is enough momentum to carry it through after a brief consolidation.
Growth drivers
"The closing above 14,300 is a bullish sign," said technical analyst Kanu Dave. "It provides the bulwark to mount an assault on record highs."
Inflation, the most watched data by financial markets, eased to its lowest in five months at 5.44 per cent in the year to May 5, the government said on Friday and Prime Minister Manmohan Singh said it should slip to around five per cent in about two months.
However, prices of food items likes fruits and vegetables have remained high, and rising international oil prices are a concern, especially for state-managed refiners that are forced to absorb the difference between high crude oil prices and subsidised domestic fuel prices.
Evidence that the fortunes of pharmaceutical companies depend on the foreign generics market was bolstered when Dr Reddy's Laboratories beat market expectations on Friday by posting a net profit of Rs 3.25 billion for the January-March quarter against a loss of Rs236 million in the year-earlier period.
The earnings were boosted by a 180-day exclusivity it won for selling a generic version of GlaxoSmithKline's blockbuster Zofran used to treat nausea. Full-year profit leapt to Rs9.33 billion from Rs1.6 billion.
The company, which is also listed on the New York Stock Exchange, said it would not be able to match the earnings in the current year as the exclusivity window winds down.
Rival Ranbaxy Laboratories last month beat market estimates with a 79 per cent rise in net profit and raised its 2007 sales forecast, but Cipla's profit fell 34 per cent.
"Drugmakers have always been a good defensive play because they're not affected by economic ups and downs," said stocks trader Nitin Shah. "Now, they're also strong growth drivers."
He said growing calls in the United States, the world's largest market for medicines, to rein in prices of drugs offered a big opportunity for Indian companies.
Drugs with annual sales of more than $30 billion are expected to go off patent and become eligible for generic versions in the next two years, he said.
Shah said he also favoured auto stocks like Tata Motors, which notched a 26 per cent rise in quarterly profit to Rs5.76 billion on Friday.
BSE said on Friday it had completed the sale of 51 per cent of equity shares to 19 domestic and overseas investors, including 10 percent sold to two foreign exchanges.
Early this year, Frankfurt-based Deutsche Boerse and Singapore Exchange each paid $42.1 million for five percent stakes in the BSE, India's oldest stock exchange.
The BSE's member brokers tendered their shares in the exchange at Rs5,200 per share, putting the bourse's market capitalisation at less than $1 billion, BSE said in a statement.
"The stock has dropped 18 per cent this year - against a nearly 4 per cent rise in the Sensex - because of concerns that high interest rates will squeeze demand," Shah said.
"With the new ownership structure in place, BSE is well poised to pursue growth opportunities aggressively," said Rajnikant Patel, its managing director and CEO.
"The worries are well founded but they're a passing phase. If the economy grows at around eight per cent over the next few years - which is what economists are forecasting - one of the big gainers will be the auto sector," he said.
HDFC Bank posted 30 per cent loan growth in the year to March 31 and 48 per cent a year earlier in an economy that has expanded an average 8.6 per cent in the past four years.
"Indian banks need extra capital to grow faster or even to maintain the current pace," said R. Raja-gopal, who manages Rs3 billion ($73 million) as head of equities at DBS Cholamandalam Mutual Fund in Mumbai.
"They also need to boost their capital to meet new norms. The additional capital will strengthen their balance sheet."
Tata Motors, whose shares dropped 1.1 per cent on Friday to Rs742.75, is building India's cheapest car at about Rs100,000 for launch in 2009.
It hopes the vehicle will do what Maruti accomplished - the first car of choice.
The writer is a journalist based in India.
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