Media, infotech stocks may lead rally

By Oommen A. Ninan

MUMBAI, AUG. 20. The stock markets are likely to see a cautious rally and the infotech stocks are expected to take the lead. However, if investors are not fast in booking their profits, they would end up making losses as a large chunk of these stocks remains in a few hands. The U.S. Fed's decision on interest rates this week will also determine the fund allocations of foreign institutional investors.

The Sensex can retrace its wayback to the 5500 to 6000 levels in the next six to eight months,'' said Mr. Gul Teckchandani, Chief Investment Officer, Sun F & C, a leading foreign institutional investor. According to him, the Sensex once again will be led by the technology and mindware sectors followed by the cement sector. Shipping industry is one of the dark horses. ``It will not be a one way run up but there will be intermittent corrections before it hits the target, he said adding, ``trading can be done only in top line companies.''

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index moved up by 155.04 points when it closed at 4347.04 for the week from 4192 in the previous weekend. At the National Stock Exchange (NSE) the S&P Nifty index closed at 1358.05 compared to the previous Friday's close at 1310.75, a gain of 47.30 points.

``Markets should rally about 300 points quite easily and the participation will be from stocks like Zee Telefilm, NIIT, Digital Equipment and other select stocks in the media and infotech sector,'' said Mr. Shankar Sharma, Director, First Global, a leading broking firm. Further he said, ``It is hard to say markets have bottomed out completely. However, one can safely say that the risk of remaining long is lower than that of remaining short at the present moment.''

The most important factor that investors should keep in mind in the rally is that they should be on their feet and book profits. The rally is expected in infotech and media scrips and a major chunk of these scrips are in few hands. So any overexpectation may end in heavy losses for retail investors. There is a warning from Ms. Devina Mehra, Director-Research, First Global. She said, ``The market is not on a long term bullish trend. That means one has to be faster on one's feet and book profits as stocks reach targeted prices. Otherwise retail investors will end up giving back the unbooked profits. One has to look at individual stocks rather than take up a sectoral bet.'' Have the economy and commodity stocks lost their shine? These stocks came to limelight with an upbeat mood of the Indian economy which was witnessed from the second half of last financial year.

``The upbeat mood seems to have waned,'' stated Duff & Phelps India's recent economy update. The main reason for this is the slowdown in industrial growth. As per the data released recently, growth in the Index of Industrial Production (IIP) during the first quarter was 5.4 per cent vis-a-vis 5.7 per cent recorded for the same period last fiscal. It added, ``Confusion over the now-on-now-off economy is, however, confounded if one looks at the increase in credit offtake figures and increase in Central tax collections,''

The growth indicators for the first quarter of 2000-01 show signs of a slowdown and this is reflected from a CII-Ascon study of the production growth across most of the 115 sectors. The automobile sector, which saw a robust growth last year has seen sales growth in several segments of the industry decline in the first quarter of the current year. Passenger car sales tapered off to 11 per cent in this quarter as against 38 per cent in the corresponding quarter of last year. Scooter sales have continued to slide with growth declining by 12 per cent in the first quarter.

The performance of commercial vehicle industry, which usually reflects the state of the economy through its role in the movement of agriculture and manufactured goods, has not been encouraging in the first quarter. Sales of medium and heavy commercial vehicles declined by 7 per cent in the quarter compared to the 44 per cent increase last year. However, this scenario may not affect the steel sector. Mr. F.A. Vandrewala, Executive Director (Marketing & Sales), Tata Steel recently stated that their exposure to automobile industry is less than 10 per cent. Sixty per cent products are sold to the construction sector. He said, ``In spite of monsoon we saw both volumes and prices of steel products going up in the construction sector.''

It will be interesting to watch the U.S. Fed's decision which may affect the sentiment of FIIs for the Asian markets. If it hikes the interest rates to cool the U.S. economy there will be further pressure on these equity markets. If the rates are not changed, which is likely, there would be upward swings in equity prices.

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