Markets may remain range bound

By Oommen A Ninan

MUMBAI, JUNE 3. Stocks markets may remain range bound in the coming days as foreign institutional investors (FIIs) are also becoming sellers. While old economy stocks continue to be stable with good performance by companies, new economy stocks are showing weakness.

``The markets are likely to remain range bound over the next few weeks. However, the rising outstanding positions are a matter of concern given that the deadline of July 2 for squaring up of the positions is fast approaching. The direction of and mutual fund flows is likely to determine the market movement in June,'' said Mr. Sunil Shah, a leading broker on the Bombay Stock Exchange.

``The positive report on the monsoon is expected to boost sentiment. However, markets are likely to await the actual progress of the monsoon for another upward movement. The correction, which was overdue, seems to have set in and would probably lead to a bottoming out of the markets. The liquidation of the outstanding positions in the last few days may also lead to pressure on stock prices,'' said Mr. Parag Shah, CEO, Milan Mahendra Securities.

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) fell by 102.17 points or 2.8 per cent at 3557.64 from 3659.81 in the previous week.

On the National Stock Exchange (NSE), the S&P CNX Nifty Index was down by 28 points at 1148.90 from 1176.90 recorded on the previous Friday. All the four weeks of May the indices were gaining as FIIs were net buyers.

However, in the last week - all the five days - FIIs were net sellers to the tune of Rs. 33 crores. Domestic mutual funds also sold stocks worth Rs. 253 crores last week.

The outstanding positions in the market have increased to Rs. 826 crores from Rs. 658 crores in the previous week. It is surprising that increase in outstanding positions has happened in a falling market.

The outstanding positions, which have been taken after May 14, have to be squared up by July 2. This can put pressure on the market especially if the mutual funds and FIIs continue to be net sellers in the next few days.

Foreign investors sold technology and media stocks at higher levels. Infosys, Wipro, Satyam, HCL Technologies and Zee Telefilm fell sharply from the highs touched in the first two days of the week.

The two wheelers industry has weathered the storm with reports of increase in sales by Hero Honda and Bajaj Auto. Bajaj Auto has been plagued by falling scooter and three wheeler sales, which had been the mainstay of its business for so long. However, its motorcycle sales have grown by 42.1 per cent in May and it has been able to arrest the slide in scooter sales. Overall, Bajaj's two wheeler sales have risen by 7 per cent in May.

As far as financial results are concerned, old economy companies have done well. Except for Mahindra & Mahindra, which saw a fall in profits on account of reducing multi-utility vehicles (MUV) sales and decreasing margins on Euro conversion costs, other companies have reported excellent results.

L&T emulated the other cement companies with improved performance in both the cement and engineering businesses. ``ITC surprised the analysts by joining the Rs. 1,000 crore club in profits despite falling volumes,'' said Mr. Sunil Shah. Tisco continued on its improvement in performance on high value items sales and cost reduction and restructuring programmes. Dr. Reddy's Lab also put up a good performance with the company announcing nine molecules in its research pipeline at various stages of development, focus on export markets and high growth therapeutic segments.

The public sector units (PSUs) like BHEL, VSNL, IBP and SCI continued to display strength in an otherwise nervous market as disinvestment gathers momentum.

The FIIs have been aggressive buyers for most part of 2001 buying over Rs. 10,000 crores worth of equity during the past five months. The buying is on account of a slowdown in the U.S., which has led many fund managers to look for opportunities elsewhere.

Countries like India, China, Mexico and Brazil became especially attractive destinations given their large domestic economies, which are not largely dependent on the U.S. market. FII flows now form almost 20 to 25 per cent of the daily volumes. However, FIIs buying so far has not led to any improvement in the markets given the selling pressure from the domestic institutions and retail investors.

Any selling pressure from FIIs can easily lead to panic in the markets as seen in the last three trading sessions. Said Mr. Sunil Shah, ``the FII flows are likely to be the major swing factor, which decides the fate of Indian stock markets during the year.''

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