Global events crucial to market rebound

By Oommen A Ninan

MUMBAI, OCT. 15. Analysts are hopeful that stock markets would bounce back on Monday, after the Sensex hit a 16-month low last Friday. Much of the extent and degree of the rebound, however, is likely to be dictated by international developments and the unfolding domestic political situation. Though many stocks are at attractive levels, the slowdown in the economy may affect the sentiments in the medium term.

One source of optimism over a rebound in the Indian markets is on account of last week's Nasdaq's closing. ``A sharp rise on the Nasdaq on Friday is likely to change the sentiment and stock prices on Monday are likely to open on a very firm note. With operators holding the major position, we expect the prices to be pushed up higher, if there are no negative international and political developments,'' said Mr. Imran Contractor, Research Head of Milan Mahendra Securities.

However, a deterioration in economic fundamentals is clearly evident with sales not picking up even during the festival season. The south-west monsoon distribution has been awry with several pockets in Gujarat, Rajasthan and Madhya Pradesh facing drought. ``Pharmaceutical stocks are clearly likely to be an outperformer with volatile technology stocks providing good trading opportunities, if you are on the right side,'' Mr. Imran added.

The mayhem caused by the West Asia crisis and the firming of the crude prices had cast its long shadow on Wall Street and Nasdaq and had rattled the Indian markets as well.

Even the encouraging results from Infosys could not arrest the free-fall and operators literally ran for cover and lightened their positions wherever they could. Mercifully, the Securities and Exchange Board of India (SEBI) did not add fuel to the fire and deferred the decision on extending the rolling settlement to the A Group. With transfer of 10 most liquid counters to rolling settlement deferred for the time being, fears of fall in liquidity in these stocks has been laid to rest.

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) hit a new 16-month low on last Friday at 3738.93 points, losing 353.49 points, compared to the previous week's close of 4092.42 points. On the National Stock Exchange (NSE), the S&P Nifty Index closed for Friday at 1178.05, compared to the previous Friday's close of 1285, down by 106.95. The net long position still continues at almost the same levels of the previous week at Rs. 2,840 crores compared to Rs. 2,829 crores.

While Wall Street meltdown on selling spree, Nasdaq had fallen to its lowest close this year last Thursday. Asian markets including Hong Kong, Singapore and Japan also plunged along with the American markets.

In retrospect, it is clear that the American markets have over- reacted to the crisis. Luckily they realised this too soon which enabled the markets to bounce back last Friday. It appears as though the worst is over and both Wall Street as well as Nasdaq are expected to firm up in the coming days. ``This will be mirrored in the Indian market and Sensex is expected to recover partially in the coming week,'' said Mr. V.R. Srinivasan Managing Director, R.K. Chari Stock Broking.

If the results of Infosys are any indication, equally good results, if not better, are expected from other companies in the new economy. However the old economy stocks will continue to flounder. An indication to this effect has come from Hindustan Lever.

In the light of the hardening of the crude prices, it is not clear whether the Government is going to succumb to the pressure of Ms. Mamta Banerjee and any decision in this regard to placate her will have a disastrous effect on the market.

``In these circumstances there is unlikely to have a pre- Deepavali rally as most of the investors would prefer to play safe eventhough certain valuations of stocks like Infosys looks pretty attractive at current levels,'' Mr. Srinivasan opined. The pressure on the rupee is unlikely to ease although the response to the Millennium Deposit is very encouraging. It remains to be seen how Mr. Yashwant Sinha is going to tackle the fiscal imbalance as he is unlikely to meet his disinvestment target. The Government has no other option than to tighten its belt even further and focus on expenditure control as any measure to improve the income side is unlikely to be materialised.

The stake of Bombay Dyeing accumulated by jute baron, Mr. Arun Bajoria, ostensibly as a value investment, could be considered welcome to the limited extent of shaking up managements of companies that have taken the shareholders granted for a long time.

It is time that managements are made to realise their responsibility towards the shareholders and SEBI should encourage any move to change managements that are not performing. ``Eventhough Mr. Bajoria may not be the right candidate, we should not miss the point,'' said Mr. Srinivasan.

It is not the percentage of shareholding that matters but the wealth creation and no one would dare to disturb any management whatever may be their stake so long they add wealth to the shareholders. Infosys is a case in point.

The remedy lies not in increasing the shareholding but in improving the performance and those who could not, should withdraw gracefully as they themselves will be the beneficiary.

Wipro suffered from a sense of timing and has been a victim of the crisis in the market. They have been constrained to reduce the American Depository Share (ADS) price by $ 11.

According to Mr. Srinivasan with no immediate plan to use the fund, they could seriously consider deferring the issue as any offering at the current levels will only show the desperateness of the company to go ahead with the issue regardless of the negative impact on the shareholders.

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