FIIs entry may boost sentiment

By Oommen A Ninan

MUMBAI, JAN. 21. The stock markets are looking bullish in the short term. However, the long term trend depends on the forthcoming union budget. The entry of foreign institutional investors (FIIs) in the last three weeks, after a spell of dullness, also boosted the sentiments on Indian bourses.

``The market is bullish in the short term while the long term trend depends upon what the budget can deliver. We typically have this kind of rally in January-February, firstly because of FII buying on account of fresh allocations and because of expectations of a good budget,'' said Mr. Shyam Bhat, Fund Manager, Tata Mutual Fund. ``We could see the Sensex rallying to 4400 to 4500 level and while the Nasdaq too could attempt to reach the 3000 level from the present 2750 to 2800 level,'' said Mr. Bhat, adding, ``one could see profit booking coming in technology stocks after the Sensex crosses 4400 level.''

The benchmark Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) gained 157.88 points at 4194.46 compared to 4036.58 in the previous week. In the previous week, the market fell by 147.15 points compared to the close of 4183.73 recorded on January 5. On the National Stock Exchange (NSE), the S&P CNX Nifty Index moved up by 44.40 points at 1331.45 on last Friday compared to the close of 1287.05 on the previous Friday.

The foreign institutional investors (FIIs) were net buyers in equities at Rs. 1,055.5 crores ($225.7 million) for the week ended January 19. They were, however, net sellers in debt at Rs. 36.8 crores ($7.8 million) during the week ended January 19, according to data available with Securities and Exchange Board of India.

FIIs were net buyers in equities on all the trading days in the week, the highest being on January 19 at Rs. 385.9 crores ($82.5 million) followed by Rs. 225.2 crores ($48.2 million) and Rs. 211.3 crores ($45.2 million) on January 16 and 15 respectively.

On the debt front, FIIs were net sellers on January 16, 17 and 19 at Rs. 10.8 crores ($2.3 million), Rs. 14.8 crores ($3.2 million) and Rs. 62.3 crores ($13.3 million) respectively. They were net buyers on the remaining two trading days of the reporting week.

In the last three weeks more than Rs. 2,500 crores has been pumped in by FIIs as net purchases. According to Mr. Bhat, the effect of these buying has actually just started showing, because in the initial couple of weeks there was widespread selling by domestic funds especially Unit Trust of India (UTI). This selling seems to have abated and the market has started showing signs of strength. At the same time the Nasdaq has been gradually rallying over the past few days with some of the results of information technology (IT) companies meeting analysts expectations.

Back home companies such as Wipro, HCL Technologies and Digital Equipment have recently announced the results which were above expectations. A substantial amount of FII buying over the past one week has been in technology and media stock as they appeared to offer value after the hammering in the past few months.

Stocks in the pharmaceuticals and banking sectors also could continue to see renewed buying on the back of strong results. In the banking sector, HDFC Bank has already declared excellent results and other private sector banks such as ICICI Bank and UTI Bank are also expected to declare encouraging results over the next few days. In the pharmaceutical sector, Sun Pharma has just declared results above expectations along with a significantly higher investment in Research & Development (R&D). Cipla too could be declaring good results shortly and the recent development in the U. S. could enable it to export ``omeprazole'', after the expiry of the patent some time this year. In other sectors like Fast Moving Consumer Goods (FMCG) results could be moderate and may already got reflected in the current prices.

In the steel sector, Tisco has reported better results last week with sharp jump in operating profits. When one considers the difficult scenario in the steel industry in terms of demand and prices this performance clearly stands out. Tisco has been able to deliver this performance mainly on account of moving towards more value added products and cutting cost by modernisation and reduction in labour strength over the past two years. The employee strength rationalisation is an ongoing process in Tisco and would continue over the next few years as well. By the end of this calendar year Tisco would emerge as the lowest cost steel producer in the world.

Among the old economy stocks cement companies could show very good results but these would be primarily because of poor results in the corresponding quarter last year. ACC is expected to show a growth of 12 per cent in sales at Rs. 743.47 crores and a net profit of Rs. 9.04 crores against a loss of Rs. 15.53 crores in the corresponding quarter of previous year. The share price of this scrip has almost doubled from Rs. 88 level in October 2000 to current levels of Rs. 162 levels in anticipation of its improved performance and a bid on the company. ``For the next quarter the prospects for the cement sector are highly uncertain, with parts of Gujarat, Maharashtra and Madhya Pradesh facing severe drought conditions. Under these circumstances the price rise has been very sharp and it remains to be seen whether measures such as price cartelisation, reduced dispatches and plant shutdowns will support the price hikes,'' said Mr. Imran Contractor, Research Head of Milan Mahendra Securities.

Traditionally the cement cartels have not supported price hikes for long. Further the Builder Association of India has repelled against the frequent price hike and are also demanding reduction in import duties on cement from neighbouring countries.

``We expect Grasim to show good figures for the third quarter. The three core sectors of cement, VSF and sponge iron are expected to show improved performance,'' said Mr. Contractor.

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