FII buying keeps bourses steady

By Oommen A. Ninan

MUMBAI, JULY 15. The stock markets are likely to remain range- bound. Volatility will continue to be high with volume restricted to option scrips. Foreign institutional investors (FIIs) continue with their buying spree in selective counters.

``Sensex seems to be range bound between 3250 and 3525. Short term strength can take it up on penetration of the 3525 level. Maximum upper potential seems to be at 3760 to 3800 level. Medium term target still remains below 3000 level,'' said Mr. Jignesh Shah, Strategist, ASK-Raymond James. According to him, there is not enough breadth in the market. The advance-decline ratio on Friday was less than one.

The exchange rate of the Indian currency remained weak in the past week. Currencies of other emerging markets also look weak, showing the impact of U.S. slowdown on most of the emerging markets. ``Volatility will continue to be high and volume would be restricted to options scrips and non-rolling B Group scrips, said Mr. Shah, adding, ``for derivatives segment to pick up, the spread should become thin''.

In the short term the market depends on two factors: Nasdaq and how the Government resolves the issue of the Unit Scheme - 64. The Nasdaq was moving in the northward direction in the last few days. ``While we see a rally in information technology stocks, there will be a consolidation or fall in old economy stocks,'' said Mr. Pankaj Talwar, Head of Equities, BNP Paribas. He also said that foreign investors were continuing to invest in Indian equities.

The benchmark Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) moved up by 148.21 points to 3453.99 from 3305.78 in the previous week. On the National Stock Exchange (NSE), the S&P CNX Nifty Index went up by 40.55 points to 1106.35. After a long lull, stock prices started picking up with selective FII buying in heavy weighted stocks like Hindustan Lever, Infosys, Satyam and Digital. The first quarter results of IT companies brought these stocks to the limelight again.

Hindustan Lever has been an out-performer gaining more than 10 per cent last week with aggressive buying by FIIs. The wide dispersal of monsoons, especially in the areas where they have been playing truant for several years, has raised hopes of a revival in the agricultural sector and increased demand from the rural segment. Many are expecting the fast moving consumer goods (FMCG) sector to do well in such a scenario.

The volumes in stock options launched by BSE have been pathetic. However, NSE on the last two trading days recorded the highest turnover in the derivatives segment since inception. The total value of the contracts trade in the derivatives segment at NSE on Friday was Rs. 160.65 crores. The previous highest value of trades recorded in this segment was Rs. 128.15 crores on July 12. The sharp movement in the underlying stock prices gives an opportunity to buy or sell the appropriate instrument in the derivative segment. But absence of liquidity in that market may not facilitate reversal of the trade when required.

The Unit Trust of India (UTI) is finding it difficult to arrive at a solution to bail out investors of US-64, especially small investors. The UTI saw repurchases of Rs. 2,034 crores under its US-64 scheme in May and redemptions of Rs. 2,265 crores in June. On July 2, UTI decided to suspend sale and repurchase in the US- 64 scheme for six months. Though there was lot of criticism from several quarters on UTI's handling of the US-64 scheme, the UTI management and the Government are still grappling with ideas on how to bail out the flagship scheme of the Trust.

Apart from 70:30 split of US-64 into its constituent debt and equity funds, UTI is now even contemplating making the scheme based on Net Asset Value (NAV) with immediate effect. The last re-purchase price indicated by UTI was Rs. 14.25 in May. However, this was a wrong indication given by UTI considering the Net Asset Value of the declared portfolio of US-64 - which is only 75 per cent of the total portfolio - after a crash in stock indices. Around this period when UTI declared a repurchase price of Rs. 14.25, the NAV was around Rs. 9. While announcing a ``refined package'' for small investors of US-64, UTI will make this scheme NAV based and this would give more transparency to the Fund.

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