Cautious outlook for short-term

By Oommen A Ninan

MUMBAI, AUG. 5. Eventhough the sentiment is not very positive for the short term, current stock prices are attractive for the medium to long term. Foreign institutional investors (FIIs) are evincing interest in select counters. The negligible redemption of units of Unit Scheme - 64 (US-64) nevertheless improved conditions in the market.

``Sentiment is negative for short-term,'' said Mr. Nikhil Khattau, Chief Executive Officer of Sun F & C Asset Management Co, a leading FII. He said that if one looks at the underlying fundamentals of top rung companies, it is extremely positive. If one looks at rainfall numbers, the country received 5 per cent excess rainfall in the first half of the season as compared to normal and this should positively impact sentiment over the medium term. ``We continue to be cautiously bullish over the long term,'' Mr. Khattau added.

The benchmark Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) moved up by 73.85 points to 3325.38 from 3251.53 in the previous week. On the National Stock Exchange (NSE) the S&P CNX Nifty Index went up by 21.25 points at 1073.65 from 1052.40 recorded on the previous Friday. Stock prices after seesawing early in the week, improved towards the end, as FIIs remained buyers. The negligible redemption of US-64 units improved sentiment in the market.

Activity remained concentrated in technology, media and telecom (TMT) and select fast moving consumer goods (FMCG) stocks. Stock prices of large technology companies such as Infosys and Wipro remained firm throughout the week. Media companies like Zee and Balaji Telefilms bounced back sharply from the lower levels touched during the week. ``Eventhough discussion in Parliament remained focussed on the UTI mess, rumours of several large corporates coming under investigation continued to weigh negatively on the market in intermittent stages,'' said Mr. Parag Shah, Chief Executive Officer, Milan Mahendra Securities.

The first quarter corporate results have been mixed with some of the medium sized companies continuing to do well due largely to restructuring and corrective actions taken by them in the last few months. According to Mr. Shah, the performance of Aditya Birla group companies was good with the exception of Hindalco as indicated earlier by them.

For most of the companies, the results should be seen that in the current June quarter, dividend income on most of their investments would come only in the second quarter after the annual general meeting. Last year, because of the increase in dividend tax, most companies declared interim dividends to avoid paying higher taxes, leading to higher other income component in the first quarter.

The good dispersal of normal rainfall continues to have a positive impact on the sentiment and on the economy. Select domestic pharmaceutical companies continue to perform well with Dr. Reddy's Lab remaining in the news throughout the week with several announcements. The stock has performed exceedingly well in the last few weeks. Unichem Labs, Torrent Pharma, Wockhardt and Alembic too have shown better performance.

Among technology stocks, Satyam came under intense selling pressure due to disinvestment by a couple of FIIs. Rumours of one of the promoters selling his stake to fund its capital contribution in the insurance venture exerted pressure on the stock price.

Later during the week, aggressive buying by some of the institutions led to a sharp surge in its stock price. Zee came under heavy selling pressure with a large FII exiting from the counter in a hurry. The stock bounced back sharply on better than expected results coupled with aggressive buying by some of the institutions.

``Cement stocks may outperform the market by a wide margin with 18 per cent and 8 per cent volume growth in dispatches reported by Gujarat Ambuja Cement and ACC for July respectively. This smart growth during the monsoons is commendable,'' said Mr. Shah, adding, ``our enquiries indicate the sharp growth is due to the initiation of the re-building exercise in the earthquake affected areas in Gujarat and the increase in demand in northern markets.

With prices maintained at higher levels in the last few weeks, we expect an increase in demand in the slack season now, while demand for cement for the quadrilateral road network project is likely to keep prices buoyant and improve profitability.''

The initial two wheeler and cement consumption performance numbers announced by some of the companies for July is encouraging. The cumulative rainfall during June-July is excessive to normal in 26 out of 35 meteorological subdivisions covering 83 per cent of the country.

The Indian meteorological department feels the deficiency in rain for regions in peninsular India during June-July could be made up in the coming month. The rainfall was well distributed, particularly along the west coast, central parts of the country and the agriculturally crucial North India. With the regions that were drought affected during 1999 and 2000 receiving excess to normal rainfall, hopes of a revival in the economy have increased sharply.

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