Sector specific movements likely on bourses

By Oommen A. Ninan

MUMBAI, AUG. 12. Stock markets are likely to be range-bound and movements will be stock and sector specific. Despite the downgrading of India's outlook by international rating agencies, foreign institutional investors are net buyers on bourses. Further assets are shifting to companies that are expected to benefit from good monsoons.

``Markets are at the crossroads with volumes continuing to dwindle,'' said Mr. Parag Shah, chief executive officer, Milan Mahendra Securities. He said with the festivals round the corner, markets are likely to remain lacklustre with movements in stocks being event driven. According to him, one must start investing in the market from a medium to long term perspective. Mr. Shah added, ``the feeling that there would be hardly any further fall in stock prices is gaining allround acceptance. However, most people are wary about any pick up in activity in the immediate future. With some improvements noticed in select sectors there is a feeling that the economy is bottoming out and there is very little room for further deterioration.''

``In terms of portfolio strategy, most of the equity funds continue to maintain reasonable levels of cash in view of the prevailing market conditions. However, panic situations in the market are fully capitalised upon,'' stated a recent report of Birla Sun Life Mutual Fund.

The benchmark Bombay Stock Exchange (BSE) 30-share sensitive index (Sensex) was marginally down by 9.17 points at 3316.21 compared to 3325.38 in the previous week. On the National Stock Exchange (NSE) the S&P CNX Nifty Index also moved down by 3.45 points at 1070.20 compared to previous Friday's close of 1073.65.

Technology stocks remained under pressure with a continuous fall international markets and profit warning from many technology companies. In addition, the over exposure of the sector in portfolios of many of the funds and the reduction in the equity allocation by the largest mutual fund scheme is likely to increase the selling pressure in these stocks. A recent report of HDFC Mutual Fund stated, ``as the markets absorbed the impact of the new system, it entered the first quarter's result season, which was once gain focused on the technology sector. Investors were looking for some indication of an improvement in the industry outlook. The results announced by the majors were satisfactory with the exception of software education companies, which shocked the market with precipitous drop in earnings. Leading information technology companies reported strong earnings and the market breathed a sigh of relief even though there was no clear guidance from these companies.''

According to Birla Sun Life Mutual Fund, ``it is quite heartening to mention that most results in the technology sector were better than expectations. However, none of the results, yet indicate a reversal of fortunes for the sector. While visibility continues to be hazy, probability of leading companies in the sector bagging large single client orders is increasing.''

The cement sector recorded a five per cent negative growth for July. However the approval of the rural road programme costing Rs. 35,000 crores enthused the market with most cement companies remaining firm during the week. Many investors shifted assets to shares of companies that are expected to benefit from good monsoon.

Fast moving consumer goods (FMCG) attracted attention last week as change in the economy and the progress in monsoon are likely to help in improving their off-take in the medium to long-term.

``We expect the markets to continue moving sideways in the coming period,'' said Mr. Prateek Agrawal of SBI Capital Markets. He added, ``Markets are however, attractively valued and we expect continued FII buying. In the technology, media and telecom (TMT) sector we expect a sharper polarisation of values. Companies which are able to register growth during these difficult times would be rewarded with higher valuations. Companies with few or concentrated client base would command a lower valuation unless the client base is seen as stable. Valuation of companies in the telecom domain would be under pressure given the industry scenario.''

Pharmaceutical shares would continue to be in the limelight on account of research and development (R&D) successes and on account of their being defensive holdings, Mr. Agrawal argued.

Birla Sun Life stated that Indian pharmaceutical companies are fast exploiting opportunities in the global generic markets. These companies identify molecules which are about to lose patent protection and register them exclusively. It added, ``success here promises both monetary rewards and recognition.''

The markets are at a crucial stage. ``Given the fact that volumes are low and there is uncertainty an account of the UTI problems, we do not expect the markets to go up from present levels eventhough we believe that valuations are at attractive levels,'' Mr. Agrawal concluded, ``we believe that interest in equities would come back only when yields in the debt markets bottom out and this should happen over the next one or two months.

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Section  : Business
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