Economy related stocks may be fancied

By Oommen A Ninan

MUMBAI, AUG. 19. The stock markets are likely to witness lacklustre trading as volumes continue to dip with the approach of the festive season. Any movement will be stock and sector specific and event driven. However, one must start investing in equities with medium to long term perspective.

``Markets remain stuck in trading zone with profit bookings coming in at every ride,'' said Mr. Ashwini Agarwal, executive director, Kotak Securities. Global markets continue to be in turmoil which is preventing a large scale upward movement. According to him, the outlook for technology stocks continue to be uncertain with one section of the market believing that the September quarter results will also have some negative surprises. ``Focus on old economy stocks is increasing with the early encouraging reports on the monsoon,'' Mr. Agarwal added.

``The stock markets' moves are now well channelled between 3510 to 3525 on the higher side and 3275 to 3300 on the lower side of the Sensex. Any directional move will be determined once the market trades out of this range in either direction,'' said Mr. Girish Nadkarni, chief executive officer, TAIB Securities, a leading foreign institutional investor.

``The sensex will remain in the 3240-3440 range,'' said Mr. Jignesh Shah, strategist with ASK-Raymond James. According to him, the downward penetration out of this range can be worst. ``The movement remains stock specific,'' he added.

The benchmark Bombay Stock Exchange (BSE) 30-share Sensitive Index moved down by 19.50 points at 3296.71 compared to 3316.21 in the previous week. On the National Stock Exchange the S&P CNX Nifty Index was down by 1.35 points at 1068.85 compared to 1070.20 recorded on the previous Friday. Volumes also remained low during this period.

The fast moving consumer goods (FMCG) stocks were gradual gainers last week with media stocks such as Balaji Telefilm and Mukta Arts coming under selling pressure. Cement companies failed to hold on to the gains made in the initial part of the week after reports of increase in prices. FMCG stocks especially in personal hygiene, toiletries and home products have performed well with most of the stocks in the sector gaining ground.

A report of Milan Mahendra Securities stated that with the improving monsoon scenario selective stocks in agrochemical, tractors and related areas have been in demand in the last few days. It also stated that with the Government spending on infrastructure likely to increase, the economy related stocks have been steadily improving from the lower levels. Pharmaceutical stocks have shown a mixed trend last week.

Big technology companies gained with several funds buying aggressively. However there are doubts about the information technology companies performance in the second quarter of the current financial year. Billings are under pressure with competition heating up and fierce price undercutting. Further customer conversion cycles are increasing indicating that it is taking a long time to convert potential customers into billable clients and sales cycles are lengthening. Employee attrition rates started slowing down with employment opportunities in overseas markets dwindling.

The Securities and Exchange Board of India's (SEBI) advisory committee on derivatives made a slew of recommendations, ``which will inject much needed liquidity in the cash and derivatives market and provide greater depth for participants all round,'' said Mr. Nadkarni. Some of those worth mentioning are: Institutions may be allowed to short-sell up to their exposure in derivatives market; introduction of margin trading.

The suggestion that bank funds be channelised for this purpose through the stock exchange clearing house or corporations may be the single biggest injection of liquidity in to the markets. Further FIIs should be allowed to trade in all derivatives contracts.

So far they were allowed to trade only in index options and futures. It was also stated that physical settlement of stock option contracts may be introduced at an early date to provide inter-linkages in the prices of the cash and derivatives markets.

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