Interest shifts to IT stocks again

By Oommen A. Ninan

MUMBAI, AUG. 26. The stock markets will turn cautious. Equities may weaken and decline further. However, these declines should be used to accumulate good quality scrips with a medium to long term perspective.

``We believe that the rally from the low of 3241 is only a corrective to the larger decline from 3513 to 3241,'' said Mr. Salim Dawoodani, technical analyst, Darashaw & Company, a leading broking firm. ``It is quite likely that the corrective rally ended at 3359 and that the decline is now likely to gather momentum.

A decisive break below the support between 3276 and 3283 would confirm that the decline has indeed begun. Therefore, the upside potential for the short term would then be limited to between 3315 and 3325.

However, if this resistance is overcome, then the next major resistance is between 3356 and 3360. The next decline would then go below 3241,'' Mr. Dawoodani said.

During any severe decline, major support is likely only near the 3200-price zone. A breach of the support at 3183 would then mean a retest of the April 2001 low of 3096. However, these declines are to be used by investors to accumulate quality scrips with a medium to long term perspective. Said Mr. Dawoodani, ``Investment is to be made only on a stock specific basis.

Choose quality stocks and invest in them closer to their strong support levels or nay panic declines in the market.''

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) ended flat for the week with a marginal increase of 8.80 points at 3305.51 compared to 3296.71 recorded in the previous week.

On the National Stock Exchange (NSE), the S&P CNX Nifty Index also remained flat with an increase of 1.25 points (1.35 points in the previous week) at 1070.10 compared to the previous Friday's close of 1068.85 points. Contrary to a loss of around 20 points in the previous week, Sensex gained nearly 10 points in last week.

On the last day of trading, investors booked profits in old economy stocks and shifted to technology stocks on stable business outlook from Cisco. Cisco's comment had boosted the U.S. stock Index futures and recorded firm openings on European markets. The rally in the technology sector seems to be widespread and percolated to second-tier companies. These companies were looking cheaper for a long time and some of the smaller and mid-cap companies have beaten-down valuations. However, investors have to keep in mind that except for the big players like Infosys Technologies and Wipro, which continued to show healthy growth, most of the other companies showed lower growth in the first quarter of the current financial year over the same period last year.

Pharmaceutical stocks remained firm and Ranbaxy and Dr. Reddy moved up sharply. Cement stocks came under pressure on reports of weak demand in the southern parts of the country leading to a fall in prices. In both retail and contract (builders and bulk users) segments, cement prices have weakened following discounts being offered by the leading cement companies. A weak demand during the monsoon months and increasing supply in the market is responsible for this trend, analysts pointed out. However, this trend is expected to be a temporary phenomenon and prices are likely to recover from October onwards.

The year 2001 is turning out to be one of the worst for the Indian economy other than good monsoons the country received. As a clear indication of the continuing slowdown in the industrial sector, the figures released by the Reserve Bank of India (RBI) revealed that the non-food credit offtake has become negative amounting to Rs. 3,126 crores by June 29. Although the next fortnight revealed a positive figure, the overall trend continues to be sluggish. ``Clearly, there is no demand for fresh credit as corporates are struggling to repay their earlier advances,'' stated a report of Fitch Ratings India.

Owing to the latest turmoil in the stock market, companies have stopped investing in both expansion projects as well as in new greenfield projects. If the industrial slowdown continues in the coming months, the credit offtake is expected to dip further. Fitch Ratings stated, ``It is also noteworthy that the interest rate cuts announced throughout the earlier part of the year could not increase the investment demand at all.''

The slack demand has adversely affected the growth of the corporate India. A survey conducted by the Centre for Monitoring Indian Economy (CMIE) reveals that overall sales by 1,961 companies taken as a sample by CMIE, have grown by only 5.92 per cent during the first quarter of the current fiscal.

Moreover, the growth in net profits of the CMIE sample is 9.39 per cent as compared to 20.30 per cent in the in the quarter ended June 2000.

The results show that the manufacturing sector has been hit the most as the sector recorded a meagre 3.93 per cent growth in sales as against 23.54 per cent rise for the corresponding period last year. the other sectors that have been hit by the recession are steel, chemicals and textiles.

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