Bourses may remain range bound

By Oommen A. Ninan

MUMBAI, OCT. 14. Stock markets may remain range bound and movement is likely to be sector and stock specific as the half yearly results start trickling in. While there is much worry on the economic front as also tensions of a prolonged war-like situation in the region, market sentiment is likely to be affected more by the performance of individual blue-chips as also the larger sectors.

``The market moved up substantially last week on announcement of financial results by Infosys and the proposal of bonus debentures by Hindustan Lever without giving any reaction,'' said Mr. Jignesh Shah, Strategist, ASK-Raymond James. Infosys moved up to overbought zone and correction can be expected, he added. ``Major resistance for Infosys is at Rs. 3,250-3,330 and the movement in the scrip will be determined by residual course of the market. All the global markets recovered last week to fill up the gap made on World Trade Center event. But during the rally the volume has not picked up much. It is expected that Sensex may face resistance at 3070-3140,'' said Mr. Shah.

The benchmark 30-Share Bombay Stock Exchange sensitive index (Sensex) surged by 146.49 points at 2959.39 compared to 2812.90 recorded in the previous week. On the National Stock Exchange, the S&P CNX Nifty Index also swelled by 44.65 points at 959.25 compared to previous Friday's close of 914.60. The sentiment on the bourses improved significantly following positive announcements by Sensex heavyweights Hindustan Lever and Infosys Technologies. While Hindustan Lever announced the issue of 9 per cent bonus debentures, Infosys lifted the spirit of sagging information technology sector by announcing excellent results.

Hindustan Lever's announcement that its board to meet on October 16 to consider issuing bonus debentures to shareholders - which will carry a coupon rate of 9 per cent and the investors would get a cash of Rs 6 per debenture on redemption - and raising foreign fund ownership limit to 49 per cent from 24 per cent helped sentiment. Further, Infosys' better than expected second quarter (July-September) financial results and a positive earning guidance for the third quarter and the rest of the year gave investors confidence to renew their bets on the information technology sector.

``The second quarter results of corporates expected in the coming days will determine the direction of stock prices. Any fall in the market should be taken as an opportunity to buy fundamentally good stocks from a medium term perspective as economy seems to be improving,'' said Mr. Imran Contractor, Research Head, Milan Mahendra Securities. He, however, said that the Sensex is still lower than 3150 as on September 11. According to him the sharp recovery in the international market coupled with FII buying also boosted the sentiment. Stock prices of companies belonging to the old economy also improved as better September sales are announced by Telco, cement and two wheeler manufacturers.

``Infosys clearly led the market and the technology stocks from a bearish to bullish mood with the company bettering its forecasts for the year and continuing to win clients even after the crisis,'' Mr. Contractor felt. The stock has gained more than 18 per cent last week. Wipro gained 12 per cent during the week with its results scheduled for October 18 and Satyam gained 13 per cent with its results scheduled in the following week. Results announced by Hughes Software and Mastek have been disappointing. Said Mr. Contractor, ``it seems that the larger companies have been declaring better results as compared to others''.

Pharmaceutical companies have taken a back seat with technology stocks coming to the fore. Results announced by Ranbaxy evoked mixed reactions. The stock which had appreciated sharply in the last several weeks, corrected due to profit booking.

The recent announcement of index of industrial production (IIP) for August - which showed a dismal growth in the manufacturing sector to 2.2 per cent compared to 5 per cent a year ago - has been mainly due to negative growth of more than 12 per cent in the capital goods sector. With surplus capacity in most sectors of industry and lack of demand, ``it is quite natural for the capital industry growth to remain in the negative.''

``Stable fundamentals, compelling valuations and one-sided technicals all combined to deliver one of the broadest upmoves in recent memory. The markets climbed a wall of worry and proved the bear consensus of September 2001 miserably wrong. The markets once again demonstrated that they are the lead indicators of the economy and bottomed out in October 2001, while the economic recovery will be visible only by March 2002'' according to a recent report of Enam - India Strategy.

Indian equities still remain vulnerable to structural problems that have not entirely vanished. The fiscal deficit, stickiness in product market access, coupled with sickness in parts of the financial system continue to hold back India's growth potential. The privatisation programme is also not yet as far reaching and all encompassing as one would have desired. Therefore, the Indian equity markets are likely to remain range bound until broader structural reforms lay the platform for a truly sustainable bull phase. ``However,'' the report concluded the four sectors of last year continue to benefit from structural changes to their sphere of operations.

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