Short-term strength maintained

By Oommen A. Ninan

MUMBAI, NOV. 18. The rally witnessed in the last few days of last week has become widespread and it is likely to sustain in the short-term. Global markets are also showing this trend and expected to sustain the short-term rally after the capture of Kabul by the Northern Alliance forces. However, the rally in stock prices without any corresponding sustainable growth in the economy is likely to peter out in the medium term.

``Short-term strength in Sensex is unexpectedly good and it has crossed ``WTC-Gap'' at 3070 to 3140," said Mr. Jignesh Shah, strategist, ASK-Raymond James, a leading foreign institutional investor. According to him, the rally in the last few days has become widespread which ensures the sustainability of rally in the short-term. A number of factors have contributed to this rally, a few of them being automobile - two wheelers and four wheelers, pharmaceuticals (domestic and multinationals) and also the technology, media and telecom (TMT) stocks. ``The consolidation in Infosys Technologies for the last one month between Rs. 2800 and Rs. 3100 has been penetrated upwards with high volumes last Thursday. A number of TMT stocks closed in the upper circuit which once again suggests strength in these counters. Also a number of second and third tier TMT stocks have shown tremendously high volume, suggesting active interest by the market players," Mr. Shah added.

The news on Afghanistan war-front has also been encouraging for the global market. ``The Nasdaq, which was in the process of making double negative divergences has negated the same pattern on the announcement of capture of Kabul by Northern Alliance forces," Mr. Shah felt. So the short-term strength in most of the global markets has been maintained.

The benchmark Bombay Stock Exchange sensitive index (Sensex) moved up by a decisive 100.56 points to 3180.23 during the week ended November 15 from 3079.67 in the previous week. A month ago, on October 15, the Sensex stood at 2976.30 and a year ago, it was 3946.53 on November 15, 2000. On the National Stock Exchange (NSE), the S&P CNX nifty index was up 31.65 points at 1035.70 against 1004.05.

Though there are some signs of improvement in select sectors of the economy, all is not rosy on the economic front. Merchandise exports have come down by 1.95 per cent to $20.96 billion for the period April-September 2001 as compared to $21.38 billion in the same period last year. Apart from the global slowdown, the effect of September 11 attack on the World Trade Center in New York and Pentagon in Washington is likely to further affect India's exports. Meanwhile, China's exports to the U.S. have increased manifold in October as compared to the previous months.

``India can achieve speedy economic growth, with equity and justice, only by shifting its focus back to promoting agriculture," said Mr. Manvinder Singh Banga, Chairman, Hindustan Lever, recently. In the last 15 years, India had shifted its policy focus to other sectors such as industry and neglected agriculture, he added. According to Mr. Banga the fortunes of the industry and services sectors in India were largely dependent on the growth of agriculture.

The recession in demand for industrial goods and services being witnessed in the past four years was mainly because of low growth in the agriculture sector. ``Even a small increase in the growth rate of agriculture can make huge impact on the economy, through its unique multiplier effect. Because, while subscribing about 27 per cent of the gross domestic product (GDP), agriculture employed 67 per cent of India's total workforce," he said.

Emphasising that agriculture had a strong supply-demand linkage with industry, Mr. Banga pointed out that rural demand accounted for about 50 per cent of the country's production of fast moving consumer goods (FMCG), cement and consumer durables. ``To start with, if we achieve even a modest 3 per cent growth rate in agriculture, we will be able to make a remarkable impact on the industrial growth because of its multiplier effect," said Mr. Banga, adding, China, known for achieving a spectacular economic growth, had accorded top most priority to growth in the agriculture sector". A sound equity market would develop only with the growth of the economy.

The mutual fund industry is lacking investor confidence and this situation is likely to continue for some more time. The net resource mobilisation by all mutual funds registered a decline of 33.2 per cent to Rs. 13,339 crores from Rs. 19,953 crores in the previous year, stated the Report of Trend and Progress of Banking in India 2000-01, published by the Reserve Bank of India last Thursday.

During 2000-01, public sector mutual funds raised Rs. 1,623 crores which was more than three times the amount of Rs. 513 crores raised during the previous year. The resource mobilisation by these mutual funds at Rs. 9,717 crores though much higher than that by public sector mutual funds, was lower by 34.7 per cent compared with Rs. 14,892 crores mobilised during the previous year. Resource mobilisation by Unit Trust of India witnessed a sharp decline of 56 per cent to Rs. 1,999 crores during 2000-01.

In September this year, the RBI, on an experimental basis, on the recommendations of the RBI-SEBI standing technical committee and keeping in view circumstances in the equity market, permitted banks to extend finance to stock brokers for margin trading within the overall ceiling of 5 per cent prescribed for exposure of banks to capital markets. Banks could accordingly provide finance to brokers for margin trading in actively traded scrips forming part of the NSE nifty and BSE Sensex, subject to certain guidelines. These guidelines will be valid for 60 days and will be reviewed in the light of actual experience. The 60 days will come to an end on November 22, and it will be interesting to know the figures which will tell the real story, whether the issue is liquidity or the banking system's psychological reluctance to release funds.

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