The Hindu : Shares end on weak note

Online edition of India's National Newspaper
Sunday, Jun 23, 2002

Business

Business

Shares end on weak note

By Oommen A. Ninan

MUMBAI, JUNE 22. Despite an apparent improvement in American economic prospects, equity markets the world over have been falling once again. The overall activity in the Indian market was also dull. However, the movements in equities are likely to be sector and stock specific. While prices are falling in the bond market, the rupee is becoming stronger against the dollar.

"Further selling is expected, especially in tech stocks, following sustained fall in the U.S. market. Thankfully, in India, monsoon clouds overshadowed war clouds but for which the Indian markets would have fallen more steeply than they actually, the fall has taken place despite optimistic forecast by American economists. It is as though investors have removed their rose-tinted spectacles. They are ignoring more optimistic forecasts of revival in U.S. economy which pulls the global economic train," said V. R. Srinivasan, financial analyst.

Stocks ended for the week on a weak note amid worries about sustained institutional selling pressure and the slide in the U.S. markets. The benchmark Bombay Stock Exchange 30-share sensitive index (Sensex) lost 69.32 points at 3242.75 during the week ended June 21 against 3312.07 in the earlier week. On the National Stock Exchange, the S&P CNX nifty index was down by 23.15 points at 1062.55 against 1085.70. While tech stocks remained subdued following weakness in the U.S. markets on Thursday, selling pressure continued in heavyweight stocks. However buying was seen in select banking sector stocks.

The main reason for the change in sentiment has been loss of trust in corporate America. One shudders to imagine what would happen to Indian corporates, if only the same level of transparency is demanded locally. For all we know, perhaps fingers in one hand may be more than adequate to count the number of companies that would pass the test, Mr. Srinivasan said.

Even though war clouds have receded, the Indian market has not changed its course. Corporate results are still encouraging, despite profit warnings from software majors, consequent to travel ban advise from the U.S. Government. The Union Government continues to go ahead with the disinvestment. "But Unit Trust of India is playing spoil sport. It is selling the crowns to meet the redemption obligations. If only UTI had handled the crisis properly investors would not have lost all the trust they had in the institution. Unfortunately, UTI in its anxiety to get government funding, to fill the hole, painted too bleak a picture which was self defeating," Mr. Srinivasan felt.

In the current month, domestic funds have pulled out a net Rs. 226.76 crores from equities till June 19. The FIIs have withdrawn a net Rs. 366.90 crores in five straight trading sessions, remaining net sellers to the extent of Rs. 468.30 crores in June.

However, UTI's Board of Trustees noted that its premier scheme outperformed the BSE Sensex since it went net asset value (NAV) based since January 1 this year. During this period to June 20, the NAV of the scheme increased by 8.88 per cent whereas the BSE Sensex moved up by 0.55 per cent. Further, the Trust decided not to declare a dividend for the scheme for 2001-02, since the Government is providing budgetary support to unitholders to the extent of the gap between the NAV and the repurchase price effective from August 1. In arriving at this decision the Board noted that if dividend was to be announced, it would increase the gap between the NAV and the repurchase price determined, which would further increase Government's budgetary commitment.

It is time to take stock of the performance and potential of major sectors, which constitute a big chunk of GDP and exports. The textile industry, which was once the backbone of the Indian economy, is showing signs of growth since the beginning of this year. The textile and clothing sector has the best potential in the short and medium term to generate employment at the grassroots level, add substantial purchasing power of rural India and earn billions of dollars in forex. Apparel prices at the consumer end have risen substantially ahead of inflation in the past five years even as many consumer product categories have shown a decline.

These days it has become customary to draw parallel with China. The main point is whether the military might or the economic muscle, which is important in improving the well being of the populace. China realised long ago that while military strength is useful, real power comes from economic muscle. They are excessively obsessed with economic growth and reforms. Hopefully, India will catch up with China soon. Going by the commitment with which divestment is being made it may not be long before the economy is back on the rails. However, the end-use of the money raised from disinvestment remains elusive.

In the bond market, participants are expecting a fall in government security prices as they believe that prices had gone up too high in the last few days. On the last day of trading, the benchmark ten-year government security was down by 10 to 15 paise due to profit booking. An easy liquidity condition in the market is expected to continue. In the inter-bank foreign exchange market, the rupee closed the week at 48.91/92 a dollar and is likely to remain in the range of 48.90-48.98.

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