The Hindu : Undertone remains weak

Online edition of India's National Newspaper
Sunday, Sep 29, 2002

Business

Business

Undertone remains weak

By Oommen A. Ninan

MUMBAI SEPT. 28. The stock market continued to be in the grip of a bearish mood in the absence of an optimistic trigger. Last week's lacklustre trading was characterised by see-saw movement in the indices. However, while the equity market continued to languish without any clear direction, the bond and the foreign exchange markets are showing a comfortable trend.

The benchmark Bombay Stock Exchange 30-share sensitive index moved up marginally by 12.91 points to 3037.26 during the week ended September 27 from 3024.35 in the previous week. On the National Stock Exchange, the S&P CNX nifty index was up by 6.85 points at 976.45 against 969.60. The market ended the week higher on the last trading day, after moving in a narrow range earlier in the week. Technology and automobile scrips overwhelmed the weakness witnessed in select pharmaceuticals and cement scrips. Concerns in the market about the selling pressure by foreign institutional investors eased as ICICI Bank placed 10.1 crore shares with them last Thursday. The share of ICICI Bank recovered on hopes that the placement of shares with FIIs would help the Bank to clean up its balance sheet.

"Although the Sensex closed 12.91 points higher, the undertone remains slightly weak," said Salim Dawoodani, a technical analyst. In fact, in the first four days the Sensex oscillated around 3020 and showed slight bullishness only on the last trading day. One can attribute the expiration of the derivatives as one of the reasons for some volatility and flurry on Friday. However, Mr. Dawoodani said, "We continue to remain bearish on the Sensex with a medium term perspective". Although the rally that began on Friday may apparently seem to be strong, it is likely to fizzle out early next week. On the downside, "We reiterate our view that a re-test on 2930 is likely. We also do not rule out a breach of that level and a fall to around 2800," he said.

On the monthly charts, the Sensex has not registered a close below 2810 since November 1993. Even in September last year, when the Sensex plummeted to a low of 2594, it recoiled sharply to eventually close for that month at 2811. Thus it could be concluded that 2800 is an innocuous level for bargain hunters with a longer-term perspective.

At present, pivotals such as Infosys, Reliance and Satyam are precariously poised. If they fail to sustain at these levels, then a sharp drop can be expected. "We therefore have a cautious outlook for these scrips," said Mr. Dawoodani. Among the sectors, cement is entering a low risk zone. Therefore on the next panic decline one should look forward to taking up some exposure in this sector with a longer-term timeframe. According to analysts, there is some significant downside left in the leading scrips in the technology sector. Therefore aggressive buying even on small tips is not advisable.

Hindustan Lever, after registering a healthy rally in the past couple of months from its low of Rs. 167, once again is poised down. One should look forward to buy this scrip at around Rs. 165 with a long-term perspective.

Although major public sector oil companies such as Bharat Petroleum and Hindustan Petroelum have been badly hammered, there are still no signs of significant buying support emerging. "We would, however, not advise retail investors to panic and exit at the current level. In case of a re-bound one can look forward to an appreciation of around 20 per cent in these scrips," Mr. Dawoodani felt.

The major European and American indices are in a severe bear grip. In fact many of these have gone on to register their respective multi year losses. All the rallies that have been witnessed lately in these markets have been short-lived.

This suggests that there is selling pressure and the confidence level of the investors is pretty low. Said Mr. Dawoodani, "Our outlook for Dow and Nasdaq remains bearish. Nevertheless, we expect the Nasdaq bottoming out prior to the Dow".

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