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Flat week...

Jan 11, 2003

It was an eventful week for the stock markets. After starting on a rather lacklustre note, the last two days of the week saw significant volatility in technology stocks. Judging by market reaction, Infosys results were a disappointment. This resulted in the Sensex closing at similar levels as last week. Before going any further, consider the key gainers and losers on the BSE 'A' group during the week. The top 5 gainers were Lupin, Moser-Baer, Crompton Greaves, Oriental Bank and Aurobindo Pharma. Moser Baer moved up significantly after the European Union relaxed the anti-dumping duty on the company's key growth driver, CD-R's. The stock has gained a stellar 21% during the course of the week. PSU banking majors were also in the limelight. Apart from Oriental Bank that moved up by 16%, BoB also saw its stock price rise by 12%. PSU banking scrips rallied on the back of stake dilution expectations. But one has to exercise caution over the same, keeping in mind the roadblocks that the divestment process seems to have hit over the last few months.

A snapshot...
Company Price as on
Jan 10, 2003
Price as on
Jan 03, 2003
Change
(%)
52 week
H/L (Rs)
Indices
Sensex 3,359 3,358 0.0% 3,758 / 2,828
Nifty 1,080 1,090 -0.9% 1,206 / 920
The bottom 5
Silverline 17 20 -15.3% 70 / 15
DSQ Software 16 18 -12.3% 57 / 10
Hughes Software 171 194 -12.0% 393 / 125
Pentamedia 22 24 -8.6% 73 / 15
Infosys 4,436 4,801 -7.6% 4,873 / 2,935
The top 5
Lupin 175 145 20.9% 178 / 90
Moser-Baer 183 152 20.7% 365 / 137
Crompton Greaves 54 46 16.6% 60 / 20
Oriental Bank 56 49 15.6% 60 / 33
Aurobindo Pharma 238 209 13.6% 281 / 191

Ashok Leyland was the only noticeable gainer in auto sector. The company posted a 70% rise in volumes sales for December 2002 on the back of a sharp spurt in bus sales (180%) in the same period. Increased demand for higher tonnage vehicles in the southern market combined with higher exports has led this volume growth. Gainers list also include select pharma companies like Dr. Reddy's and Aventis Pharma.

It was however, a dismal week for technology stocks. This is evident from the fact that of the top 10 losers amongst BSE 'A' scrips, 5 were software majors. Silverline, DSQ Software and Hughes Software led the pack. But one has to remember that markets had built-in significant expectations ahead of the quarterly results. The general view was that the management of Infosys would upgrade FY03 earnings upward and see higher client additions. But a 200 basis point decline in margins and a less than expected earnings growth was a big let down, from the stock market perspective. But a large part of the earnings disappointment was on account of spending on internal requirements. Never mind that fact that the company has increased its revenue guidance for FY03. Probably, it is the Wall Street effect that has caught on in the domestic markets. We remain optimistic of the company's long-term growth prospects, as it is well positioned to capitalize on the huge outsourcing opportunity. As far as retail investors are concerned, it is wise to stick to the best of the lot in uncertain times.

Our views on Infy's performance: Infosys: Keep faith!

So, how does the week ahead look like? While it is difficult to predict the course of action for the coming week, the key challenges that India Inc. is facing in the near-term (i.e. 1 year) are there for everyone to see. The possible lag effect of poor agricultural sector performance in 1HFY03 on demand in FY04 and uncertainty over the US-Iraq situation (and thus crude prices) may continue to temper sentiment. While the pre-budget rally could be a possibility, we expect the stock markets to remain range bound in the near-term.


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