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Waiting for the winds

Feb 2, 2002

It was another dull week on the street with the BSE Sensex and NSE Nifty remaining flat. The earning season, which was anticipated to give direction to the market, passed by without stirring much sentiment. Investor indecisiveness was palpable across the globe with markets remaining unenthused.Central banks, globally, have dramatically cut interest rates, pumping liquidity into the system to revive their respective moribund economies. Initial sputter of life, in the U.S economy, seems to be emerging, which, as many believe, is likely to lead the global economy out of the slump. Through the downturn consumer spending remained resilient, which was seen in the home mortgages market growing impressively. Consumers seem to be taking advantage of lower interest rates. Confidence was further reinforced with the U.S economy expanding, though marginally by 0.2% YoY, in the fourth quarter. Also, by leaving short-term interest rates unchanged, the Fed chairman seems to be indicating that the probability of further economic contraction is less compared to that of expansion.

The Indian economy also seems to be making its way out of the trough. The most comprehensive indicator of economic development, GDP growth, although down on YoY basis has seen an uptick in the second quarter to 5.3% as compared to 4.4% in the first quarter of the fiscal. The higher growth is largely led by the agriculture sector, which grew by 3.4% in the concerned quarter compared to a flat growth in the previous year. Much of the slowdown is attributed to the downturn in the industrial sector, which pulled back GDP growth by a percentage point in 2QFY02, YoY. Expectations are that growth in the agriculture sector will help pull up GDP growth rates for the fiscal. And eventually, higher farm incomes will result in greater demand for industrial products.

Having said that, the markets, running up from the lows in October '01, seem to have factored in a turnaround. Investors are on the lookout for fresh economic data before deciding on their next move, which could be leading to the dullness in the bourses. Triggers ahead seem to be roll out of new industry policy, disinvestments and the budget. A glance at some diversified equity growth funds seem to suggest that fund managers have increased their exposure to the oil & gas sector and PSUs, which supports the above-mentioned assertion. In the coming week, the Government is likely to announce the successful bidder for IBP and VSNL. This is likely to cause some excitement. The coming week could get interesting.

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