Walking its talk or what? - Views on News from Equitymaster

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Walking its talk or what?

Feb 10, 2001

The markets have delivered on their yearly promise of the January effect rising 372 points or 9.4% during the month. However, the rise may not be entirely due to technicals or trends. There were no macro drivers encompassing the markets as a whole but sector specific news has helped buoy the sentiments. A surprise was in store at the start of the year with the Fed announcing a 50 basis points rate cut on January 3, 2001, which sent adrenalin pumping into global stock prices. This was especially true for the TMT sector and the Sensex responded with a gain of 229 points (5.8%) by the end of that week.

While succour was provided to the TMT sector the turmoil in these stocks continued. Meanwhile, the old economy was making steady strides as markets rebalanced portfolios in favour of brick and mortar and conventional concepts like profits.

The renewed interest in the oldies gained momentum as sectoral events further boosted sentiments. It was a good start to the year for the oil & gas sector with oil prices plummeting by 20% from $30/ barrel to $24/ barrel resulting in better margins for refiners. This was followed by announcements by the finance minister regarding sops to the energy sector, dismantling of the administered pricing mechanism, industry restructuring and the impending disinvestments of oil PSUs, which kept the interest alive in the sector.

The cement sector has risen consistently since October 2000. The rally was mainly driven on the back of the cement lobby announcing production cuts to shore up realizations. Despite an investigation launched by MRTPC the interest in the sector has not been quelled. This could be due to the higher expected demand for cement in the Western region with the occurrence of the Gujarat quake.

The previous two weeks have seen banking come into the market's cynosure. The merger of UTI Bank and Global Trust led this attraction. Consequently, a rally in second rung private sector banking stocks ensued on the expectation of the merger fever catching on. Sentiments were further propelled with the Fed announcing a second rate cut putting the aggregate cut to 1% point by the first month of the current year. This has led to expectations a CRR rate cut in the country.

In all these happenings the PSU stocks were not far behind. Oil and telecom has been very much in the news as these are big-ticket disinvestments resulting in these stock prices taking off. However, the positive sentiment has flowed to other companies under Government control. The Government is talking of divesting 25% from VSNL in favour of a strategic investor. The last two weeks have also seen the requests for submission of expression of interest (EoI) for a number of companies including, Indian Tourism Development Corporation, Indo-Burmah Petroleum, CMC and Hind Chemicals Ltd. This does show the resolve of the company this time around. Finally it's walking its talk or at least we hope.

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