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Quality pays...

Mar 22, 2003

The bourses broke their losing trend and recorded gains of over 3.5% this week (Saturday included). The week saw the US begin its attack on Iraq to oust Sadaam Hussein. The benchmark BSE 30 index saw 21 stocks among the gainers this week, indicating an overall turnaround in sentiment. In a sense, the Indian investor sentiment was in line with the global investor outlook. Almost all global indices including Wall Street, Hang Seng and the German Dax too have gained. Out of the 21 gainers on the BSE 30, 3 were tech stocks, 2 auto, 4 pharma, 3 cement and 2 banks among others. This indicated the depth of the turnaround. Investors took to equities expecting an early resolution of the US-Iraq conflict and indulged in bargain hunting.

The big 3, i.e. Infosys, Reliance and Hindustan Lever, were at the forefront of recovery. Infosys gained over 9%, Reliance nearly 6% and HLL over 2%. Together, the big 3 contributed nearly 66 points to the Sensex gains, which is almost 60% of the Sensex's total gains this week.

The FIIs continued to be net investors in Indian equities pouring Rs 891 m during the week (till Friday). So far, the FIIs have invested over Rs 6.2 bn in Indian equities in March 2002. Last to last week, when the bourses fell over 3.5% over US-Iraq concerns, the FIIs invested Rs 4.6 bn. This indicates that investors believed that US-Iraq uncertainty could not last for long, and hence opted to hunt for bargains when the indices were trading below 12 P/E.

However, investors sentiment could change drastically in the short term, if the Iraq conflict does not end soon. The longer the conflict, the outlook for the global economy as a whole could deteriorate further, and consequently nip investor optimism in the bud. In our view, with the indices still a shade below 12 P/E, this is a good opportunity for long-term portfolio building. As always, pick and choose and stick with quality, for these are uncertain times and there is always a buyer for quality under any circumstance.

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