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Apr 19, 2003

There seem to be no respite in sight for investors at the current juncture. The search for the elusive trigger has only brought series of shocks in the recent past, consequently adding to the woes of investors. Though nervousness eased after US led coalitions’ so-called victory in Iraq, the tumbling of tech stocks over the last fortnight has had an adverse impact on sentiment. In what could be termed as a continuation of trend since Infosys’ guidance for FY04, bourses saw further selling pressure in key technology stocks in the last week as well. Both the Sensex and Nifty fell by 2% during the week mired largely by tech results. The prominent among them during the week was Wipro’s fourth quarter numbers. The company reported a 26% rise in revenues and a 4% decline in net profits for FY03. There was a noticeable decline in operating margins, mainly led by pressure on the company’s IT services division. For 4QFY03, operating margins declined to 25% from 29% in 3QFY03. A 2.3% sequential decline in billing rates seems to have impacted margins. Overall, results were not in line with market expectations and as a result, the stock fell sharply.

Another important result during the week was from Hindustan Lever. The FMCG major posted a 3% and a 7% rise in topline and net profits for 1QFY04 respectively, on a like-to-like basis. Like in 4QFY03, domestic health and personal care (HPC) segment recorded a 6% rise in sales, which reflects the underlying strength of the company’s brands and the focused approach. Exports also registered a 5% rise in turnover. With the company posting good numbers, there was spirited interest on the same day (the stock closed higher by 4%).

Till now, the Jan-Mar 2003 quarter has been a disappointing one, especially for the tech sector. There has been a significant correction in valuations post Infosys results, which we had cautioned our visitors in December 2002 itself. That said, we continue to remain positive on the long-term (2-3 years) prospects of top players, as outsourcing is still a reality.

Looking at the top losers over the last week, Silverline, Wipro, Polaris, DSQ Software and EIH ended in the red. Towards the end of the week, selling pressure intensified in hotel stocks. The reasons for the same are expected decline in tourist arrivals keeping in mind SARS effect. This is expected to add to the woes of the sector, which has been one of the worst hit since September 11 attacks. Bajaj Auto, Hero Honda and Telco also saw profit booking last week.

On the other hand, Nirma, MRF, P&G, Sonata, Moser-Baer, Bharat Electronics and Arvind Mills were in the reckoning. While P&G is expected to declare results in the coming week, buying interest in Arvind Mills could be led by the strengthening of denim prices in the international markets. With a large-scale capacity, Arvind Mills is likely to take advantage of further rise in demand.

Coming to expectations, though markets are at an attractive level for an investor to start building a long-term portfolio, the weakness in sentiment is likely to keep investors at bay. The near-term movement will be largely driven by quarterly performances as they unfold. Marico, BSES, Geometric, Satyam, ICICI Bank, HCL Info, Bharti Tele and Indal are slated to announce results in the week ahead.

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