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Tech momentum: Will it last?

Apr 21, 2001

It was one of the most profitable weeks for the bourses in recent times. The benchmark BSE Sensex gained 12.5% that saw some brokerage houses being banned, some corporates were blacklisted and some software stalwarts disappointed. It was also a week, which saw the release of RBIís monetary policy. On the whole it was quite an eventful week.As RBI warned of more co-operative banks in the share scam rut and allegations flew against Reliance Petroleum of misusing its IPO proceeds many were expecting another weak start. But that was not to be. Market movers it seemed had pre-decided that the bourses had been oversold and it was time to go in for bargain hunting.

The software counters saw a resurgence of sorts. Infosys, Satyam and Wipro led from the front, notwithstanding earnings warnings and future slowdown in growth. Though there were some losers too, like NIIT, which lost ground due to slowing growth prospects in both its learning business as well as its software business. Wipro and HCL Technologies results were better than expectations. More importantly, both these companies maintained that they are going to beat industry growth in future too. The software sector got another indirect push when the US Federal Reserve cut interest rates by 50 basis points, which saw the NASDAQ zoom.

Closer at home, the RBI released its monetary policy which indicated softer interest regime in future. Although the apex bank has acknowledged a slow down in the Indian economy it continues to be optimistic about the rest of the fiscal year. The policy states that non-food credit growth in the current fiscal is expected to pick up to 17% from 14.3% in the previous fiscal. Last fiscal non-food credit growth decelerated by 220 basis points. The RBI indicated that India could meet a GDP growth rate of 6% - 6.5%. These positive signals too helped sustain sentiment towards the weekend.

Another important development in the monetary policy is the gradual phasing out of non-banking finance companies (NBFCs) from lending in the call money market. Currently, there are several mutual funds mostly money market mutual funds that are heavily invested in the call money market. Closing the doors to the mutual funds will deny them access to a low risk liquid market.

Sebi flexed its muscles and debarred three corporates namely BPL, Sterlite Industries and Videocon from raising money in the capital markets. The original big bull Harshad Mehta got banned from trading in the stock markets for life.

The markets movers continued to roll on despite this. In FY01 (till date) the FII net investments stand at a huge Rs 95 bn. The week finally saw bourses taking some sort of direction and call on Indiaís future software story.

However, this is only a small start. Whether the momentum carries on or not is yet to be seen. More heads may roll in the stock market scam. The FMCG sector is still reeling under a slowdown in turnover and the bourses are keenly looking at the MET department for the expected monsoon report. Too much could go wrong, but a lot of it is already factored in.

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