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Positives outweigh negatives

May 7, 2003

It has been two days of consecutive strength on the Indian indices. The sentiment has been led by a host of sectors alternatively. The FII investment trend too has been enthusing. On the international front, even the Wall Street has shown signs of buoyancy despite the US Fed expressing worries over economic recovery. In a significant move, US Fed chairman, Alan Greenspan let status quo prevail on the interest rates. However, the Fed did express concerns on the economic weakness. Job losses continue unabated in the US, despite improvement in consumer sentiment. The Fed did not rule out a rate cut later, if needed. These are signs that the world's largest economy is likely to be sluggish in the foreseeable future.

This is not good news for domestic sectors like software, which is largely dependent on the US for growth. So the best investment strategy for the sector is to stick with quality companies, who have the ability to consistently scale up the value chain.

On the other hand, continued sluggishness in the western economies is likely to force global investors to look for growth elsewhere. Consequently, Asia could see some strength in foreign money flow. India being one of the better growth economies in this continent is likely to be keenly watched by the global investors. This is an encouraging thought. Going forward, the government's infrastructure moves, the Maruti IPO, BPCL and HPCL divestment is likely to give a fillip to investor sentiment.

The signs of progress on Indo-Pak dialogue may also assure global investors. However, not even a die-hard optimist will hope too much on this front in the foreseeable future. But the current status is a small step forward. In the short term, notice to directors of Reliance to appear before the court in connection with the violation of the Official Secrets Act may temper investor sentiment today, But is unlikely to really be the cause of a big sell off. Overall, positives outweigh negatives.

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