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Focus on the big picture

May 10, 2003

Markets witnessed volatility during the week finally settling marginally lower than last week. While the Sensex lost 0.6%, the Nifty closed flat. Though the markets began the week from where they left off last week i.e. on a positive note, pessimism took over halfway through the week. The fall in the indices is more a factor of sour sentiments due to the short-term concerns than any fundamental negative for the long-term. Moreover, the current week more or less mirrored the trend witnessed on the US bourses.

Top 5 gainers over the week
COMPANY Price on May 2 (Rs)Price on May 9 (Rs)%CHANGE52-WEEK H/L (Rs)
BSE-SENSEX 2,9672,950-0.6%3,478 / 2,828
S&P CNX NFTY 9389380.0%1,137 / 920
KOCHI REFINERIES576921.5%73 / 36
ORIENTAL BANK9110818.7%111 / 39
SESA GOA LTD.839514.3%124 / 56
CORPORATION BANK14516513.6%165 / 97
INDIA CEMENTS141512.1%35 / 13

Technology stocks remained volatile during the week. They too came under selling pressure, after starting the week on a strong footing. One reason for this could be the losses witnessed by the tech laden NASADAQ during midweek. Another reason could be the continuous strength of the Indian rupee against the US greenback. It must be noted that a huge chunk of revenues of Indian software companies comprises of dollar earnings due to software exports to the US. An appreciating rupee will thus have an adverse impact on the earnings of these companies. These factors are very short-term in nature. However, over a longer-term horizon also, billing pressures and competition from international companies setting up their outsourcing base in India, will continue to keep a check on the operating margins of software companies. Hence, sticking to quality tech stocks will pay in the long run.

Top 5 losers over the week
COMPANY Price on May 2 (Rs)Price on May 9 (Rs)%CHANGE52-WEEK H/L (Rs)
DSQ SOFTWARE98-8.9%43 / 7
HDFC359331-7.8%394 / 289
PENTAMEDIA88-6.8%39 / 7
INDO RAMA SYNTHETICS2826-6.4%36 / 18
TITAN INDUSTRIES5854-5.8%90 / 50

On the divestment front, the story continues to be marred by hiccups. Uncertainty over the divestment process continues unabated with the process being hauled again and again for some or the other reason. This time it is being felt that Parliamentary approval for the divestment of the oil refining majors, HPCL and BPCL, is a must. The argument put forward by them is that since these two oil companies were nationalized after an approval by the parliament, the divestment process must also move on similar lines. This came as a setback for the PSU stocks, which traded strong in the early part of the week when news regarding the date of their due diligence was announced. However, they managed to close the week in the positive on the back of significant gains on Monday and Tuesday. The last has however, not been said on this subject.

On the sectoral front too, various stories could be in the offing. It is quite likely that the guidance given by tech majors would have factored in the strengthening rupee. Moreover, Business Process Outsourcing (BPO) continues to be a key driver for the sector. Recovery in US markets and higher IT spending by US companies could charge up the sector. On the FMCG front, normal monsoons could really change the outlook towards the sector and bring the sector back onto the radar screens of investors. The banking story, though strong, is unlikely to see similar growth going forward, wherein treasury gains had a major role to play in their performance. However, continuance of the soft interest rate regime would see retail and corporate lending register healthy growth. But, since the sector has already had a handsome run, caution’s the buzzword.

Going forward, the stage is all set for the Indian bourses to build upon their gains. Historically low valuations (11x) coupled with strong exports (US$ 52 bn in FY03) and forex reserves (US$ 77 bn) will attract investors towards the Indian growth story. Hence, we continue to maintain our stand that Indian equities remain appealing for a long-term portfolio build-up. Though there could be short-term concerns, long-term investors should not be deterred by temporary blips and keep their eye on the big picture.

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