TMT: Making a comeback? - Views on News from Equitymaster

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TMT: Making a comeback?

May 26, 2001

Lately, the Indian bourses have again started following the NASDAQ movements (as far as the TMT sector is concerned). However, a look at the latest US data does not inspire confidence. Both the NASDAQ and the Dow futures were down and the latest GDP growth figures for the quarter have been not too encouraging. The US GDP growth for the March quarter was pegged at 1.3%, much lower than the earlier reported figure of 2%. Even the Fed chairman, Alan Greenspan, has warned that the US economic downturn could be worse than anticipated. But thatís the current situation. The aggressive rate cuts by the Fed are likely to start taking effect over the next six months to a year. If this is true then the technology companies, which have been hit a slowdown may see a revival in fortunes. This should have a direct bearing on the Indian tech scene.

MSCI Sector weightages
Sector Provisional
weightage (%)
Existing
weightage (%)
IT & Telecom 28.4 21.4
Energy 8.7 5.1
Financial 10.2 9.8
Health Care 7.8 7.5
Utilities 1.6 1.7
Consumer Products 23.6 29.3
Industrials 4.6 5.9
Materials 15.1 19.5

Though the MSCIís recast this week lowered Indiaís weightage based on a new method of free float stock, the Indian tech sectorís weightage increased by a huge 700 basis points. This fact too underlines the optimistic view on the future of this sector. It was no surprise then that the tech counters held on strong this week.

However, the rate of FII buying has slowed down. The FIIs have bought Rs 10 bn worth of equity in the month of May (till date), which is lower than their average monthly buying in the previous four months of 2001.

Despite this there are number of positives that could spur market sentiment. This includes the encouraging news in the form of the meteorological department forecast of a normal monsoon. The drought hit areas of Gujarat and Rajasthan are also expected to receive normal rainfalls, which should revive the overall economy in the longer term.

Another positive is the news on the disinvestment front. The government has plans to complete VSNLís strategic disinvestment (25%) by August 2001. All the six interest parties have been asked to submit their bids latest by August 6. This will go a long way in restoring confidence in the markets apart from improving the fiscal state of the government.

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