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Pleasure sail after storm?

Jun 15, 2002

This was the second consecutive weekly gain on the bourses. Over the past two weeks, markets have risen by more than 5%, recovering much of their losses since hostilities between the two neighbours escalated. Consequently, investors' are likely to look for fresh triggers to build on recent gains. In early May '02, with escalation of border tensions the BSE Sensex dropped from 3,400 levels to 3,100 and currently trade at 3,300 levels. Geo-political risks in the region, which have decreased over the past fortnight, seem to have added back points to the Sensex. Political risks, post Gujarat imbroglio increased with doubts on ruling coalitions strength in parliament. These threats have receded and the Government looks stable. We have earlier indicated that all through the testing times, over the past two months, the impetus on disinvestments has not slackened.

The monsoon session is likely to witness a fresh round of policy ratification. Among the bills pending are the aviation policy, petroleum regulatory bill, fertilizer policy and fiscal responsibility bill. The fresh legislation is likely to offer further clarity on industry policy and remove existing inefficiencies. Consequently, investment climate, which has been sallow, could get a much-required booster. Post approval of new regulation, with greater clarity, PSU disinvestments are likely to accelerate. Market sentiment could be favourably impacted.

On the macro front, six core industries have registered improved growth in the first month of the new fiscal. This seems to suggest that slow growth has bottomed out. The RBI Governor is sticking to his guns of 6%-6.5% GDP growth. The reduction in C.R.R to 5%, which will ease liquidity, could also suggest bank credit picking up. The meteorological department has indicated that India is likely to have another normal monsoon. Early predictions suggest that agricultural output could exceed last year's record crop. Consequently, market sensors could shift towards economic news. The infrastructure programme of the Government has led to improved growth in few sectors, namely cement. The multiplier is also to take effect.

As mentioned earlier, it seems, any rally is unlikely to be supported by U.S bourses. We had mentioned that consumer spending could find it challenging to propel further economic growth. Industry continues to face over-capacity, which could limit investments. Technically, the Sensex is showing strength with resistance at 3,450 levels but strength seems to be undermined by selling at higher levels. Troubles at UTI could be leading to a supply overhang.

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