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Speculative interests boost market sentiment - Views on News from Equitymaster
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  • Sep 9, 2000

    Speculative interests boost market sentiment

    The stock markets have ended the week in good cheer inspite of reports of sales by foreign institutional investors (FIIs) and domestic mutual funds. However sizeable speculative purchases in select new economy stocks and increased participation by domestic funds (which recently raised money from the markets) towards the end of the week kept the sentiment of the markets buoyed.

    The combined volume on both the exchanges touched a record high. It stood at Rs 72 bn on BSE and Rs 86 bn on NSE. Nevertheless the FIIs have remained net sellers to the tune of Rs 2.5 bn in the month of September compared to positive inflow of Rs 12.2 bn in August. The same is true for domestic mutual funds as they have sold securities worth Rs 719 m in the first five days of September compared to an investment of Rs 199 m for the month of August. This indicates that the current rally in the market is mostly of a speculative nature (the possibility that retail investors sparked the rally is slim). Further rising net outstanding position on BSE to Rs 25.3 bn confirms that the rally in the market was not delivery based.

    It was software all the way during the last week. The visit of Prime Minister Atal Behari Vajpayee provided enough reasons for the market players to keep the undertone in the market bullish. More mega funds could come to Indian market as a result of the US trip. And where else the investment will be, but in the booming technology industry. Also depreciation of the rupee could boost the July-September quarter earnings of the software companies.

    But the focus right now is on the telecom sector where the opportunities are much wider and enormous. Telecom is becoming seamless between cables, telecom wires and wireless. Meanwhile the government has also decided to compensate VSNL to the extent of Rs 7 bn for the loss of revenue resulting from the dilution of its monopoly over international long distance telephony. The scope in the telecom sector therefore is immense which could continue to buoy the markets in the coming weeks.

    However the bullish undertone is largely restricted to the technology and telecom sector (excluding the public sector units though). On the other hand the rising oil prices could put a lot of strain on the manufacturing and commodity industry. The industries like automobile, cement, paper, food products, steel and paints among others would stand adversely affected. Thus the old economy stocks could continue their lacklustre movement in the coming weeks with selective buying in the fundamentally strong stocks.

    The message for the investor therefore is to stay away from any speculative interest and invest at lower levels in fundamentally strong stocks. The market seems to have completely ignored the FMCG and partially the pharmaceutical sectors, which could help the investors in minimizing the risk in the scenario of high volatility.



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