Golden time for value hunters

In these testing times, the spate of quarterly results was expected to trigger a positive sentiment. That did not happen. Though both Infosys and Satyam quarterly results exceeded market expectations, the markets fell regardless. Taking a clue from the NASDAQ, the BSE Sensex hit a new 52-week low of 3,714 on Friday, a loss of more than 8% compared to previous week. Compared to its high of 6,151 in February this year, the Sensex has lost around 40% in the past eight months. Several factors have affected the sentiment of markets adversely. The fresh spurt in the international crude oil prices in view of renewed tensions in the Middle East, the slowdown of Index of Industrial Production (IIP) from a high of 11.8% in February to 4.8% in August 2000 and lower GDP growth rate of 5.8%. These factors are bound to have a negative impact on the topline growth of corporates. The latest example is HLL whose topline growth reported a mere 0.4% increase in the third quarter of FY01. Further, lower agriculture growth will hit FMCG companies targeting the rural markets. Two wheelers, textiles and cement manufacturers will also be affected. The impact of slow down will crystallise into the bottomline growth of these companies. Already, Gujarat Ambuja, India’s most efficient cement company has reported a whopping 50% decline in its quarterly profits.

Keeping this scenario in mind, FIIs and mutual funds do not seem to be in a hurry to buy stocks at lower levels. Infact FIIs have sold securities to the tune of Rs 1.5 bn in the previous week (Rs 3.2 bn upto October 14). Mutual funds were net sellers of Rs 1.7 bn (Rs 2 bn till date in October). The volumes in the markets also declined substantially. Global meltdown in new economy stocks and its impact on the domestic industry, drop in production of key industries like cement, steel and automobiles continue to worry the investors.

The slow down in the Indian industry and outflow of FIIs and mutual funds investment from the markets clearly indicates a weak undertone for the markets, at least for the time being. Even excellent results by software majors in the coming week could fail to spur the markets. In such a situation, investors would do well to adopt a wait and watch policy and accumulate blue chips at every decline.