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Slowdown or no, blue chips grow

Oct 20, 2001

Conventional warfare or bio-terrorism, it seems, whatever be the case, markets have made up their mind to climb higher. Though giving some credit where it is due the earning season, insofar, has unfolded pleasantly. A rising U.S market further supports the optimism. This is despite corporate America bleeding incessantly. Over the past month the markets washed away a large portion of the losses incurred post September 11. Currently, the BSE Sensex is only 4.2% below pre-WTC strike levels. For the record, this has been the fourth consecutive week the markets have moved higher registering an aggregate gain of 16%. Technically, markets are looking to test pre-strike resistance levels (3,150 levels).

As believed, over the past week, the market climb was gentler compared to the previous week, which registered a steep incline of more than 5% on the back of strong results from Infosys. This week too the results story had a happy ending. Investors had reason to cheer, practically everyday, with old economy blue chips bettering performance sizably as compared to past year's performance. And mind you, we are supposed to be in a slowdown. The list that dazzled includes Tata Power, HDFC, Hero Honda, ITC and HLL. Except for HLL, all others reported double-digit growth in top and bottomline. Not wanting to be left behind, new economy biggies displayed a similar performance with Wipro and Mphasis beating street estimates.

Nevertheless, technology growth rates have been sharply revised downwards in the current fiscal. Also, if at all, any impact of the September 11 incidents is likely to reflect in 3Q and 4Q of FY01. Infosys prudently has already declared that results for December quarter are likely to be flat. Consequently, one can expect a similar pattern for the industry.

Although agriculture growth has been revised downwards by CMIE to 6.5%. It is an upturn compared to the last two years of de-growth. Industry numbers continue to weaken as August IIP (Index of Industrial Production) numbers reported a growth of only 1.8%. Also, Government coffers are primarily dependent on industry as agriculture and allied activities are exempted from tax. This is likely to topple balance in the Government's books. Although privatisation has taken its first steps, big-ticket disinvestment is likely to attract strong opposition -- which does not need a valid cause -- considering the low prevailing asset prices.

That said, earning season will enter its peak period over the next two weeks. This is more likely to signal the economy's health. The diagnosis, based on daily reports, does not instill much confidence. Bourses are likely to remain listless unless we have few more pleasant surprises.

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