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At the crossroads

Nov 2, 2002

The Indian bourses had an eventful week, where the BSE Sensex gained 2.6% and the Nifty gained 2%. The week largely marked the end of the result season and the announcement of the interim monetary policy. The results were followed keenly and a lot of investment decisions were taken based on them. Between the BSE Sensex and NSE Fifty, 19 stocks emerged as gainers this week. These included IPCL, Reliance, HPCL, MTNL, M&M, Telco, Tata Power, Bajaj Auto, Hindalco, Tisco, Infosys, Satyam, Zee, SBI, ICICI Bank, ACC, L&T, Cipla and Dr. Reddy’s. The gainers list indicates that buying interest was across the board and was largely led by the old economy counters.

Investors rewarded companies like IPCL, Reliance, HPCL, M&M, Telco, Bajaj Auto, Infosys and Tisco that performed well during the September quarter. But what is interesting is that apart from these, performance of the other 11 companies was either lackluster or rather poor.

Take for example, Dr. Reddy’s. The company reported nearly 15% dip in September quarter topline and finished with over 30% bottomline dip. Or look at the cement majors, ACC and L&T. Both companies reported weak quarterly results, still they managed to finish in the positive. Most of these counters have been beaten down quite a bit and valuations are attractive with a view on the future. Thus, investors are taking the opportunity to pick up blue chips in their bad days when they are available at historical lows, which is an encouraging sign.

Another interesting event was Reliance’s natural gas find coupled with its strong results. The event propelled the company as the key driver of Indian indices this week. The stock gained over 15% and was responsible for over 70% of the Sensex gains this week.

With the result season ending, the attention will be again focused on divestment issues and the global indices movements. With the Sensex still below 3,000 levels (at just around 12 P/E current earnings), the valuations are attractive over the long term. However, CMIE’s GDP forecast at 3.1% for FY03 will continue to cast a shadow in the short term.

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