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Markets: Slow but steady

Dec 9, 2000

The markets continued to consolidate their position during the week. The benchmark, BSE and NSE, indices rose for the second week running. The BSE was up 128 points (3.1%) and the NSE rose by 38 points (2.9%) following the previous week gains of 4.2% and 4.1% respectively. The markets returned to some calm waters, registering marginal but steady gains through out the week. The hospitality sector was once again in the limelight with news of high occupancy levels for the month of November. This follows the rise in room rates that were incorporated in the month of October. Further, the state controlled, Indian Tourism Development Corporation (ITDC) is to be put on the disinvestment block. This has spurred a rally in private sector hospitality counters who are expected to be leading the fray for acquiring the properties of ITDC.

The aluminium and copper counters are also showing buoyancy. This is largely due to the respective commodities gaining ground on the London Metal Exchange (LME). Aluminium and copper prices have increased by $137 / MT and $115 / MT respectively over the past three weeks.

Towards the end of the week the Telecom and oil sector government companies also rose sharply on the news of probable disinvestments. VSNL was up sharply on the announcement that the Government will divest 15% stake in favour of a strategic investor. It will also hand over the management control, which boosted the sentiment with respect to the disinvestment programme. Consequently, the feel good factor overflowed to other sectors, primarily the energy sector.

The old economy stocks continued to be the flavour of the week. However, activity was constrained to select stocks, which were largely driven by stock specific news. New economy is still in the doldrums with markets apprehensive of the current valuations. However, these companies earnings are for real and the sector offers value-buying opportunities.

Markets, during the latter half of December, witness an outflow of funds by the FIIs. Such trends may raise doubts on the genuineness of the current rally. A cautious approach by retail investors may be a more prudent strategy, as the rally could be to create an exit route for the institutional investors.

The badla and ALBM rates have stabilized over the past two weeks after rising persistently for a month. This indicates that the growth in outstanding positions has slowed down. There is a shift towards delivery-based trades. Opinion of the traders indicates that the deliveries are mainly in the old economy counters. This augurs well for the market as it exhibits a longish term positive sentiment on equities. Traders are also of the opinion that the build up in deliveries could be to take advantage of the customary January bull run.

In either case the retail investor could do well by keeping a watchful eye. However, positive news seems to be entering the market with the ongoing restructuring of industries and Government taking initiatives on disinvestments. Therefore, is the rally for real?

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