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Bucking global trend...

Dec 28, 2002

The holiday season took a toll on volumes in the past week’s trading. While trading on the first day of the week was listless, the markets belied all expectations of a correction or of moving in a narrow range for remaining part of the week. Consequently, Indian bourses bucked the global trend and managed to close in the positive zone for the week (up 2%). You could say that Christmas brought cheer. An interesting aspect of the trading seen during the week was that buying was broad based. No sector in particular dominated the rally. Software, banking, cement, auto and PSUs dominated market interest on different days. The launch of Reliance Infocomm's services, divestment hopes on the back of a CCD meeting and US FDA approvals were the key drivers behind sentiment for the week.

The broad based buying that was seen seems to be inspired by an overall optimism on the economic prospects. The index of industrial production (IIP) for the period between April to October has shown strong growth (5.5%) as compared to 2.5% for the same period last year. The core sector growth for the period between April – Nov ’02 was 6.4% as compared 1.3% for April – Nov ‘01. It seems that strong growth in agricultural output is kicking in with a lag effect.

Top 5 gainers BSE-30
COMPANY Price on Dec
20, 2002 (Rs)
Price on Dec
27, 2002 (Rs)
% Change 52- Week H/L (Rs)
BSE-SENSEX 3,337.2 3,398.0 1.8% 3,758 / 2,828
S&P CNX NFTY 1,079.3 1,098.4 1.8% 1,206 / 920
HPCL 275.1 304.4 10.7% 339 / 132
GRASIM 284.3 310.2 9.1% 359 / 255
RANBAXY 566.5 599.7 5.9% 611 / 413
TATA STEEL 142.8 149.6 4.8% 151 / 80
L&T 199.1 207.0 4.0% 220 / 155

Going forward, a large number of factors acting in tandem could boost the recovery and consequently, the sentiment on the bourses. Firstly, the central bank has adopted a soft interest rate policy. This has theoretically made capital available at a much lower cost to the industry. Further, the government's focus on infrastructure spending is also a big positive. A recovery in the industry could bring in the accelerator affect. Therefore, investment in industry (lack of which has been a pressing concern) might also pick up.

Top 5 losers BSE-30
COMPANY Price on Dec
20, 2002 (Rs)
Price on Dec
27, 2002 (Rs)
% Change 52- Week H/L (Rs)
MTNL 106.1 99.2 -6.6% 177 / 89
GLAXO 323.2 304.9 -5.7% 445 / 285
HERO HONDA 280.0 269.9 -3.6% 402 / 230
HCL TECHNOLOGIES 192.4 187.3 -2.7% 329 / 154
CASTROL 212.1 208.0 -1.9% 238 / 177

However, there could be 2 dampeners. The drought like situation in 14 states, which will adversely impact the Kharif crop, could put a spanner in the industrial recovery hopes for the short term. According to a leading business daily, Hero Honda's sales for the month of December have been sluggish. This may be a sign that a decline in the Kharif output might have weakened consumption. With United States and Iraq on the brink of a war, the crude prices have soared. This situation has been aggravated by the political turmoil and the strike in Venezuela. The London Brent has touched US$ 30 per barrel, a 15-month high.

Also, with the CCD meeting coming a cropper, PSUs may again nose dive in the coming week. Thus, while the sentiment is very upbeat with all kinds of predictions of the Nifty and Sensex touching new highs, be careful while investing for the short term. There could be ugly events that could cause markets to lose their nerves, consequently your hard earned capital.

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