• JANUARY 18, 2003

No clue...

Directionless! That's the word to sum up the market trend for the first half in January 2003. Barring some technology results, the third quarter numbers of India Inc, in general, offer a lot more to talk about. As far as the tech sector goes, expectations were so high that even a commendable performance from Infosys was not received positively. So was the case with Wipro.

Consider some key quarter results that were declared during the last week in brief. To start with, private sector banking majors like HDFC Bank, IDBI Bank and UTI Bank posted impressive growth in revenues and profitability in 3QFY03. As expected, growth was led by robustness in retail loan disbursements. With interest rate at historically low levels, private sector banks have been focusing on increasing housing loan portfolio where delinquencies are at the lower end. Though operating margins showed a decline for HDFC Bank and IDBI Bank, this was primarily on account of large-scale expansion in infrastructure (branches).

The week also saw stellar performance from Ranbaxy. Buoyed by increased contribution from exports, especially USA and Latin America, net profit more than doubled for the full year. During the year 2002, the company filed 23 ANDAs (surpassing its target of 15-20 ANDA filings annually) and received 11 approvals taking the cumulative number of approvals to 58 with 37 pending approvals. Given this background, one will not be surprised to see similar growth numbers in the future as well. Select old economy companies like Asian Paints, Bajaj Auto and ITC also declared 3QFY03 numbers. Despite a challenging macro-environment, all the aforesaid companies posted a improvement in operating margins and net profit during the quarter.

But Wipro's third quarter results had a big impact on market sentiment. The tech major posted just a 4% YoY growth in net profit even as revenues rose at a faster clip. As expected, markets reacted adversely to the results and the stock price fell by around 3%. With key players in tech sector giving a cautious outlook, tech stocks may continue to remain weak in the near-term. From a long-term perspective, the recent tech results have been a reality check for the stock markets. Hopefully, expectations will trickle down a bit!

Moving away from tech results, the week also saw a glut of money flow in the form of foreign institutional investments. As is evident from the graph above, FII activity seems to have gained momentum with net inflows totaling Rs 5.3 bn in the last week alone. Unlike January 2002 when FIIs pumped significant sums of money in the early part of month, this year has seen a steady rise in investment. Given the fact that India is one of the fastest growing countries among developing nations, one will not be surprised if portfolio inflows continue to remain strong. This argument could be sharpened by the fact that the three major economies where historical money flows have been higher viz. US, Japan and Europe have slowed down. From a long-term perspective, it does not matter whether money flow is in January or February of a particular year.

Backed by strong India Inc. performance and money inflow, Indian stock market have outperformed US bourses by quite a margin. While it is a status-quo kind of a situation if one considers the trend since the beginning of the year for BSE, in the last one week, BSE-Sensex has moved up by 1.3%. On the other hand, NASDAQ has declined by 5% on the back of earnings worries and tension in the Middle East.

As we have maintained till now, while it is difficult to predict the course of the market in the next one week, the near-term concerns that retail investors have to bear in mind are slowing economy, possibility of US-Iraq war and a significant rise in crude prices.

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