The Hindu : Business : FII comeback restores investor confidence

Online edition of India's National Newspaper
Monday, Jun 07, 2004

Business

Business

FII comeback restores investor confidence

THE PERCEIVED absence of any significant market friendly announcement by the Union Finance Minister, P. Chidambaram, during his visit to Mumbai last week after the new government was installed at the Centre, led to a loss of confidence among investors.

Though he had meetings with the representatives of financial institutions and foreign institutional investors to assure them that the Government was committed to continuing reforms, investors felt that he was non-committal about his steps towards reforms. This resulted in heavy selling across all sectors (an intra-day loss of around 223 points) around mid-afternoon on Thursday. While the Common Minimum Programme (CMP) continued to sway movements in the market indices, high international crude oil prices also weighed on sentiment.

However, the market cut short its three-week losing streak and closed the week ended June 4 with a modest recovery of 1.11 per cent amid high volatility caused by the Finance Minister's visit to the nation's financial capital and positive inflows through FIIs. The market, which had shed 834 points (14.71 per cent) in the three weeks up to May 29, got a respite last week that saw the FIIs making a comeback after their net outflows of Rs. 3,251 crores in May.

The BSE 30-share index fluctuated between 5012.52 and 4665.21 before ending the week at 4889 against the previous weekend close of 4835.39, a net rise of 53.61 points. The turnaround in sentiment was largely due to the positive inflows by FIIs, which have been making net purchases since May 28. They made net investments of Rs. 580 crores between May 28 and June 3, of which Rs. 391 crores was in the first four sessions of the week.

Domestic players, including public investors, remained cautious and preferred to wait for the Union Budget, to be presented in the first week of July. The week witnessed high volatility in intra-day trading with alternate bouts of buying and selling. Public sector enterprises and banking stocks, which had faced investors' wrath during the earlier three-week onslaught, attracted investor attention at the lower price levels and made partial recovery.

State-owned banks particularly staged a smart recovery. Over the few earlier sessions, these had faced selling pressure, as the Common Minimum Programme had stated that state-owned banks would not be privatised.

Apart from the rally in state-owned bank stocks, buying was seen in private sector banks as well.Automobile stocks were in the limelight. Maruti Udyog were in demand as the company reported 12.8 per cent growth in vehicle sales in May as compared to a year ago. Hero Honda were in demand as it recorded 30 per cent growth in bike sales in May at 2.12 lakh units. M&M stocks witnessed alternate bout of selling and buying.

Selective buying interest was seen in cement stocks such as Grasim, ACC and Gujarat Ambuja. The renewed interest could be on the reckoning that the Government's thrust on infrastructure would augur well for cement companies.

Power sector stocks displayed a mixed trend. While Reliance Energy gained, Tata Power faltered by over 5 per cent. The Maharashtra Electricity Regulatory Commission has directed Tata Power to pay Rs. 320 crores to Reliance Energy in a dispute over payment of standby charges. Analysts expect the Sensex to trade in the 4600-5100 range ahead of the budget. Any sharp correction can be used to enter stocks offering dividend yields of around 6 per cent. State-owned banks and oil stocks fall in this category.

Rupee strengthens

Buoyed by strong signals that the UPA Government was committed to the reforms process and receding global oil prices, the Indian currency surged to a 25-day peak against the U.S. currency, backed by robust trade and foreign fund inflows with sentiment upbeat for further gains.

In fairly active trading during the week, the rupee ended at 45.12/13 a dollar, a massive 35 paise rise from the previous weekend level of 45.47/49 after overcoming initial pressures. Consistent heavy portfolio investment inflows and export proceeds drove the rupee to a high of 45.10/11, before it settled at 45.12/12 at close on Friday, with the outlook distinctly positive for further advances.

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