The Hindu : Business : Stocks hesitant at higher levels

Online edition of India's National Newspaper
Monday, Oct 18, 2004

Business

Business

Stocks hesitant at higher levels

DESPITE BETTER-THAN expected quarterly performance by IT companies, especially Infosys Technologies, continuous inflows from foreign institutional investors and the successive falls in the inflation rate, the Bombay Stock Exchange sensitive index failed to maintain its higher levels last week. Though the undertone of the market is still positive, surging crude oil prices and falling metal prices have dampened sentiment.

Investors remained extremely cautious amidst worries over soaring international oil prices. While the FIIs made fairly heavy net investments of Rs. 406.80 crores in the first three sessions last week, domestic mutual funds and market players adopted a cautious approach. Only the oil and gas sector stocks were firm. Other sectors witnessed selling.

The BSE benchmark 30-share index moved erratically between 5792.08 and 5645.66 before ending the week at 5686.73 against the previous weekend (Saturday) close of 5757.93, a net loss of 71.20 points. The broadbased BSE-100 index dropped by 50.63 points to 3040.39. On the National Stock Exchange (NSE), the S&P CNX Nifty and the S&P CNX Defty moved down by 22.80 points and 17.80 points to finish the week at 1795.00 and 1356.55 respectively.

The week witnessed international crude prices touching $45 a barrel (for Indian mix) and petrol and diesel prices touched $54 and $53 a barrel respectively. Terrorist attacks in Iraq had raised concerns over the continued availability of oil and this had led to a meteoric rise in prices over the last few months. Stocks of Indian marketing companies such as IOC, BPCL and HPCL ended with gains on reports that fuel prices were likely to be raised. But the Government's decision on Friday not to increase prices for now came as a dampener for these counters.

Announcements of better-than-expected second quarter results by some IT majors, however, helped induce some interest in the software sector. As a result, the BSE IT Index firmed up by 67.86 points to 2324.99. After a rally on Thursday, the IT sector witnessed selling on Friday which erased part of the early gains. Infosys, Wipro, TCS and a few other IT majors beat market expectations and came out with excellent results and a positive guidance. Patni Computer Systems was in the limelight after it announced that it had entered into an agreement to acquire Cymbal Corporation of the U.S. which has domain expertise in the telecommunications service provider (TSP) market.

Auto stocks witnessed selective buying. The movement of stocks in this sector is likely to remain side-ways for some time because of uncertainty over fuel prices.

In stock specific activity, M&M weakened on reports that the workers of its Igatpuri unit had gone on a flash strike to press for their demands. The management however does not expect the strike to affect its production schedule.

Sharp fall in metal prices on the London Metals Exchange (8.8 per cent in copper and 7.6 per cent in aluminium) as a consequence of a fall in demand from China resulted in heavy losses in metal stocks such as National Aluminium, Hindalco, Jindal Iron and Jindal Steel and Power. Indian metal companies however expect global demand for base metals to remain strong. There are no plans to lower domestic prices despite sharp fall in global prices. For Nalco, the much delayed spread plan of Rs. 4,000 crores has got the green signal. The losses in metal shares can be gauged from the fall of 352 points in the BSE Metal Index.

Cement stocks also displayed a weak trend. According to reports, cement prices have come down due to sluggish demand in Gujarat. Gujarat Ambuja, Ultratech Cemco, ACC and Grasim closed with losses.

Shipping stocks such as Shipping Corporation and GE Shipping maintained their good run given the continued surge in freight rates, particularly in the wet bulk (tankers) sector. Mercator Lines was in the limelight.

Bank stocks witnessed smart gains on the back of the slowdown in inflation from 7.38 per cent to 7.2 per cent for the week ended October 2.

Pharma stocks showed a mixed trend. Sales of a key drug of Ranbaxy have come under pressure due to increased competition and its price also has fallen.

In stock specific activity, Amara Raja was a star performer on reports that the company had signed an agreement with Maruti Udyog to supply 100,000 batteries in the next 12 months.

NOCIL witnessed some buying interest on reports that Reliance, which had taken over its petrochemicals and plastics division, would settle a major part of its debt, estimated at Rs. 300 crores.

Sona Koyo Steering Systems, an auto component manufacturer, moved up after the company said it was acquiring a 21 per cent stake in Fuji Autotech France SAS for 5 million euro.

As tech companies have declared better-than-expected numbers, one could look ahead to the sector outperforming the market. Overall, though, analysts expect the markets to consolidate around current levels and a stock specific approach is recommended.

For this week, technology shares seem a safer bet. Some selective mid cap stocks such as NDTV, Strides Arcolab and GIPCL may remain in the limelight. As some more major companies will announce their quarterly results, investors are advised to adopt a wait and watch attitude.

Rupee loses ground

The Indian currency lost heavy ground against the U.S. dollar on persistent dollar demand from oil corporates and importers following a sustained surge in global oil prices even as steady trade and foreign portfolio investment inflows partly contained the losses.

In moderately active but slightly nervous trade, the rupee ended at 45.8550/8650 a dollar, sharply lower from the previous weekend finish of 45.8050/8150, but above the lows of 45.87/88 struck in intra-day deals on Friday.

Interest rates higher

Interest rates ended higher as compared to the previous week. The ten-year government security was traded at 6.75 per cent and the five year security at 6.35 per cent. The year-on-year inflation was 7.20 per cent for the week ended October 2.

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