The Hindu : Business : Negative signals drag down Sensex

Online edition of India's National Newspaper
Monday, Nov 22, 2004

Business

Business

Negative signals drag down Sensex

HEAVY PROFIT-BOOKING by small investors and traders in the Reliance counter following the reported admission of the company's Chairman and Managing Director, Mukesh Ambani, to having differences with his brother, Anil Ambani, over ownership issues, and a rise in the weekly inflation rate spoiled the bullish sentiment that prevailed on the bourses over the past three weeks. The developments on Friday pushed down the Sensex, snapping the three-week gaining trend. The last trading session of the week witnessed a sharp correction led by Reliance Industries and selling pressure was seen across sectors. Selling was seen in oil and gas marketing companies such as BPCL and HPCL.

The BSE benchmark 30-share index fell back below the 6000-mark after remaining above this level for two consecutive sessions, and ended the week at 5961.71 against the previous weekend close of 5964.01, a net fall of 2.30 points. The BSE-100 index, however, improved by 16.43 points to end the week at 3196.94.

On the National Stock Exchange, the S&P CNX Nifty closed steady at 1872.35.

During the week, the volume of business on the BSE was relatively low at Rs. 6,426 crores against the previous week's turnover of Rs. 7,106 crores while the NSE recorded a moderately higher turnover of Rs. 16,657 crores from Rs. 16,215 crores.

Early in the week, blue chip stocks continued their rally thanks to sustained inflows from foreign institutional investors. Small and mid cap stocks had a good run. Across the board buying was witnessed both in public and private sector banking stocks. Steel stocks joined the bandwagon. While technology stocks too contributed to the gains of the market, domestic pharma companies displayed weakness.

Meanwhile, the economic fundamentals have remained strong with projections of a robust 6-6.5 per cent GDP growth this fiscal. Global crude oil futures looked up on Friday but are still around $47 a barrel.

The banking sector was in the limelight in the first four trading sessions and led the market through the 6000-mark for the second time in the year following the Government's determination to pursue banking reforms. In the preceding week, it had announced plans to introduce a slew of legislations to strengthen the sector. The changes in the New Securitisation Bill are positive for state-owned banks and any improvement in recoveries would lead to an upside in their earnings. On Friday select banking stocks such as Dena Bank, PNB and BOI had a good run. The rally in banking stocks lifted the Bankex by 160.91 points to end the week at 3107.66 from 2946.75 earlier.

Steel stocks such as Tisco, SAIL, Essar Steel, Ispat Industries and Jindal Vijaynagar Steel witnessed renewed buying. The interest in steel stocks could be attributed to the recent price hike. The price increase comes in the wake of strong demand and tight supply of such products.

Led by Satyam tech stocks were in the limelight. The company is considering an issue of sponsored ADRs to increase its overseas float and help investors cash in on the attractive arbitrage opportunity. TCS went up on being included in the Morgan Stanley Capital International Standard Index Series (MSCI) and a $3m contract by the Philippine Dealing Systems Holding Corp. Aftek Infosys was in the limelight after the company's management said it would recommend a dividend and obtain shareholder approval for issue of bonus shares.

Domestic pharma companies displayed weakness on newspaper reports that the Government has decided to set a margin of 50 per cent (35 per cent for retailers and 15 per cent for wholesalers) on generic drugs and 30 per cent (10 per cent and 20 per cent) on branded drugs in the non-scheduled category.

As the November 2004 Future and Options contract expires on November 25, the coming week may witness some volatility. While the undertone of the market remains bullish, analysts continue to insist that investors should adopt a selective approach, considering that most of the positives are factored in at current levels.

Rupee strengthens

Despite determined central bank intervention and late importer dollar demand containing gains, the Indian currency strengthened against the U.S. currency on the back of robust trade and foreign portfolio investment inflows amidst a tumbling dollar against major global rivals.

In volatile trade in the foreign exchange market during the week, the rupee ended at 45.0950/1050 a dollar, sharply higher from the last week's close of 45.15/16, but lower from the 5-1/4-month high of 44.96/98 struck in intra-day deals on Thursday.

There were only four trading sessions, as the forex market was closed on Monday, November 15 for Id-Ul-Fitr.

The Reserve Bank of India's dollar buying intervention through state-run banks, particularly on Wednesday and Thursday, arrested the rupee's steep climb, fuelling fresh dollar demand from corporates and importers.

Interest rates lower

Interest rates ended lower as compared to the previous week. The ten-year government security was traded at 7.10 per cent and five year security at 6.77 per cent.

Meanwhile, the year-on-year inflation moved up to 7.76 per cent for the week ended November 6.

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