The Hindu : Tech stocks weak on growth uncertainties

Online edition of India's National Newspaper
Monday, May 26, 2003

Business

Business

Tech stocks weak on growth uncertainties

THE PAST week has witnessed negative reports on the information technology sector. Technology stocks have dived on intensified selling triggered by continuing concerns over their earnings outlook. Pricing pressures and the rising rupee have affected sentiment in this sector.

Reports that UBS Warburg has downgraded three major IT companies — Infosys Technologies, Satyam Computer and Wipro — added fuel to the already weakened sentiment with regard to technology stocks. There was persistent selling pressure in these three counters. Infosys had clarified (with regard to rumours of a delay in the proposed sponsored ADR issue) that it has filed the registration statement in Form F3 with the Securities Exchange Commission of the U.S.

Technology stocks opened weak on concerns about the introduction of legislation in the U.S. restricting software professionals travelling on L-1visa. If the U.S. Senate passes such a bill, it would be considered a big blow by the Indian IT sector.

The beginning of the week witnessed the Sensex snapping a four-session winning streak ad moving into negative territory. There was a sharp setback in select blue-chip counters. There was heavy selling pressure from foreign institutional investors. Old economy stocks managed to attract buying interest but any gains there were neutralised by a sustained weakness in technology counters. The Sensex closed at 3049.84 during the week ended May 23 against 3056.58 during the earlier week-end.

Stocks of public sector enterprises again cornered sustained attention. These stocks, especially oil and gas companies, were in demand with most of them clocking good gains. Several others, especially the fertiliser PSEs, moved up on disinvestment hopes.

It is expected that the privatisation programme is likely to get a boost as there were reports in select newspapers that the Government was likely to appoint advisors on May 30 for privatising Bharat Petroleum Corporation. Earlier in the week, these counters lost ground as there were reports that a clutch of lawsuits are to be heard later this year which will make the privatisation of HPCL and BPCL practically impossible in 2003.

Among other PSE stocks, Chennai Petro surged on expectations of good results. The company has made a net profit of Rs. 302.89 crores (Rs. 63.71 crores) on a turnover of Rs. 8,630 crores (Rs. 6,273 crores) in the year ended March 31, 2003. SAIL, NLC, BEML, Dredging Corporation, Bharat Electronics, GAIL, IBP, Indian Oil and ITI recorded impressive gains.

Once again there was hectic activity in the banking sector. State Bank of India continued its recent ascent on firm buying from institutions and retail investors. On Friday, the stock touched a new 52-week high of Rs. 343.70. Bank of Baroda, Bank of India and Andhra Bank elicited attention. Pharma stock Novartis gained after the company announced its plans to buyback shares from investors.

Telco gained ahead of announcement of its results. The company has announced its plan to reduce costs by swapping its costlier loans. Tisco witnessed fresh buying on news that the European Union may step up import of steel from India. It closed higher after the news of firmness in HR coil prices ahead of China opening up its import quota. The company is scheduled to declare its fourth quarter results next week. ACC were up on reports that the French cement major Lafarge is willing to buy the company's refractory unit at around Rs. 35 crores. Buoyed by hope of strong sales growth in textile and cement businesses, Grasim continued to attract buying and the scrip touched a 3-year high of Rs. 383. It has gained almost gained 12 per cent in six consecutive trading days.

The undertone of the market is strong with expectations of a favourable monsoon and positive developments on the disinvestment front.

Rupee uptrend halted

The rupee moved up further against the dollar during the week, breaching the Rs. 47 barrier and touching a new peak of 46.74 to a dollar on Wednesday on a surge of dollar iflow before receding to close around 46.91 on RBI intervention. However, the dollar has been bearish internationally. However, the rupee is still considered undervalued by two per cent in trade-weighted terms.

Softening trend on

G. Sec. yields

The yield on government securities softened further last week, signifying high liquidity in the system. The yield on benchmark 10 year G. Sec. 9.81 per cent 2013 was at 5.81 per cent.

In the absence of good credit opportunities, banks have a problem of deploying their funds. They continue to invest in government securities, driving down the yields further. To maintain a positive spread between the yield on their investments and the cost of their deposits, the deposit rates were brought down further during the week by many banks.

Seeing the fall in yields in G. Sec., mutual funds have turned their interest to corporate bonds, pushing down the yield spreads between corporate bonds and the government securities further.

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