The Hindu : Rebound in tech stocks likely

Online edition of India's National Newspaper
Sunday, Jan 12, 2003

Business

Business

Rebound in tech stocks likely

By Oommen A. Ninan

MUMBAI JAN. 11. The sentiment on the stock exchanges remained subdued following the news that the information technology major Infosys upped its guidance for 2002-03 only marginally against the expectations of a substantial improvement in the same. However, foreign institutional investors stepped up their purchases in the New Year and the overall mood in the market was optimistic despite international rating agency Standard & Poor's reaffirming India's credit rating at junk grade.

"Technology stocks saw a sharp correction on Friday on the back of Infosys' financial results not being able to meet over-bloated expectations," said Ashwini Agarwal, Executive Director, Kotak Securities. However, he felt that the equity market continued to be strong with good interest in banks, pharmaceuticals and a host of second rung stocks. According to Mr. Agarwal, technology stocks also should stabilise given that the growth prospects continue to be quite robust. "On a broad BSE Sensex front we may see 50 to 100 point correction till there is greater clarity on the divestment front. However, the outlook for 2003 continues to be bright with better economic growth prospects, possibility of market-friendly tax, reforms and positive investor sentiment," Mr. Agarwal added.

The benchmark Bombay Stock Exchange 30-share sensitive index was up by 1.45 points at 3358.99 during the week ended January 10 against the previous week's close of 3357.54. However, on the National Stock Exchange, the S&P CNX Nifty lost 9.35 points at 1080.25 against 1089.60. On the last day of trading, the Sensex ended sharply lower by 25 points, after the quarterly results of Infosys turned out to be lower than the expectations.

While IT stocks lost ground, selling pressure was witnessed in almost all sectors. However, selective buying was reported in bank and pharmaceutical stocks.

"With the announcement of Infosys results, the correction seems to have started which was already due for quite some time," said Jignesh Shah, Strategist, ASK-Raymond James Securities. Sensex was unable to cross the psychological barrier of 3400, is now hovering around the support level of 3310. But the wedge-formation suggests support at 3180-3200. Said Mr. Shah "Probably we may have a new rally beginning in the later part of the month as the U.S. markets are likely to see a corrective rally. Till then, investors will look at the third quarter result announcements". The equity mutual funds recouped in December 2002 and many funds outperformed the broad indices.

The rating agency, Credit Rating and Information Services of India (Crisil) in its latest report stated that the BSE Sensex which gave a return of 3.2 per cent in December, managed to decouple from the travails of U.S. indices, Dow and Nasdaq, which gave a return of minus 5.8 per cent and minus 10.05 per cent respectively during the same period. The broader indices continued their underperformance for the second consecutive month with S&P 500 and CNX Midcap 200 returning 1.98 per cent and 2.8 per cent respectively.

Among major sectors, fast moving consumer goods (FMCG), showed signs of revival with BSE FMCG returning 2.5 per cent while BSE IT index was marginally down. The mean return of equity funds was 18.32 per cent, which is much higher than the 3.25 per cent generated by S&P CNX Nifty.

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