Pharma, steel expected to do well

MUMBAI OCT. 5. Stock markets broke all support levels and touched a 11-month low at close last week. Although many pivotals were quoted low, analysts view this as an excellent opportunity for investment.

"The market closed at its bottom with most pivotals such as Reliance, Hindustan Lever and ITC close to their long term support levels. Hence investors with long-term orientation can invest at current levels,'' said S. Naren, Director and Chief Operating Officer of HDFC Securities. In the past, the index has always bottomed out at around 2800 and rallied substantially. According to Mr. Naren, at the prevailing interest rates the markets have higher upsides than debt investment with a two-year horizon. Unlike the U.S., Europe and Japan, there is no high exposure in equity by either pension funds, insurance companies or banks. Parameters such as market capitalisation to gross domestic product (GDP) ratio, and the price to book value, which reflects overall valuations of the market, are at post-1993 loss.

On the negative side, the fiscal situation is not comfortable. Although lower interest rates on Government securities are likely to aid in reducing interest cost for the Government, "Sectorally we recommend metals, petrochemicals and stocks such as Tata Tea for long term investment,'' Mr. Naren added.

The decision to close UTI's India Growth Fund scheme may result in a short term sell-off which may be an opportunity to consider long term investment. The market broke the key support level as index heavy weights Hindustan Lever and Reliance crashed. The benchmark Bombay Stock Exchange 30-share sensitive index dropped 106.75 points at 2930.51 during the week ended October 4 against 3037.26 in the previous week-end. On the National Stock Exchange, the S&P CNX Nifty went down by 28.25 points to 976.45 from 948.20. Despite buying in some of the automobile, information technology and public sector enterprises (PSE) scrips, sustained selling pressure in pivotals continued to hit the indices."IT companies will start announcing their September quarter results from next week. This will in turn decide the trend in the IT sector going forward, said Navin Agarwal, Director, Research, Motilal Oswal Securities. Besides, Mr. Agarwal said, George Fernandes, Convenor of NDA, had consented to a compromise formula for the divestment of Hindustan Petroleum and Bharat Petroleum.

Any further clarity on privatisation of these two companies could lead to a strong performance of the PSEs. "Pharmaceutical companies such as Cipla and Ranbaxy are expected to post strong performance for the September quarter. Even steel companies such as Tata Steel are expected to report strong results," he added.

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