Bearish cycle may end soon on bourses

By Oommen A. Ninan

MUMBAI, SEPT. 9. Markets may remain rangebound as the sentiment is still subdued. Stock indices fell further as foreign institutional investors started selling stocks last week. However a correction is expected on bourses in the coming days.

The Sensex which touched a low of 3166 sought a support on the lower edge of ``expanding triangle''. Probably it may bounce back by maximum 100 to 200 points but it is likely that it will once again come down to make a new low. The Sensex is expected to make a new low below previous low of 3096. We see the bearish cycle may probably come to an end by this month end or early next month,'' said Mr. Jignesh Shah, Strategist of ASK-Raymond James Securities.

The Bombay Stock Exchange 30-share Sensitive Index (Sensex) moved down further by 46.55 points at 3198.40 compared to 3244.95 in the previous week. On the National Stock Exchange the S&P CNX Nifty Index fell by another 17.65 points at 1035.90 compared to previous Friday's close of 1053.55. ``Stock prices could not hold on to gains made in the early part of the week as FIIs remained sellers on most days of the week,'' said Mr. Imran Contractor, Research Head of Milan Mahendra Securities.

Activities of foreign institutional investors seem to have been concentrated in few selective stocks. Technology stocks are out of favour. However, domestic pharmaceutical stocks were in demand and some of them touched new highs during the week. Further, the accelerated buyback activity is giving life to some stocks. As a result, Siemens and Bombay Dyeing gained during the week. The international markets came under intense selling pressure last week and several of them touched two-year lows.

Two mergers - one international and another domestic - failed to enthuse the markets. ``Contrary to expectations,'' said Mr. Contractor, ``the merger between HP and Compaq has been perceived a weakness instead of strength leading to a sharp fall on Nasdaq.'' ITC touched its 14-month low on poor sentiment following the proposed merger with its papermaking subsidiary ITC Bhadrachalam. Although there are synergies in the businesses of the two companies, the dissimilarities in the rates of returns in the two different industries and the consequent impact on the margins has affected the sentiment on the counter. However, ITC is looking for diversifying into core areas such as paper and hospitality as the tobacco business is becoming more and more risky globally.

After cement, the steel industry looks at alliances in tough economic conditions. Mr. Contractor said that the prospects of facing anti-dumping duties on exports of hot-rolled coils to its largest overseas markets - which is nine lakh tonnes - in the U.S. and Canada has compelled the steel majors to form an alliance in steel sector. The alliance has decided to cut the total production of hot-rolled coils by approximately 15 per cent to address oversupply and firm up sagging domestic prices. According to estimates, production capacity of hot-rolled coils in India is 12 million tonnes compared to a demand of only eight million tonnes. These companies include, SAIL, Tata Steel, Essar Steel, Jindal Vijaynagar and Ispat Industries.

According to Mr. Contractor cement despatches rose by 12.5 per cent during August to 7.46 million tonnes as against 6.63 million tonnes in the corresponding period last year. This also represent an increase over July despatches of 7.23 million tonnes. This is significant because in the normally weak monsoon months, the demand has risen even on a month to month basis.

Dark clouds are looming large in the global economic scenario. In a forecast being prepared for publication in the International Monetary Fund's (IMF) World Economic Outlook later this month, IMF economists have indicated a sharp slowdown in global growth trends for the current year as compared to their earlier forecasts in April 2001. According to it, the Indian economy is expected to register a 4.5 per cent growth as against the earlier forecast of 5.6 per cent.

Send this article to Friends by E-Mail

Section  : Business
Next     : Turnaround at Thermax