Will the recovery be sustained?

By Oommen A. Ninan

MUMBAI, SEPT. 30. The Bombay Stock Exchange sensitive index (Sensex) made a dramatic comeback, soaring by 8.13 per cent last week that witnessed hectic purchases by domestic mutual funds.

Though foreign institutional investors generally remained sellers, local financial institutions led by the Unit Trust of India made purchases in fairly good quantity on day to day developments beginning with the news of waiving of the 1998 sanctions imposed by the U.S. on India on the opening day of the week.

Sentiment was accentuated further by heavy buying in Reliance Industries, a key heavy-weighted counter in the BSE barometer. Company circles were believed to have cornered shares of the blue chip continually in the last three sessions, lifted it by about 23 per cent over the week.

Other factors that worked in favour of the market were reports about the International Monetary Fund's (IMF) optimism that higher growth in India, China, Russia and some other countries would help avert a global recession, and a decision by the apex bank to cut interest rates for both pre and post-shipment export credit by one percentage point, giving rise to hopes that the Bank Rate and the cash reserve ratio would be slashed shortly.The Government's reported decision on disinvestment of its stakes in 13 public sector enterprises and expectations of some duty relaxations injected a feeling in the market that the Government would put the reform process on the fast track.The bourses are likely to remain range-bound as the stand-off between the U.S. and Afghanistan is continuing. However, foreign institutional investors and domestic funds stepped up their investments in the last few days. Given the current trends, the markets, despite having gone through a bad patch, seem to be consolidating at the current levels.``The stock markets, after going through lot of volatility, seems to have stabilised,'' said Mr. Ravi Gopalakrishnan, fund manager, Sun F&C Asset Management, a leading FII. However, the short-term uncertainty surrounding the U.S. actions in the Middle East could influence sentiment in the near term. ``Valuations being attractive we believe this volatility could provide a good investment opportunity for the long-term investor.

Also, on the macro level, positive developments such as the fall in international oil prices and the lifting of sanctions against India should have positive implications,'' said Mr. Gopalakrishnan, adding, ``the lower interest rate scenario should make investment in equities relatively attractive.''

Mr. Gopalakrishnan is positive on sectors such as cement and fast moving consumer goods (FMCG). The progress on the Golden Quadrilateral project should give a boost to the cement industry. Also, the normal monsoon should benefit the FMCG sector.

In the case of software sector, which is largely dependent on the U.S. market, there could be short-term volatility. However, most top-line companies are expected to grow at 25-30 per cent, making this the only sector growing at such a high rate.

``In the short-term, the market outlook is dependent on how the dispute between the U.S. and Afghanistan on terrorist attack is resolved. In the medium term, the concerns are the clear global slowdown, especially the economic problems faced by three big economies - the U.S., Germany and Japan. Further, in the medium term, losses of industries such as insurance, airlines, hotels and tourism in the U.S. will have some impact. We need to see what is the final provision made for these sectors. The other thing is that as the security has become an important factor, it could slowdown all the economic processes. At least in the short- term, this is not good for India. Fortunately, we are not fully integrated to the global economy,'' said Mr. S. V. Prasad, Head, Zurich India Asset Management Company.

The benchmark Bombay Stock Exchange sensitive index (Sensex) was up 211.48 points during the week ended September 28 at 2811.60 against 2600.12 at the end of the previous week.

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