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Disinvestment, Budget moves to set the tone for next rally

Virendra Verma

AFTER rising sharply in the first two weeks of the month, stock markets seem to be taking a breather ahead of the Union Budget.

In addition, the assembly elections are also restricting market players in taking fresh positions.

However, one positive development seen ahead of the Budget is the strong inflow of foreign funds into the markets.

This is primarily due to the positive attitude of the Government towards privatisation. The successful disinvestment of two PSUs — VSNL and IBP — at attractive prices have boosted the sentiment of the FIIs (foreign institutional investors).

Last week witnessed a mixed trend after the markets had climbed more than 6 per cent over the last one month as profit-booking crept in.

The BSE Sensex moved in a narrow range (around 3,600 levels) throughout the week. This indicates a strong undercurrent. The narrow movement is also attributed to the run-up to the Budget and the assembly elections in four States — UP, Uttaranchal, Punjab and Manipur.

The result of these elections would also determine the fate of the reform process of the BJP-led coalition at the Centre.

The impact of these results would also be visible on the stock markets this week. But the major expectation is from the Budget. The various announcements from the Finance Minister, Mr Yashwant Sinha, would set the next trend for the market.

In the run-up to the Budget, volatile movements could be seen in the markets this week. Policy announcements and sector-specific changes usually evoke extreme reactions from the market causing wild swings in prices.

Though the positive initiatives on the disinvestment front are being perceived as bold and far-sighted, investors would take a cautious approach ahead of the Budget.

Most of the PSU stocks have already appreciated. In the current rally, there has been across-the-board rise in the scrips of state-owned companies.

Most of the PSUs at this level look adequately priced and further rise in their prices would depend on the Government's initiative on privatisation.

The slowdown in the economy has been a major concern for the markets and any thrust on policy initiatives (other than just speech) would be a boost to the markets.

In addition, focus on the rural economy would propel fast-moving consumer goods companies (FMCG) with rural focus such Hindustan Lever and Colgate.

The impact of the Government's announcement allowing 49 per cent foreign direct investment in the banking sector has been partially discounted by the stock market.

But in this sector, number of stocks are still undervalued, especially old private sector banks.

Some of the outfits which foreign banks would be eyeing include — Federal Bank, South Indian Bank, Jammu & Kashmir Bank and Karur Vysya Bank.

In addition, some of the new private sector banks which are planning to reduce their promoters stake to 40 per cent as per RBI directive are also expected to evoke investor interest.

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