The Hindu Business Line : Select stocks look attractive

THE stock market, largely immobilised by war fears in the last fortnight, is seeing the re-emergence of retail investors and high net worth individuals. This bunch shouldered the responsibility of keeping the system ticking.

"Small and high net worth individual investors have lent significant support, both in terms of volume and value," feels Mr Mathew Easow of Mathew Easow Research Securities. A select band of mid-cap stocks and the PSU pack have generally received support.

The major bourses such as NSE and BSE did not see a sharp fall in volume or price line, though many of the heavyweights suffered losses. The 30-share Sensex could not also escape the decline.

However, some of the market analysts think a group of operators is skilfully utilising the herd mentality that has been created over a period of time around the mid-cap and PSU stocks. Mr Mathew is sceptical about current valuation of certain PSU stocks such as Balmer Lawrie.

According to Mr Vivek Mahajan, a broker-analyst, "the euphoria about PSU stocks is good for the lay investors as long as they do not throw caution to the winds." The divestment road is still riddled with humps.

The Government-VSNL spat over the proposed investment of Rs 1,200 crore in Tata Tele Services has raised quite a few issues such as making the share transfer agreement more comprehensive and proper valuation/utilisation of huge cash reserve before divestment.

The market players are also foxed by the moves for a public issue before divestment as in the case of Bharat Petroleum Corportion Ltd (BPCL). This can only send confusing signals to the market and delay the process of divestment, analysts opine.

Meanwhile, the FIIs, who have reduced their market operations in India in the last few weeks, are also reorganising their portfolios. Market observers are keenly watching how some of the FIIs, who had been maintaining sizable position in stocks like Digital GlobalSoft and GTL, handle their respective portfolios.

The talk of evacuation of the US embassy staff and the Bush administration's advice to US citizens to defer their visit to India are definitely going to further subdue FII operations this week.

"But the domestic stock market appears to have learnt to live without FII buying. If war does not break out, the market may, in fact, see a modest rally this week," Mr Easow observes. Mr Mahajan also agrees on this point.

The Sensex has a resistance at around the level of 3,300 and the crucial support lies around 2,800 points or so. A number of select stocks in pharma, auto, banking, fertiliser and steel sectors seem technically well poised.

According to Mr Easow, the counters of HLL, Dr Reddy's, Cipla and Ranbaxy may prove to be defensive stocks in uncertain times. He also sees the possibility of counters of well-managed liquor companies such as Radico Khaitan attracting investors' fancy.

He is also bullish about certain bank scrips such as Karur Vysya, Federal and Karnataka Bank.

The i-Flex IPO, which opens this week, will serve as an indicator of the market mood.

Says a BSE broker: "Though the shadow of war is still haunting the capital market and the issue is through the book-building route, the reality is that there are few investment avenues available for institutions and banks at present".

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