The Hindu Business Line : Negative sentiment pervades all corners

The weekend news that Shell would shift some 2,800 IT jobs to Wipro and IBM in India may have short-term positive for the tech stocks. But, joining of 10 screwdriver economies in EU is likely to prove a distant threat for the emerging outsourcing markets in India and China.

THE stock market, as apprehended, last week reacted negatively to the prospect of a hung Parliament after the third round of exit polls. Indices, heavyweights and small stocks wilted substantially. Despite fairly positive corporate results, the market could not overcome the effect of a number of sentiment dampeners.

The short-term outlook was further clouded by China's move to cool off its overheated metal sector, sending a strong ripple effect on the iron ore, steel and aluminium stocks world over. The signals were also not positive from the US stock market. Both the key US indices were distinctly weak at the end of Friday.

This week, the domestic stock market sentiment is likely to fluctuate with exit poll signals. The FIIs have turned net negative on their investments at Rs 332 crore on Friday, after the first few days of lower investments last week.

A massive churning in portfolios is also on.

The rising crude prices have added to the gloom. Though the refiners may be able to pass on the rise to the consumers, all other sectors are likely to feel the heat. For ONGC, which still does not have full freedom for price parity, crude price line above $32 a barrel may not be good news. (The US has unsuccessfully been pressuring OPEC to increase production.)

The weekend news that Shell would shift some 2,800 IT jobs to Wipro and IBM in India may have short-term positive for the tech stocks as a reconfirmation of the outsourcing flow. But, joining of 10 screwdriver economies in EU is likely to prove a distant threat for the emerging outsourcing markets for manufacturing in India and China.

Some of these nations (Lithuania with GDP growth as high as 9 per cent) would also be better placed in attracting global portfolio investment funds.

ADB's concern, expressed last week, on India's slow growth of employment, went largely overlooked. Overseas funds, which are generally concerned about productivity, however, find themselves worried about increasing job losses than creation. Apprehensions are lurking that in its pursuit of labour reforms, India might lose a chunk of domestic consumers.

China rumblings: Now it is official. China is forcing a slow-down on credits to metal and real estate sectors. Chinese State Council, nation's Cabinet, last week took several measures to reduce credit flow to steel, aluminium, copper and construction industries. All projects in the steel, aluminium, cement, constructions, which began this year, will be subjected to a national-wide audit. The State Council also sought support from local authorities to control "inappropriate investments", according to National People's Radio.

The Chinese authorities blocked investments in the proposed 10.5 billion yuan (one US $= 8.28 yuan) steel project in Jiangsu province and punished local officials for bending rules in the loan approval process. The State Council directed metal and construction companies to use internal accruals rather than bank loans for project financing.

Tighter credit regulations would cut down on China's metals import in the second quarter beginning from this month.

The stock market assumes that Indal and Nalco, which export alumina and aluminium products, as also Hindalco and Sterlite, which export aluminuim products, are likely to be affected in terms of price realisation at least in the short run.

On Sesa Goa, which exports iron ore, the market has already taken a negative call. However, lower coking coal price may benefit some of metal units. On the whole, the steel and aluminium stocks are likely to remain depressed this week.

The sentiment for tea and sugar stock paradoxically may remain buoyant on reports of crop failure in certain States. However, the trading circles in both the agro commodities tend to play down the crop shortage estimates.

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