From THE HINDU group of publications
Sunday, June 03, 2001


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Tech drags market down

S. Vaidya Nathan

THE past week has seen the stock price slide by close to 2 percentage points. With the declines coming mostly in the information technology sector, the decline has been more or less evenly spread across narrow and broad-based market indices. The decline in the tech sector came about towards the end of the week and was pretty sharp.

Foreign institutional investors (FII) have closed out May with positive inflows. Bit notably May has been a relatively low-key month with inflows of just $144 million. In the first four months of 2001, FII inflows have been around $2.12 billion. This puts the FII activity in May in proper perspective. FII buying was Rs 3,976 crore and selling Rs 3,300 crore with net inflows of Rs 676 crore. For the year so far, FII purchases has been at Rs 31,221.4 crore, sales at Rs 20,663.9 crore and net inflows at Rs 10,557.5 crore. FII activity levels generally tend to taper off after June. So the June trends may be worth watching to find if FIIs change their bullish tack adopted so far.

Domestic mutual funds continue to be on a selling mode. In May 2001, they were net sellers to the tune of Rs 478 crore with purchases of Rs 995 crore and sales of Rs 1,473 crore. So far in 2001, mutual funds have had net sales of Rs 3,266 crore. There appears to be an abatement of pressures from this quarter.

Going forward, the week may be one of largely flat price movements as has been the case in the last two months. With major systemic changes in the form of rolling settlement and abolition of deferral products just a month away, caution may be the watchword. The surprise may come only if FII flow move sharply either way. The paring down of ALBM/BLESS exposures and non-accumulation of fresh exposures may also play a role in price trends. Most positions may be closed by early July as operators may not want to carry positions into a new system where price trends and liquidity in the initial months are bound to be an unknown quantity.

While the automobile sector continues to show up bad numbers across sectors, some concentrated buying interest in the Bajaj Auto stock has been sole spot of solace. The stock gained 18 per cent to move up from Rs 229 to Rs 270 despite signs of weak sales numbers for April. Barring Hero Honda, other two wheeler industry players have had a tough time and posted lower sales. What has driven the Bajaj Auto stock is unclear at this point in time. Could it be another round of buyback (then first round of buyback was put through at Rs 400 per share)? What happens on the Bajaj Auto front may be worth a close watch.

Frontline tech stocks declined by around 10 per cent led by the likes of Infosys, Hughes Software, Satyam Computer among others.

While no new specific fundamental related factors came through, the downtrend appears linked to weakness in the Nasdaq or at least that has been used / cited as a reason to drag tech stocks in the Indian market lower, which in turn pulled the market down.

Significantly, quite a few fast-moving consumer goods stocks appear to be losing ground. This includes the major - Hindustan Lever. Other stocks such as Britannia Industries and Dabur have also been more or less flat. Despite predictions of a normal monsoon, concerns over agricultural output and the effect of two poor growth years have raised concerns over levels of disposable incomes. This appears to have weakened the FMCG stocks in the past week after they had held ground for a few months.

Section  : Markets
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