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From THE HINDU group of publications
Sunday, November 04, 2001












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Buoyant undertone

Krishnan Thiagarajan

Following a flurry of dismal earnings performance from cement and steel majors, the BSE Sensex was gasping for breath in the early part of the week.

But taking cue from the international markets, specially Dow, decent earnings performance from some of the prominent BSE heavyweights and trading interest in domestic pharmaceutical majors, the Sensex gathered momentum latter in the week. This topsy turvy movement ended the BSE Sensex higher at the end of the week at 3052.60 points, 30.40 points (1 per cent).

In the initial part of the week, a 76 per cent drop in post tax earnings by Tata Steel and a 93 per cent drop in post tax earnings of Madras Cements depressed the market sentiment at the bourses. To a large extent, this negated the good earnings performance by others such as Gujarat Ambuja Cements and the announcement of a buyback at Rs 170. However, in the latter part of the week, some decent earnings performance by Reliance Industries (aided by other income), decent drop in losses by Telco, decent improvement in SBI, spectacular performance by Dr. Reddy's Lab and marginal improvement by Reliance Petroleum appears to have helped prop up the Sensex to some extent. It was obvious that old-economy stocks were the market favourites during the week, with ITC and HLL attracting heightened market interest. In the commercial vehicles segment, Telco and Mahindra and Mahindra attracted market interest on account of a better than expected performance. In the auto and auto ancillary sector as a whole, the good performers for the July - September quarter such as Bajaj Auto, Hero Honda remained steady.

Apart from the old-economy stocks, the pharmaceutical sector continued to bolster the buoyant undertone in the markets in the latter part of the week. Ushering in this positive sentiment was the spectacular performance from Dr. Reddy's Laboratories. The domestic pharma companies are leading the way and the price earnings multiple of these majors have remained fairly strong. However, for multinational pharmaceutical majors such as Novartis, Burroughs Wellcome and Glaxo which announced earnings for the July-September quarter, the sales growth has not been as good as domestic majors. Going forward, it remains to be seen if the pharma valuations will remain sustainable in this range as it stands at the moment.

In stark contrast, it was clear that new-economy stocks, specially, most of the key frontline software services segment registered lacklustre interest. However, for the second week in succession, most of the second-rung stocks such as Mastek, PSI Data, Sonata Software, SSI and Silverline continued to find favour, despite dismal earnings performance from most of them.

International markets: The Dow Industrial Average shrugged off the disappointing unemployment figures which touched the highest level in the last five years and improved by 59.64 per cent to close at 9324 points. It appears that the strong undertone in Dow, despite sharp job losses seems to have been driven on the expectation of the next Federal Open Markets Committee Meeting early next week. With nine rate cuts put through this year, the markets are probably expecting further declines during the course of this week. The Nasdaq Composite Index however, remained flat at 1745 points, with weak earnings continuing to come in from the chip and hardware sector. The internet and software sector also continued to remain bearish.


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