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S. Vaidya Nathan

IT was yet another week of selling pressure and stocks ended the week lower. Narrow benchmark indices such as the S & P CNX Nifty and BSE Sensitive Index as well as broad market indices covering a larger number of stocks ended lower. The pressure from selling by foreign institutional investors dogged the markets this week.

The prime factor behind the selling seems to be the rising threat of war with the neighbourhood Pakistan. The diplomatic efforts have lead to no visible signs of change in the posturing. The US advisory to its citizens to avoid travel to India is also a pointer to the serious state of affairs.

As it happens whenever the institutions turn sellers, frontline stocks bear the brunt. Much of decline has come in Infosys, Reliance Industries, Hindustan Lever and to a lesser extent, HDFC. Most of the other stocks have managed to hold their value. For Infosys, which until two weeks ago seemed to be fairly at steady at around the Rs 3,800 to Rs 3,900 range, has shed around 14 per cent in more recent trading. In May stocks across sectors have lost value but by and large by less than 10 per cent.

Outlook: One more week of a weak market appears to lie ahead. Institutional investors may not return fast enough even if there are signs of progress in the diplomatic initiative.

Having pulled out some funds in the past week, they may prefer to watch the situation before making a concrete move. If selling continues, it could spill over to stocks outside of the four or five that have been attracting attention since in these stocks profit-booking opportunities may have thinned down. Even if there is some upward movement, the markets are unlikely to run up in a hurry.

Key board meetings: The earnings season continues in full flow with quite a few big names queuing up for announcements in the next week. These include Bank of Baroda, Indian Hotels, Dena Bank, Ciba Specialty. Tata Infotech, Dr Reddy's Laboratories, IPCL, Gas Authority of India (GAIL), Nirma and Britannia Industries. The Britannia board is also scheduled to consider buyback and dividend.

Fund Flows: FIIs which had moved in opposite direction in the debt and equity markets in the past week turned sellers in equity.

As a result, the FII inflows for May have been just 3.4 million dollars. FII purchases of equity were Rs 3803.8 crore, sales Rs 3859.9 crore and net outflows Rs 56.1 crore ($ 11.5 million). For the year 2002, FII flows are at $ 853.3 million, a far cry from the much more buoyant position in 2001.

Domestic mutual funds were net sellers of Rs 176.9 crore with purchases at Rs 1291.5 crore and sales at Rs 1468.4. Expect them to be net sellers for some more time to come as there are redemption pressures likely with two UTI schemes maturing end June.

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