Stocks rally as foreign funds flow in
The stockmarket passed an important resistance level when the sensex crossed the 3,280 level convincingly during the week. The slow upward movement of the indices, and specially of the small and mid-cap stocks, indicates that the market is moving beyond the consolidation phase to a growth phase.
A survey among foreign fund managers carried out last month showed that most of them were optimistic about the market. They felt that the Indian stockmarket was undervalued by around 25% and expect the sensex to move to between 3,400 and 3,600 within a month and to 4,200 by the end of the year. The survey was carried out between June 10 and June 27 and interviewed foreign fund managers for some of the largest funds.
The foreign funds, which were net sellers all through June have turned net buyers during the past eight sessions since June 25. While they were net sellers to the tune of Rs 171 crore in June they were net buyers of around Rs 105 crore during the last six sessions.
One reason for the renewed interest in India and other emerging markets is the financial scandals that are hitting the US, and the weakening of the US dollar versus other currencies. The scandals that have rocked corporate icons such as Xerox and Worldcom in the US are making many fund managers rethink their strategies and they are diverting a greater share of their funds to emerging markets. The equity market in India also seems very attractively priced right now with the future (2002-03) price/earnings ratio for index scrips being as low as 10 or 11.
The appointment of Jaswant Singh as the new finance minister in place of Yashwant Sinha was also taken well by the market. His statement during his first press conference that he wanted consumer spending to get a boost was interpreted as a sign that he was thinking of reducing taxes.
Among the index heavyweights a major gainer was cigarette major ITC, which moved up on expectations that the UTI which announced its intention to offload its 13% stake in the equity of ITC would do a bulk deal with British American Tobacco (BAT) at a price at a substantial premium to the going rate. BAT would then have to make an open offer at the same price to the shareholders. BAT currently holds 31% of the stake in ITC. The scrip moved up 12% from Rs 639 last week to close at Rs 720, crossing the Rs 700 level after many months.
Bajaj Auto also moved up before the company announced quarterly results. Two wheeler sales were up nearly 19% in June to over 98,000 units, mainly on a sharp rise of 92% in motorcycle sales. The Indian market for two-wheelers is rapidly evolving with consumer preference changing from scooters to motorbikes since they are more fuel efficient, have a better resale value and have greater speed. The share price moved up from Rs 507 to touch a high of Rs 554 before settling down to Rs 535.
ICICI Bank was also strong after acquiring two branches of Standard & Chartered. It moved up from Rs 137 to Rs 151.
The IT services sector had a good showing with many leading and second rung companies gong up markedly. While HCL Tech. went up 9% to Rs 245 and Infosys was up nearly 4% to Rs 3414, second rung companies showed much higher gains. Tata Elxsi was up 18% to Rs 135, Trigyn Technologies was up 17% to Rs 46.4 and Mastek went up from Rs 324 to Rs 365.
Steel stocks continued to be firm though they reacted on profit booking. The rise in domestic and international steel prices means that many steel companies which are in a bad way can now go in for financial restructuring which would restore them to health.
The sensex opened strong on Monday with the PSUs rallying on the cabinet reshuffle of ministers and the sensex moved up 44 points to 3288.7, the market reacted marginally by 3.7 to 3285 on Tuesday, rallied by 25.2 to 3310.2 on Wednesday as technology stocks moved up, was steady going up by 6.6 to 3316.7 on Thursday and moved up by another 13.8 to 3830.6 on Friday for a weekly gain of 86 or 2.6 per cent.
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