The markets took a complete U-turn this week as strong results by top tier software companies dispelled some gloom surrounding the beleaguered sector. The good quarterly results from ACC and Cadbury provided more fodder to the bulls and perked up sentiment in old economy counters. CMIE's forecast for a healthy growth in GDP coupled with a good monsoon lifted spirits. Barring Monday, the bellwether Sensex rose on each day and posted a net gain of 150 points. It seems FIIs are perpetually bullish on Indian stocks as they pumped in Rs 261 crore with their cumulative investment for current calendar at a staggering Rs 12,090 crore. However, selling pressure on Friday played spoilsport on what otherwise could have been a strong week.
The rally was also buoyed by a strong Nasdaq, which was finally greeted by some positive earning surprises. While Yahoo! And Motorola allayed investor fears with better results; Microsoft raised its revenue forecast that beat expectations. The icing on the earnings cake came from diversified powerhouse, General Electric that reported record profits. The scene was no different back home as software heavyweights - Infosys, Satyam and Hughes Software comprehensively beat Dalal Street's earning projections. For instance, Infosys announced a 50 per cent growth in net profit against the projected figure of 30 per cent. This also raised expectations from second rung IT companies. No wonder, the markets had a reason to cheer as the glut of negative news finally ebbed and hopes for a turn-around gathered momentum.
Yet, the bourses again ran into rough weather even before the rally had started. Technology stocks were hammered, as investors preferred to book profits on Friday and reduce losses. Despite a good first quarter performance; concerns on declining billing rates for software companies gained ground. While Infosys gave up most of the gains, only Satyam Computers and Wipro managed to end the week with substantial gains among IT stocks. Trading volumes under rolling settlement, which touched Rs 3,000 crore on Monday, also dipped to a mere Rs 1300 crore.
The Friday's selling pressure shows that investors are not confident on the direction of the market and hence, are likely to offload with every rise. With sharp losses for more than a year now, it is a very natural reaction. Thus, it is important that the flow of positive news continues to generate a sustained buying interest. Else, the market could continue to see only a sustained lackluster phase, punctuated by brief spells of buying.
Going forward, the market has a couple of positives for it next week. First, the government has finally thrashed out a solution to bailout US-64 and provided relief to scores of small investors. UTI would buyback units at par from investors, who own a maximum of 3000 units. Second, Nasdaq was able to hold on to its gains on Friday after a sharp rally during the week. This should cheer up domestic technology counters. The result season has started off on an upbeat note and bourses could continue to notch up fresh gains on positive earnings.
Brokers across the country are now protesting against the introduction of rolling settlement, which effectively means curtains for number of small brokers. There have been demands for re-introduction of the carry-forward system. However, it is important that the regulator stays firm on its decision on rolling settlement with a separate futures market since it is important for healthy development and integration of domestic bourses with international markets.