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Mixed Bag of First Quarter Results

Sluggish markets grope for direction

The pendulum swung back into the red this week as a listless equity market gropes for direction. After riding on the back of impressive results from Infosys and Hughes last week, the markets gave up most of their gains due to poor result numbers with the 30-stock benchmark, Sensex shedding 113 points. A drop in Nasdaq with a fresh round of losses and profit warning also weakened the sentiment. Lower guidance numbers from Microsoft and IBM for next quarter coupled with Nortel's colossal loss pulled down the tech bellwether for the week.

Back home, the first quarter results were a mixed bag for the technology sector - while Wipro and Digital were impressive, Visualsoft and Global Tele dampened the sentiment. NIIT jolted the markets with a 93% slump in net profits, blaming the falling revenues from education business with a sustained downturn denting consumer confidence. Ironically, the company was recently listed among the top 15 IT training companies in the world for 2000. The scene was no different for cyclical companies where Larsen & Toubro posted a sizzling growth with firm cement prices while Tisco took a hit due to lower demand.

There was some bad news on the economy front as well. RBI governor, Bimal Jalan lowered the growth estimate for GDP to 5.5% against an earlier expected 6%. The governor was seconded by leading securities firm, JP Morgan that pulled down the growth estimate to 5.3% due to a sluggish economy. Contrary to expectations by the Government and the RBI, a business confidence survey conducted by FICCI among 225 Indian corporates revealed that there was little hope for an immediate revival in industrial activity. The slowdown is evident with a 63% drop in corporate tax collection for the first quarter.

Outlook
While there seems to be no short-term positive triggers and outlook continues to be hazy, valuations have reached attractive levels. No wonder, FIIs continue to pump money with net buying for the week at Rs 280 crore. At the same time, with low liquidity, it is important to invest in fundamentally strong stocks. Investors now await a flurry of positives to bring about a decisive turnaround in sentiment - till then, indices would continue to swing between hope and despair.

In the technology sector, there is a clear preference for larger companies, which can survive the current downturn. For instance, Wipro has seen a fall in volumes since it has not compromised on its billing rates. Yet, the company continues to bag big deals - the $70 million order from UK-based Lattice is a case in point.

In the short-term, the raid on UTI's top officials and the arrest of its former chairman is unlikely to impact sentiment. While there may be some more indictments and damning disclosures, the markets are expected to take it in their stride. It is important to clean UTI and uphold its integrity since the institution is one of the biggest players in the market and hopefully, still commands trust of scores of investors. On the other hand, even as some brokers shut shop with introduction of rolling settlement; it is simply weeding out the weak players. Thus, while volumes may take a hit in the short-term, over time the broking business might consolidate and create a strong, institutional market.