The equity markets remained largely insulated from the twin downgrade this week to end with a modest loss of 9 points. Unlike in the past, when lower ratings have triggered a massive sell-off, equities continued to move in a narrow range with Sensex shedding only 17 points on the day after S&P downgrade. The indices also received support from a stable rupee with Jalan's statement on 6-6.5% GDP growth perking up sentiment. The ubiquitous FIIs also shrugged off the downgrade, pumping Rs 168 crore for the week, taking their net investment for the year to Rs 12,437 crore. However, a weak Nasdaq, which slipped below the 2000-mark, pulled down technology stocks.
While the downgrade is bound to raise the cost of external commercial borrowings, the moot point is that very few corporates are now accessing this route of fund mobilisation. The union budget this year had withdrawn the withholding tax exemption on ECBs, making the borrowing cost much higher. The domestic interest rates have also been coming down, which means that corporates can borrow cheaper money at home. Further, investors are now anxiously awaiting steps to trigger growth in the domestic economy while hoping for a revival in the US.
The week saw a strong performance from another top-rung technology company, HCL Tech with over 100% jump in net profit to Rs 488 crore. While the company forecast a lower growth of 25% for the current fiscal, the highlight has been the addition of 71 new clients in the fourth quarter amidst the current gloom in the technology sector. While there is little clue on when the global technology sector will stage a turnaround, top-rung companies have laid down clear strategies to take advantage of any growth opportunity.
While volumes have been low in bluechips after introduction of rolling mode, traders have shifted their gaze on select scrips that continue to be on five-day settlement. Most of the speculative action is concentrated on newly listed media stocks, which have also announced encouraging results.
On the other hand, it was a bad week for US markets, especially the Nasdaq that lost 110 points. The technology bellwether was hit by sagging fortunes of top tech heavyweights - A new study predicts that worldwide revenues from PC chip sales would drop 24% this year while another survey has suggested that the PC market may not recover until 2005. Both the prophecies dragged down top chipmaker, Intel. On the other hand, the market failed to get any firm guidance numbers from Cisco. The sentiment was also impacted by news of decline in demand for bank loans, which means that the flurry of rate cuts has failed to make desired impact.
The markets now desperately wait for some positives to kickstart buying on the bourses. The onus is now on the government to take up infrastructure development on a war footing and revive demand in the economy. While buying has emerged in auto and FMCG stocks on back of a normal monsoon, the gains have not been sustainable with investors still unsure about the direction of the economy. Thus, unless clear signs of a turnaround emerge with concrete action plan from the State, the markets could remain in a morass!