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Pharma Stocks prop Sentiment

Domestic Pharma stocks were the only silver lining in the rangebound market. Near term, without any propellant the outlook remain bleak

The market remained range bound ended 28 points lower on BSE Sensex and 18 points at NSE. The technology stocks once again fell on weak global market and selling by the foreign institutional investors, who were net sellers of stocks worth Rs 120 crore in the week. Even the combined volumes at the two stock exchanges fell sharply, from Rs 3300 crore to Rs 2087 crore in five trading sessions.

The rally in domestic healthcare stocks gained strength. The BSE Healthcare Index touched its 6-month high with a 72 points gain during the week. There was a growing institutional preference for key Indian drug stocks -- Dr Reddy's, Cipla and Ranbaxy, for their export led topline growth and the launch of new and generic drugs in offing. And these three are substituting technology stocks. The combined market capitalisation of three stocks has gained sharply -- 67 per cent in five months since March.

During the week, SEBI allowed futures trading in the 31 scrips already under options trading. However, this introduction failed to enthuse the markets, given the time lag and the apprehension about its popular acceptability. Entry of new traders and clearing members with a lower minimum networth of Rs 1 crore, against the existing limit of Rs 3 crore was also allowed.

The International Monetary Authority's (IMF) slashed the national income growth estimates by 1 percent, with an unlikely quick economic recovery. On the contrary, Mckinsey projected that India can attain a 10 percent growth in GDP provided the government control is reduced and speedy implementation of land reforms.

To tide over the slowdown, the government took some initiatives. A ministerial reshuffle saw reform-friendly ministers taking charge of key portfolios. Government also promised to accelerate spending for key developmental projects and announced the setting up of an implementation agency to resolve critical issues including labour reforms, disinvestment and decentralisation of food grains procurement. The body will also take up the task of dismantling of the administered price mechanism in oil. While these measures will take some time to have an impact, it spells positive signals.

In US, once again the release of higher than expected unemployment figures pulled down Dow Jones below the 10000 mark. The job report revealed that 1.4 lakh factory workers were laid off during August. With growing fear that world's largest economy will not be able to avoid the recession, the European and Asian markets were on a free fall with the technology stocks being hit the most.

Outlook
In the short-term markets will be guided by global market trends and foreign portfolio inflows. Intermediate-term, the scale and speed of PSU disinvestment, open offer bid by corporates and direction of the reform process will chart the market course. Any boost in market sentiment looks unlikely with introduction of individual stock futures, with market participant's apprehensive about potential volume growth.