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From Worse to...Better

The prospects remain bleak for Indian technology sector with leading brokerages downgrading earning estimates for top Indian technology stocks and reducing portfolio allocation

Markets at 2600 on Sensex last week, its eight year low, perhaps it could have only gone up. And it did, with a smart recovery of 8 per cent (210-point) gain during the week. The Nifty also posted similar gains - 6.98%. Of course, the market cheer was led by brisk institutional purchases, the lifting of US sanctions, a 100 basis points cut in the interest rates on export credit coupled with recovery in Asian and European markets.

This week, foreign institutional investors were not distress sellers as in the past week. Their net sale position was only Rs. 32 crore against Rs. 159 crore previous week. On the other hand, domestic fund managers were net sellers this week to the tune of Rs 58 crores, against being net buyers last week.

Technology stocks were the big gainers during the week -- up 11.79 per cent on the BSE IT Index from their deep levels last week. They were the biggest casualties in the market since the attack -- losing 37 per cent at the close of last week. But the prospects remains bleak with leading brokerages downgrading earning estimates for top Indian technology stocks, reducing their portfolio allocation to the sector and putting a sell recommendation on Infosys and Wipro.

The stodgy consumer stocks also gained from their lows on September 17 with a 5 per cent on the BSE FMCG Index. With prevailing uncertainty, FMCG and cyclical stocks are likely show greater resilience.

Silver Lining......
During the week, market participants turned hopeful of an economic recovery from a state of hopelessness. During the first quarter of fiscal 2001-02, the GDP grew at a better-than-expected 4.4 per cent, led by an impressive growth in services sector. The Reserve Bank also slashed the interest rates on export credit by 1100 basis points and this move raised hopes of a bank rate cut. The advance corporate tax collection figures also witnessed an 83 per cent rise in the second quarter. However, the ever-awaited public sector dis-investment program remains on drift. Meanwhile, the US markets had a breathing space as the Dow Jones and NASDAQ recovered by 7% and 5% each during the week.

Outlook
Though the market has gained sharply, it is still below the levels before the crisis. The market only has the economic and corporate fundamentals to guide it. And these symptoms will only be visible over a period till when market will remain range bound. Unless of course, the government provides an interim package to boost industrial health.