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Finally, a Week of Respite

Combined volumes on the two bourses topped Rs 2,800 crore for the week as Infosys led the cheer leaders and shrugged off US attacks

The Indian markets shrugged off America's retaliatory action and partied with a 147 points (5.20%) surge at BSE, triggered by mixed bag of second quarter results and a strong rally in US tech stocks. The combined volume at Bombay and National Stock Exchanges jumped to an average of Rs 2,800 crore for the week on the back of sustained FII buying in technology stocks with Infosys being a favorite buying spot.

The events at the end of the second quarter invited fears about a huge dip in the IT exports revenues for already battered technology companies. But Infosys bucked these fears with a 30 per cent rise in net profits during the quarter. In contrast, a drastic fall in the sale of software products dented Hughes Software's net profit, which dipped 52 per cent. However, both the companies reported an encouraging rise in new clients amidst the current gloom - Infosys managed to add 28 new clients including 11 after the US attacks while Hughes Software added 5 more to its list.

Along with a ray of hope for battered technology sector, the old economy giant and Sensex heavyweight, Hindustan Lever announced issue of "bonus debentures" to its existing shareholders. Given the company's huge shareholders base, the move will prevent bloating of equity capital while creating wealth for shareholders through flared up market price. Toeing HLL's line, Hero Honda has lined up a large special interim dividend and utilise a part of its Rs 200 crore cash reserves to rev up the return on shareholders' equity.

On the flip side, CMIE has also lowered its GDP growth estimate of 6.3 percent to 6 percent. The downgrade comes on fears of adverse impacts of US attacks on service sector growth and poor monsoon in Southern region. However should the disinvestment revenues move at targeted pace, the fiscal balance sheet should look healthy.

It was also a good week for US markets. The drop in weekly unemployment data with a rising consumer confidence bolstered Dow Jones by 2.46%. A spate of positive third quarter profit estimates from US technology stocks led to NASDAQ rebounding to pre-attacks levels of 1703.

Outlook
As more and more second quarter results pour out, the market reaction will get crystallized and biased even within the top-rung IT stocks which have smartly withered down the challenges during the period. As expected, the government's decision to allow companies to hike the FII limit has started showing results. India's weightage in the MCSI Index has been reduced by –0.9 percent against the expected cut of 2.61 percent. The less than expected reduction has come on the back of FII investment limit being hiked in the constituents of MSCI Index. This signals at more FII participation to boost the trading activity at bourses.