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Optimistic Stable Market

Near-term, the optimistic market will be faced with the RBI ban on OCBs, profit-taking and macro-economic forecasts

The markets finished the week higher – up 1.09 per cent on the BSE Sensex. In a short trading week, the market started cheerfully led by tech stocks with a 71-point gain on the BSE Sensex. However, it waned a bit the following day. Foreign as well as domestic institutions were net sellers during the week. FII sold equities worth Rs 63 crore while domestic fund managers sales was worth Rs 145 crore. The combined average turnover at the two stock exchanges stood at Rs 4200 crore – A 51% upsurge compared with that of September-end. The launch of stock futures has also helped raising liquidity in the market.

The strengthened rally in select old economy stocks kept the market alive. Profit taking pulled the technology and media stocks down and a switch to defensives boosted cement stocks. The FIIs continued their drift away from technology to favour key cement stocks - ACC, Grasim and Gujarat Ambuja. This fiscal (since April 1 '01) the aggregate market capitalisation of the trio has already flared by 24.33%. Speculative buying in pharma stocks pushed the BSE Healthcare Index up 2.65 per cent in four trading sessions. Post September 11, Ranbaxy Laboratories has shown the smartest gain of 16.8% among pharma stocks. BSE FMCG Index shed 20.2 points during the week. Britannia Industries gained 1.04% as it concluded the targeted 10 lakh shares buy-back.

The other market event was the RBI prohibiting overseas corporate bodies (OCB) from making fresh investments in the country under the portfolio investment scheme (PIS). Now, OCBs cannot invest in the secondary stock market, though they can continue to invest in IPOs or in private placements of equity. As in the stock market crisis, SEBI discovered that some OCBs were used to manipulate the market. This can have short-term impact on the market.

The Fiscal deficit increased by 24.5% (April-October) as compared to same period, last year. The government also extended its disinvestment proposal for VSNL and IBP by a month. The NCAER scaled down its GDP growth estimates for the economy for the current fiscal to 4.8% from the 5.6% it projected in August.

A Nasscom study on the software services projects that Asia-Pacific will account for 15% of India's IT export, by 2008 from 7% now. The study also reveals the wide divergence between the top-tier and generic companies. The survey points out that while MNC development centres and the top five IT companies will grow at an average of 35 per cent, the generic companies will grow at a maximum of five per cent growth rate.

In US, stocks fell as consumer confidence dropped for a fifth consecutive month in November. With the US now officially in recession, the Dow Jones Industrial average fell 1.1 per cent for the week. NASDAQ Composite Index was highly volatile and ended the week up 1.4 percent.

Even though the market has moved up 17% since September-end, optimism over the timing and magnitude of Indian recovery is receding. Near-term, the optimistic market will be faced with the BI ban on OCBs, profit-taking and macro-economic forecasts.