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Half Full Market

The result season next week will guide the market. Things look bright with economy getting healthier and technology gaining favour again. But a small negative will be the T+3 settlement effective April 1, 2002.

The market slipped in a shortened week at the close of the financial year. The BSE Sensex lost 1.31 percent over the week, while the Nifty was down 8 points (0.73%). The combined trading volume at both the exchanges was down with lower institutional activity. Buying interest reflected in FIIs investment in the calendar so far should be a worrisome issue. Net investments of Rs 2780 crore are substantially lower than the corresponding figure of Rs 8095 crore in 2001.

The week's highlight was another PSU disinvestment – Hindustan Zinc's 26% equity was sold to Sterlite Industries for Rs. 445 crore. This takes the government's realisation from disinvestment to Rs 3587 crore, this fiscal. This triggered a rally in PSU stocks. Amongst index heavyweights, pharmaceutical stocks found takers while FMCG stocks faced selling. Optimism about US economic recovery is gaining strength. And technology heavyweights are beneficiary of this optimism with increased activity.

Free Float Indices - To be or not to be
Last week, the Bombay Stocks Exchange initiated its exploration for a free-float index. This methodology takes into account the market capitalisation of constituent stocks based on the shares available for trade (held with public). Currently, the leading indices take into account the market capitalisation i.e. based on total outstanding equity capital. Conceptually, a free-float index will be superior reflection as it also takes into account the liquidity in a stock as against the aggregate market capitalisation.

BSE Tech Index is the only free-float Index in the country tracking TMT stocks. Besides, the leading global investment benchmark, the Morgan Stanley Emerging Market Index is also based on available float. But the impediment to this could be the availability of quality data on shareholding pattern besides an objective classification of investors to determine available float like holdings of promoters and financial institutions etc.

Outlook
The start of result season next week will guide the market. The improved economic fundamentals with a relatively higher growth in the third quarter at 6.3% could translate into better health for core sector businesses. This coupled with optimism on technology and select market strength in pharmaceutical and automobile has the potential to drive a broad-based rally. But all this is an optimist's viewpoint. In the coming week, the market will also have to grapple with shorter trading cycle i.e. T+3 settlement mode from April 1, 2002.