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Big and Mighty Fall

Apart from the month old Gujarat factor, the below expectations performance from two leading stocks shaved off 145 points and 46 points respectively from Sensex as well as Nifty.

Equity markets remained hostage to continued violence in Gujarat, a stand-still parliament and worse: lesser-than-expected performance from two leading stocks in different sectors. These were reasons enough to stall the Indian shares by 4.0 percent each at BSE (145 points) and NSE (46 points) during the week.

While the spill over effects of riots has forced the markets to trade in a narrow range since early March, it has been the highest week-over-week fall registered in the current calendar. During the week, the biggest index constituent, Hindustan Lever disenchanted investors with a 10 percent year-on-year fall in its topline and Wipro's near-term pessimistic guidance saw the bears coming out in full force on Dalal Street. Trading volumes dipped to 3,858 crore rupees and institutional investors remained fence-sitters.

As the week began, commotion amongst parties to sack Gujarat CM for his alleged failure to put down the riots saw the bourses shed half percentage point on the first trading day of week. This was followed by a disastrous first quarter sales number announced by HLL, India's largest company by market capitalisation, which snipped almost half percentage point (another 48 points). Inspite its food business running in to losses, a 10 per cent drop in sales is largely accounted by power brands. HLL's earnings grew by 26 percent for the March quarter compared with the quarter a year earlier. The stock fell consistently during the week to close at its 1999 level of 203 rupees.

Leading PSU stocks – Indian Oil, BPCL, HPCL and IPCL, market's favorite in recent times, fell by an average 7.4 percent over the week. Fund managers even the conservative ones, are betting that the government's disinvestment process will certainly unlock hidden value in these stocks. But the current political crisis at the Centre and a strong likelihood that reforms would be the first victims has dampened sentiment on the equity markets.

However with the mid-week surge in US tech stocks, the domestic boys, otherwise in the sell mode, staged a mild recovery. But gains were shortlived as Wipro played a spoilsport towards the end. As against rival, Infosys' reasonably optimistic earning guidance given last week, Wipro delivered a little less than expected growth in net profit and sounded caution over the same in next quarter, saying its April-June net profit could take a hit as the global telecom sector is still not out of the woods. The results failed to justify Wipro's price-earnings multiple of 45 times causing the stock to crash by 9.0 percent in a single day and pulling along with it the BSE IT Index by 6.0 percent. But what shook the sentiment was the pricing pressure felt by the company for the first time as against its counterparts. Well, it remains to be seen whether other companies feel the pinch or not, but two IT leaders have well-laid out plans to combat the same. While Infosys intends to foray in to IT related services, business processing through a subsidiary, Wipro is set to explore the biotech boom through its healthcare and Life Sciences subsidiary. In the United States, while the Nasdaq lost 2.33 per cent on lesser-than-expected performance by several technology giants, the broader Dow Jones ended the week up 0.66 per cent.

Our last week's expectation of stock specific action can be traced out in the quarterly results that guided sentiment. Although markets are expected to remain range-bound because of the political rumblings, action will shift to the cyclicals as they declare their quarterly numbers.