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Mayhem At Dalal St.

Musharraf's speech, a soft Indian response, international intervention…. overall nervousness prevailed. The BSE Sensex dropped 4%, with the Nifty's loss a shade lower at 3.5%. But where do we go from here?

General Pervez Musharraf's belligerent address to the nation created pandemonium at Dalal St. The Sensex fell by 96 points on Tuesday. The index made a partial recovery following India's rather lukewarm response to General's speech and international mediation to prevent an outbreak of war. Only to fall again following the US announcement asking its residents to leave India. However, with George Fernandes dispelling war fears, the Sensex from Friday's intra-day low of 3097 moved up again. In all, the Sensex fell by 130 points (-4%) while Nifty slipped 38 points (-3.5%).

Though this week's fall was much greater than last week, the combined volumes at bourses improved by 9% over the week to reach a daily average of Rs 3,997 crore. FIIs sold Rs 157 crore worth of equities. As for domestic funds, they were net sellers this week, selling equities worth Rs 64 crore. During similar conditions post-Parliament attack in December 2001, FIIs pumped in Rs 61 crore. In comparison to that, since the terrorist attack in Jammu on May 14, 2002, they have sold equities worth Rs 234 crore. The bottomline: FII interest in Indian bourses seems to be waning.

Though key stocks across the sectors dropped over the week, the worst sufferers were tech stocks. With the fear that an outbreak of war will hamper overseas business projects, investors shunned both top-tier and second-rung tech stocks. Infosys was down Rs 392 over the week, largely on account of profit warnings announced by US tech majors. Other sector majors, like Hindustan Lever and Ranbaxy, lost ground on institutional offloading. Even oil heavyweights, HPCL and BPCL, fell on account of rumours that the government may offload its stake through the IPO route instead of roping in a strategic partner. Despite the overall pessimism, second-rung PSU stocks such as Bharat Earth Movers and Hindustan Organics, gained over the week. However, the recent Tata-government altercation over VSNL is anything to go by, the privatisation process could be thrown off balance.

The tension in the Indian subcontinent rubbed off on the US markets as well. Ideally, a rise in the manufacturing indices should have seen a positive sentiment in the market, but possibility of a nuclear war and the calling back of US residents from India threw a spanner. In all, Dow Jones was poorer by 179 points (1.77%), while Nasdaq lost 45 points (2.8%)

Primary Market: A Fresh Lease of Life
A score of IPOs are ready to hit the market, which should cheer the long-term investor who will have an opportunity to buy at attractive valuations. To start with, I-flex Solutions, the Citicorp-owned banking software major, will be out with its IPO on June 5, priced at a floor price of Rs 530. TCS, Coca-Cola, and some banks (Canara Bank, Union Bank and IDBI Bank) are expected to come out with an IPO soon. All in all, a good bargain time for equity mutual funds, which have been convincing investors that it is the right time to invest in equity.

Outlook Though war clouds will loom large over the market sentiment, any downside from the current levels should be taken as an opportunity to make long-term investments in equities, but after checking your risk profile.