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Some Respite From Misery

After a miserable May, BSE Sensex was up 93 points (3%) and Nifty inched up 20 points (1.94%) this week. However, war fears are not fully discounted. Hence, markets are expected to be rangebound. They could head southwards if a war breaks out.

With global leaders working over time to prevent the break out of a war in the Indian subcontinent helped bulls take charge at the bourses. Led by old economy index heavyweights, BSE Sensex was up 93 points (3%) while Nifty inched up 20 points (1.94%), despite falling 40 points on Friday. This was on account of investors selling out stocks, taking precaution for the weekend.

However, average combined trading volumes at both the bourses dipped from Rs 3,997 crore last week to Rs 3,557 crore. Domestic fund houses opened their June account on a positive note by pumping in Rs 44.61 crore, while FIIs who were sellers initially turned net buyers towards the end. However, their sales outweighed purchases and they offloaded equities worth Rs 26 crore through the week. May be worse is yet to come if the finance ministry's appeal against a decision by the Delhi High Court to disallow tax-free status to Mauritius-based FIIs doesn't come to their rescue. The latter had decided to tax the capital gains of these FIIs according to Indian tax rates. Till now overseas corporate bodies and FIIs enjoyed a tax-free status under the provisions of the Double Taxation Avoidance Agreement between India and the island nation. Incidentally, capital gains are not taxed in Mauritius.

Though FII participation may not be forthcoming for some time now, the stocks markets have started betting on sectors, such as automobiles and steel, which have seen their fortunes soar in the recent past and are likely to do better with the economy showing signs of revival. Hero Honda recorded 39% jump in motorbike sales in May, while Telco was back into the black with an improved bottomline for the quarter- ended March 31, 2002. Improvement in domestic demand, price rise and better export potential saw steel scrips hog the limelight on the hopes that profitability of steel companies would improve.

While steel stocks basked in all this glory, tech stocks plunged. Initially, tech heavyweights gained midweek with the Nasdaq moving up on Oracle's good performance. However, Intel's second quarter profit warning towards the end spoiled the fun. In all, Nasdaq lost 4.9%, while BSE IT Index added mere 4 points to touch the 1,500-mark. On the other hand, Dow Jones lost 2% over the week.

Considering a nervous sentiment in the last trading session, it is clear that war fears are not fully discounted. Worse, with some countries asking their nationals to leave India only aggravated the fears. Thus markets are expected to be rangebound with chances of downslide in the event of war. So, in these testing times, defensive stocks could prove to be the best bet.