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Caution Still Rules

The week gone by was as good as last week with the Sensex rising by 2.9% while the Nifty was up 3.5%. The primary gainers this week were pharma and PSU stocks.

With war fears receding, the BSE Sensex and the NSE Nifty ended the week moving up 93 points (2.9%) and 37 points (3.5%), respectively. However, no-war possibility presumably didn't cheer foreign as well as domestic institutions, which continued to sell during the week. FIIs dumped equities worth Rs 104.4 crore while domestic fund houses offloaded Rs 100 crore worth of equities. The combined average turnover at the two stock exchanges remained dull.

The stock markets though had started the week cheerfully, with the BSE Sensex gaining 143 points in the first two trading sessions, despite FIIs pulling out Rs 251 crore on Tuesday. However, mid-week excitement turned into disappointment with tech stocks falling on account of Nasdaq's 2.2% loss on Tuesday. Also, due to profit booking index heavyweights were hit too. This downside journey was on for the next two trading sessions. As a result, the Sensex closed Friday on a flat note with the gains in PSU stocks offsetting the tech stock fall.

Among index heavyweights, the country's largest truck and bus maker TELCO was the biggest gainer (12.5%) due to a surge in car sales in May, which boosted trading interest in the stock. Its share price touched a two-year high during the week. On the other hand, anticipating a hike in steel prices, some steel stocks moved up. Steel major Tisco's scrip rose by 10.14%.

As for the IT sector, a recent Nasscom-McKinsey report continues to be bullish on the sector by reiterating its earlier projection of the industry becoming a $77-billion business by 2008. Over the week, BSE IT Index gained 4.7%, mostly led by mid-cap stocks like Hexaware Tech (25.77%), Sonata Software (22.42%) and Visualsoft Technologies (15.30%). Sonata Software gained on the news that the company had bagged a $40-million order. However, the Tata-owned CMC clocked a 5.31% fall -- with net profits dipping by 25% in Q1.

While the erstwhile PSU fell, PSU stocks continued their joy ride on the hopes that the government will soon commence another round of the divestment programme. While BPCL gained 16.18%, HPCL moved up 12.14% and Rashtriya Fertilizers rose by 5.38%. Pharma stocks weren't left behind either. The BSE Healthcare Index inched up 4.4%. Pharma major, Ranbaxy, was up 9.16%. However, the biggest gainers during the week were mid-cap pharma stocks -- Rallis India (24%) and Alembic (21.96%). As for FMCG stocks, they largely underperfomed although on the last day of the trading session few stocks, such as Nirma and Henkel-Spic, gained ground on the back of defensive buying. Despite making substantial gains on the Sensex, the BSE FMCG Index shed 0.3% this week.

In the US, Nasdaq shed 2% and the broader Dow Jones slipped 1.20% over the week. US stocks fell on account of profit warnings from companies like Lucent Technologies. That apart, low retail sales figure dashed investors' hope of a quick turnaround.

With Indian economy showing signs of recovery and easing of border tensions, the market fundamentals are bullish. But unless war fear drains out of the minds of investors, the market is expected to move in narrow ranges.