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The Free Fall

Weak technology outlook and delayed monsoon took its toll on Indian stocks. Fundamentally, things look bright and well poised for a rise. The only hitch - absence of willing investors.

Stocks fell freely this week. The Sensex lost 206 points (6.47%) and the NSE Nifty slipped by 62 points (6.02%). Technology stocks were the worst hit losing 9% on the BSE IT Index. An all round sell-off was triggered by the uncertainty over the monsoon in most part of India and a further weakening of NASDAQ. Meanwhile, a mixed set of result was also out from Satyam Computers, Digital Globalsoft, ITC and HLL.

The only positive this week was renewed FII interest in the market. FII's bought stocks worth Rs 80 crore this week. Not a huge sum, but surely a reversal from being net sellers for two consecutive weeks. But domestic funds sold stocks worth Rs 119 crore this week. With UTI under sustained redemption stress and others equity funds being to get any meaningful inflow, this was the seventh consecutive week when domestic funds were net sellers.

The markets opened on Monday on a dismal note amidst concern over sustain fall in global equity markets. Sensex recovered marginally on Tuesday with a 24 points gain, with a lifting of travel sanctions by US and UK in the region. But thereafter, the market lost ground in all trading sessions.

The biggest losers were IT stocks led by mid-caps and owing to profit warnings by some of the IT companies in US. The NASDAQ lost 4.3% but the BSE IT Index lost more steeply losing 9%. The mid-cap technology stocks, the favoured lot this year, were hit badly hit. NIIT lost -23.8%, Mphasis BFL (-13.8%) and Tata Infotech (-11.26). The lower than expected result from Satyam Computer added to the woes. Its net profit was down 11% and the stock lost 6.4%. The sole exception was Digital Globalsoft reporting a 44% rise in net profit this quarter as compared to the corresponding quarter last year. Despite this the stock slipped -13.5%.

The slowdown in consumer purchase was proved with HLL results. HLL reported a lower profit, down 4% this quarter against the same quarter last year. The stock was down 6.5%. On the other hand, ITC was able to beat market expectation with a 15% rise in its net profit. Overall, the BSE FMCG Index was down 5.2%.

Pharma major, Dr. Reddy suffered a setback when its ally Novo Nordisk suspended clinical trials on its promising new diabetes compound ragaglitazar. The stock price slipped by 18% during the week. The BSE Pharma Index was down 5%. This was despite leading pharmaceutical companies posted decent earnings growth -- Cipla (36%), Sun Pharma (18%), Lupin Laboratories (26%) and Novartis (137%).

The old economy stocks were also not left out. The cement major ACC was down 8.6% as it registered a fall in its net profit owing to depressed cement prices, especially in south India. Bajaj Auto lost 10%. However, it declared a flat Q1 profit on Saturday. But, the best was yet to come. Telco posted a second successive quarterly profit backed by rising vehicle sales and falling costs. This will help it recover recent losses suffered by the fall in its share prices - its share ended the week down 13.44%. Meanwhile, the delay in sell-off of the two PSU energy companies – BPCL and HPCL – could turn out to be bad for their valuation. HPCL was down 2.7%, whereas BPCL gained marginally (0.7%).

Outlook
Overall, the Sensex is down 7.3% in 2002, losing all that it gained in the interim. Despite the limited downside from these levels, reasonable valuation, enhanced attractiveness of equities with lower rates, the key issue holding the market is the absence of trigger to get investors back.