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Sluggish Market

Stock markets gripped in uncertainty again went southwards. But with better fundamentals and economic statistics, market could well be in for a ride. Optimism rules the market.

Even this week, the sentiments continued to be depressed. While the BSE Sensex slipped 39 points (-1.3%), the Nifty ended the week down 19 points (-1.9%). Concern over monsoon and sell-off in mid-cap tech stocks depressed stock prices. Even Jaswant Singh's tax-sops failed to cheer investors. However, low market valuations found takers in the form of the institutional investors. This week, both the FIIs and domestic fund houses made substantial investment in the market. FII net investment stood at Rs 147 crore -- a rise of over Rs 100 crore vis-à-vis last week. As for mutual funds, after remaining net sellers for last seven weeks, they turned net buyers, buying Rs 58 crore worth of equities. However, the combined average turnover at both the exchanges dipped by 7% over the week.

This year's biggest gainer, mid-cap stocks, seems to have touched its threshold. The CNX Midcap 200 Index lost 5% this week, which had shed 12.7% in July alone. Till June, the index had gained a whopping 34% this year. Since market players unwound their positions in mid-cap tech stocks, BSE IT Index ended the week down 4.3%. NIIT, which reported a 56% fall in net profits, was among the worst hit. However, the impact was relatively less in the case of large-caps – Infosys and Wipro, which remained flat over the week. As for Satyam Computers, it lost 1% as it faces DCA's probe for violation of the Companies Act.

On the other hand, index heavyweights, Reliance Industries and Reliance Petroleum, were unable to reap the benefit of better Q-1 results. RIL's net profit was up 16.5% on better product prices whereas RPL's net profits grew 5.3% as its other income rose four times. During the week, RIL slipped 1% while RPL was down 1.8%. Another index heavyweight, ITC, gained 5.52% on reports that the finance ministry is in favour of the sale of UTI's 12% stake in the company.

The newsmakers this week were two-wheeler companies because of a rise in their July sales. While Hero Honda's sales grew 32%, Bajaj Auto rose by 20.2%. However, the biggest gainer this week was TVS Motor, whose sales jumped 112.6% mainly on account of its new bike Victor. However, their share prices depicted a contrast – TVS Motor lost the most (-10%), Bajaj Auto was down 7.6% and Hero Honda shed 3%.

As for pharma major, Dr Reddy's Labs, the company recovered ground from the last week's big fall in its share price, gaining 6% this week as its net profit surged 50%. The reason: it benefited more from the bulk active and generic segments. However, the share prices of most pharma companies were hammered and the BSE Healthcare Index was down 1.4% over the week.

Poor monsoon took its toll on the earnings of cement companies as it has hampered construction sector's growth. For the last quarter, due to poor demand and fall in the cement prices, Gujarat Ambuja's net profit fell 42%. Only Grasim managed an improvement in net profit this quarter, while rivals like ACC and L&T reported lower profits. Gujarat Ambuja's scrip slipped 4.7%, L&T lost 3% and ACC was down 1.2% over the week.

Despite the market fall, there is great optimism on the fiscal front. The fiscal deficit for the first quarter stood at 29.2% of the full year's estimates, which is better than the corresponding period last year. Plus, an increase in net tax revenue indicates that the industrial sector is making a recovery.

Outlook

Fundamentally, every thing is going right for the market. Even economic statistics reveal a good picture, except for the monsoon. With institutional players back in action coupled with lower market valuation, the downside risk is confined. Notwithstanding any significant happenings, the requisite trigger is missing, which could only happen if investors are willing to invest.