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Market Turned Jittery

Despite a collective feeling of relief over the apparent resolution of the UTI's woes, the disinvestment imbroglio cast a long shadow over the market in a week that saw the Sensex subside by 40 points.

After three weeks of continuous cheer, the markets suffered a roller-coaster week that saw the Sensex end 40 points below where it began as two cycles of alternating good and bad news buffeted the markets one way and then the other. The week began on a buoyant note—with news of the comprehensive UTI bailout—but the markets were immediately pushed down by the NASDAQ's weakness rubbing off on technology stocks.

A mid-week recovery by the NASDAQ and the techs started on Wednesday, but was soon undermined when it became increasingly clear that George Fernandes' campaign against Arun Shourie's disinvestment program would be sustained and that this appeared to embolden others within the NDA who had similar agendas.

After two weeks of buying, the FIIs too turned net-sellers in a big way and sold equities worth Rs 459 crore, their highest weekly sell off in 2002. Interestingly, Mutual Funds returned to the market with net investments of Rs 29 crore, largely due to reduced selling by UTI.

The biggest jolt came on Friday when Sensex plunged 40 points as the concern over the future of PSU privatisation took center-stage ahead of the CCD (Cabinet Committee on Disinvestment) meeting scheduled for Saturday. With the Prime Minister and the BJP in favour of divestment, the outcome is likely to be positive. However HPCL and BPCL, the two major disinvestment candidates, lost 1% and 7.5%, respectively, over the week.

The BSE IT Index, which had gained consistently for the past four weeks was unable to insulate itself from the weakening NASDAQ. It ended the week down 2.6%. The fall was more pronounced among the large-caps. Infosys was down 2.4% and Wipro 4.6%. Index heavyweights like HLL, ITC and TELCO succumbed to profit booking though Reliance Industries seemed immune to this. MTNL, down 10.2%, was the biggest loser with government expressing concern over its merger with BSNL. The small investor is going to be a loser in the drop of floating stock (currently 44%) that will result from this merger.

There was encouraging news of better August sales from the cement and auto sectors. TVS's bike sales vaulted 113% and that of Hero Honda and Bajaj grew by 26.6% and 36%, respectively. However Hero Honda (up 2.5%) was the only stock that gained. In cement, ACC recorded a 24.5% rise in shipment while L&T and Gujarat Ambuja grew by 13% and 45% respectively.

In an interesting move, the NK Singh panel has proposed to raise the FDI cap on key sectors like petroleum, telecom, insurance, real estate and banking. Some years back, the government had targeted an FDI inflow of around US$ 10 billion annually. But the real figure turned out be, on an average, US$ 2.2 billion. (source: RBI Annual Report), around one-tenth of what China has attracted over the same period.

Conditions do seem conducive for attracting more FDI as foreign players are once again gaining confidence in India. For instance, last fiscal we witnessed a net inflow of $ 3.9 billion – the largest FDI so far for any single year. An implementation of the NK Singh recommendations would certainly have some contribution in raising the GDP growth rate from the current 5.4% to the targeted 8%.

Outlook

All eyes are set on Saturday's CCD (Cabinet Committee on Disinvestment) meet, which is likely to set the future course of action in the stock market. The long-threatened US attack on Iraq seemed to be a little closer, or at least the global oil and gold markets seemed to think so. However, with market dynamics and fundamentals being intact, market is sensing a distinct upward bias.