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How Far Down From Here

The lack of clear guidance from technology companies, and a lackluster performance from select old economy players drove the Sensex to its one-year low. Will this pessimism prevail or will markets recover from here?

Led by unimpressive results from bluechips, markets slipped into the red. The BSE Sensex shed 133 points (4.4 per cent) while the S&P CNX Nifty was down 39 points (4.06 per cent). This onslaught, led by both old economy and new economy stocks, took place on the back of a drop in combined average turnover. While average turnover had surged above Rs 4000 crore last week, this week it came down to Rs 3626 crore. Even institutional players –both domestic and foreign, did not lend much support to the market.

After encouraging guidance from technology bellwether, Infosys, the technology story seems to have run out of steam. After Wipro last week, Satyam and HCL Technologies also reported a fall in the bottomline. While the former blamed it on rupee appreciation, the latter attributed this fall to the dropping off small clients from its books. Pessimism soon spread over the earnings of second-rung technology stocks too. As a result, the BSE IT Index fell by 90 points (6.16 per cent) in the course of the week.

New economy apart, old economy and cyclical results were also a mixed bag. In the health-care sector Cipla brought cheers due to its generic sales in the US. Dr Reddy's, however, reported a steep fall of 30 per cent in earnings, due to a drop in US sales of generic drugs. The FMCG king, Hindustan Lever saw turnover drop by 7.2 per cent. Though this fall in sales was on account of the company discontinuing its lower margin exports, the market's reaction was sharp. The stock fell by 8 per cent over the week. Good earnings numbers from some two-wheeler and cement companies failed to impress the market.

Results apart there was some pessimistic news on the economic front. Growth in core sectors slipped to 1.7 per cent in September. The figure for the corresponding period last year was 4.1 per cent. A higher base in the past year and sluggish performance by crude oil and electricity sectors was behind this.

Outlook
The Sensex has reached its one-year low of 2875.53. Will the markets recover from here or will they continue their downward spiral? While this is a tough question, short-term positive triggers are likely to come from stock-specific results. The RBI governor's growth projections in the monetary review, next week, could be a decisive factor. Bank stocks may also get some attention for a while. Otherwise, wait till Arun Shourie accomplishes his mission. And at the moment this seems difficult.