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Bulls Getting Restless

Contrary to expectations of a downward correction, stock markets continued to move-up. With the New Year round the corner, the pace of fresh FII investment may drive the market mood.

After last week's marginal loss, stock markets bounced back, with both the BSE Sensex and the Nifty gaining around 1.81 per cent each. Market participants embraced technology stocks, reposed faith in selective PSU stocks and continued wooing banking stocks. Barring the Christmas Eve, the FIIs remained dormant buyers, buying stocks worth Rs 189 crore over the short-trading week. On the other hand, mutual funds made a U-turn this week, from being net sellers last week to net buyers this week, picking up equities worth Rs 9 crore (week-ending Thursday).

However, stock markets didn't start the week on a positive note. Fears of war in the Gulf saw technology stocks lose ground. Speculation about the inclusion of new stocks for derivatives trading on the BSE, revived buying sentiment the following day. In November, the SEBI committee had proposed to expand the current list of stocks (29) for derivatives trading. Moreover, the sharp rise in the December stock futures, ahead of their expiry this week, was also believed to have triggered buying in the cash segment.

Besides this, index heavyweights, Infosys, Reliance Industries and Ranbaxy, made news this week. The optimism about Infosys' third-quarter performance saw the share gain 3.23 per cent (Rs 149) over the week. Pharma giant Ranbaxy was in the limelight once again (up 5.74 per cent) as it got US FDA approval for selling a generic drug in the US. However, the newsmaker this week was Reliance, which launched its limited mobile services. Dirt-cheap rates of the company's mobile services are expected to give competition a tough time. The stock touched an intra-day high of Rs 301 on Friday, but profit booking saw it close the week at Rs 298.

The government's claim that the confrontation on disinvestment of HPCL and BPCL was over, is apparently not over yet. This was evident this week, with the Cabinet Committee of Disinvestment (CCD) failing to take any decision about the divestment procedure on Friday. So, ahead of the Friday meeting, the two stocks witnessed a sharp surge in trading volumes in the last trading session. Over the week, BPCL gained 3.66 per cent and HPCL moved up by 10.52 per cent.

Moving away from stock markets, the final Kelkar Committee report on direct taxes was presented this week. For companies, it recommends a reduction in corporate tax rates, scrapping of dividend distribution tax and minimum alternative tax. For individuals, the key recommendations include two-tier structure of income taxes, removal of rebate under section 88 and 80L, full exemption on dividend income and long-term capital gains tax. The report if implemented could benefit corporates but may prove to be harsh for individuals.

Outlook
With no decision taken by the CCD on Friday on PSU divestment, PSU stocks may be headed for a correction next week. If the US-Iraq crisis escalates, technology stocks, notwithstanding Infosys results, may witness a mild correction. That apart, the new financial year could see some strong foreign institutional participation.