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With the Rain God's Blessings

The monsoon is finally here. And the Sensex continues to move northwards. Though the rally was not as sharp as in the previous week, the Sensex closed at 3,300 mark, managing to touch a three-month high.

The onset of the monsoon saw bulls at Dalal Street switch loyalties from mid-cap stocks to large-caps. Both the BSE Sensex (up 122.49 points) and the Nifty (up 39 points) moved ahead, clocking a gain of nearly 4 per cent over the week. After a few good weeks, the mid-cap and PSU-driven rally finally fizzled out, evident as it was in the CNX Midcap 200 Index inching up a mere 0.46 per cent and the BSE PSU Index managing a slightly better performance—up 1.10 per cent over the week.

As for institutional investors, the FIIs pumped in Rs 600 crore over the week. Their net investment of Rs 1,182 crore in May has been the highest monthly investment after February 2002, when they picked up equities worth Rs 1,966 crore. The domestic mutual funds, on the other hand, were net sellers during the week.

As was expected, key PSU bank stocks—PNB, BOB, Canara Bank and Syndicate Bank—were severely hammered at the start of the week. There has been an uproar about whether the government should buyback equity from PSU banks at a premium or at par. While the government is still undecided on the issue, these banks ended the week in the red. While Punjab National Bank lost 15 per cent, Bank of Baroda and Bank of India lost nearly 8.50 per cent and Syndicate Bank shed 6.32 per cent. Thus, the BSE PSU Index gained a mere 1.10 per cent over the week against last week's 7.29 per cent gain.

After having had a poor run for a while, the attention grabbers this week were technology stocks. The BSE IT Index, after a gap of six months, gained a whopping 8.67 per cent. Except for a marginal correction on Tuesday, the BSE IT Index gained in every trading session and managed to beat the Nasdaq's gain of 2.03 per cent over the week. Despite a rise in the unemployment figure, an optimistic remark on economic recovery by the Fed chairman saw the Down Jones rise by 2.40 per cent over the week.

At a time when the US lobbying agencies are trying hard to prevent US companies from outsourcing projects to India, Nasscom has predicted that US outsourcing from India could save the former $11 billion. At the same time, it admits that margins are under pressure and may go down further in the current fiscal. However, Nasscom expects the IT-enabled services to contribute more than 50 per cent to the projected 26 per cent growth for the industry.

Finally, the big driver for the markets this week was the onset of the monsoon. The met-department's statements were closely monitored. The department's initial statement that monsoon may get delayed caused nervousness on Tuesday. The announcement on Thursday that monsoon has finally arrived in northwest region was a big kicker. As a result, HLL (up 2.69%), Tisco (2.54%) and Telco (5.84%) made impressive gains. Besides that the largest index constituent, Reliance Industries, moved up 4.76 per cent on the news of on-shore oil discovery by the company.

If the pace of FII inflows continue at the current rate, stock markets can be expected to move up higher. A favourable decision on the buyback of PSU bank equity by the government will help in keeping the sentiment positive.