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Limited Gains, But Upbeat Sentiment

Though the Sensex managed a gain of only 1.54 per cent, the market sentiment was largely positive on account of series of good news that kept pouring in, including good Q-1 Infy results. This week too FIIs continued to favour Indian markets.

Maruti Udyog's blistering start on the bourses followed by improved earnings guidance by Infosys brought cheer to an-otherwise listless market. Amidst negative market breadth, the BSE Sensex added 1.54 per cent to its previous week's level. The NSE Nifty too moved up, registering a 2.04 per cent gain over the week. An upbeat forecast by the CMIE on GDP numbers and government's decision to exit divested PSUs further improved sentiments.

Continuing to repose faith in the Indian stock markets, foreign institutional investors pumped in over Rs 900 crore for the second consecutive week. Mutual funds, bought equities worth Rs 60 crore on Thursday, but were net sellers to the tune of Rs 74 crore over the week.

The markets started the week on a bearish note, with index heavyweights such as HLL and Reliance Industries, shedding value due to profit-booking. Auto, PSU and financial services stocks, however, were spared. Led by the Nasdaq's gain, the Indian technology stocks helped the Sensex register marginal gains on Tuesday, but soon the index had returned to a listless mode. Indian tech buyers displayed nervousness, ahead of tech major Infosys' results on Thursday.

The listing of Maruti Udyog Ltd (MUL) at a 31 per cent premium to its cut-off price of Rs 125 on Wednesday injected life into the market. The stock appreciated 38 per cent over its cut-off price in three trading sessions. It is the first IPO stock to be directly listed on the A-group of the BSE and also the first to qualify for derivatives trading on the listing day itself. Buoyed by the success of MUL, the government announced its intention to sell out its residual stake in delisted PSUs, namely VSNL, CMC, IPCL and IBP, and that too through the IPO route. Despite all the good news the BSE PSU Index ended the week with a marginal loss of 0.84 per cent.

After Maruti, it was Infosys turn to cheer the markets. As against the disappointing last quarter performance, the software services major started Q-1 in the new fiscal on a good note, registering a 6.1 per cent rise in revenues and 7.4 per cent increase in net profits over the Q-4 performance last year. However, a dip in billing rates and the rupee appreciation continued to hurt gross margins, albeit at a lower pace. But what really got the sector 're-rated' was Infy's revision of its FY-04 guidance, from 11-12 per cent earlier to 16-18 per cent now. In a single day, Infy surged 11 per cent while the BSE IT Index was up 10 per cent. Good Infy results set off a strong rally in mid-cap technology stocks. The market excitement though fizzled out on Friday, as profit-booking set in.

Moving away from technology, the bull frenzy in pharma stocks came to a halt this week, as the BSE Healthcare Index inched downwards in every trading session save on Friday when the index moved up marginally. Overall, after eight successive weeks of clocking gains, the healthcare index was down 1.37 per cent this week. That apart, the BSE FMCG Index was also down by 0.45 per cent over the week. Banking stocks, on the other hand, had a good week, with the BSE Bankex Index rising 2.45 per cent. The mid-cap rally took a breather as the CNX Mid-cap 200 Index ended the week down 0.33 per cent.

Meanwhile, expectations of good earnings drove the sentiment in the US markets too. Led by buy recommendation on Hewlett-Packard and Intel, the Nasdaq soared by 4.18 per cent over the week. After remaining volatile over the week, the Dow Jones gained a mere 0.55 per cent.

Outlook
While Infy results spread some cheer around, a lot still depends on how other tech heavyweights perform—how they deal with a strong rupee, pricing pressures, etc. On the macro front though, indications of normal monsoon and upward revision of GDP growth estimates by both the NCAER and the CMIE paint a pretty picture. Stock markets should take a cue from improving fundamentals. However, intermittent profit-booking, as witnessed in the past few weeks, cannot be ruled out.