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Markets Reach Another Milestone

In a broad-based rally, the BSE Sensex crossed the 4,500-mark after three years. Strong FII inflows and good economic growth were the key drivers this week. The next trigger would be the forthcoming second quarter results.

It was another good week for equity investors. Strong FII buying and the expectation of a good second quarter results led to a sharp rally in the Indian markets. The BSE Sensex climbed 3.9 per cent to touch a new three-year high of 4,553 points. The S&P CNX Nifty gained 4.5 per cent over the week. The encouraging first quarter GDP growth of 5.7 per cent and the finance minister's comment that the current rally is institutional-driven and not operator-driven also helped in boosting market sentiment.

In a short trading week, both FIIs and mutual funds made good investments. While FIIs invested Rs 695 crore this week, mutual funds made an investment of Rs 175 crore. A robust FII inflow has been the key driver of stock prices in the Indian equity markets recently. In the whole month of September, they invested Rs 3,851 crore, which is an 85 per cent jump over the August figure. Apart from strong institutional inflows, the bullish market sentiment was also reflected in a high daily average combined trading volume of Rs 6,554 crore at both exchanges. As the rally was widespread, the advance-decline ratio too remained high at 1.91, ie over 65 per cent of liquid stocks moved up at BSE and only 35 per cent of stocks moved down.

A higher gain in the broader S&P CNX 500 Index and the CNX Mid Cap 200 Index – each gaining over 4.5 per cent – amply suggest that the rally was not only confined to the large-cap stocks or a particular sector. Majority of cement, auto and steel sector stocks made smart gains this week. The good monthly sales figure reported by some of these companies in September have raised the market expectation of a better second quarter results from these companies.

That apart, PSU stocks attracted heavy buying interest ahead of the Cabinet Committee on Disinvestment (CCD) meeting on Friday. The BSE PSU Index gained 6.75 per cent over the week. But the outcome of the CCD meet was a complete surprise. Instead of touching HPCL and BPCL, the cabinet has planned to split Indian Oil (IOC) into two and privatise a major portion of its retail network. IOC, together with its recent acquisition IBP, owns 52 per cent of the total retail outlets in India. The CCD has also cleared the sale of Engineers India (EIL) and Balmer Lawrie, and approved the privatisation of Tide Water Oil Company, Hoogly Printing and Hindustan Newsprint. Apart from these, Shipping Corporation of India announced a 170 per cent dividend, which resulted in a sharp rise of 27 per cent in its share price on the last trading day.

Though the rally was broad-based, the Indian IT counters remained subdued this week – the BSE IT Index closed the week flat. This was largely due to concerns over the US restriction on H1-B visa norms. The Indian software industry is disappointed by the reversion to a cap of 65,000 H1-B visas to the US from the annual limit of 195,000 H1-B visas in effect since 2000. This is likely to affect the smaller companies, which depend heavily on onsite development work. But this will not affect the big companies as their professionals abroad are on L-1 rather than H1-B visas.

The BSE Sensex would soon see five new companies in the list of 30 stocks. With MNC stocks losing sheen due to delisting and the lacklustre performance of the FMCG sector, the BSE Index Committee has decided to remove Nestle, Castrol, Glaxosmithkline and Colgate Palmolive from the list of BSE-30 stocks. HCL Technologies is also among the excluded list. The new entrants are Bharti Tele-Ventures, HDFC Bank, ONGC, Tata Power and Wipro. This will come into effect from November 10, 2003.

Outlook
The market has breached the 4,500-level after a gap of almost 37 months. Good economic growth and strong FII inflows have been the key drivers. The next trigger would be the forthcoming second quarter results, which will start flowing in the coming week.