Old economy shares back, techs to tail Nasdaq

Old economy shares back, techs to tail Nasdaq
REUTERS & EEB

MUMBAI, MAY 28: India's stock markets are expected to be volatile with some buying in the early part of the week in some "old economy" and consumer goods stocks amid optimism over a good monsoon while fortunes of tech stocks will tail the Nasdaq.

Earnings news from key auto makers and some refiners will see action in those stocks, dealers said. The market will also keep a wary eye on the movement of the Indian rupee which weakened last week, hitting an all-time low of 44.75 per dollar on Thursday. Though not large, the fall was unusual for a currency convertible only on current account.

As many as 14 old economy stocks gained anywhere between 13 per cent to 35 per cent last week. A gradual but steady buying in Hindustan Petroleum has seen the stock gaining by about 40 per cent from around Rs 109 on May 15. During last week itself the stock gained about 17.34 per cent. But the shift is much more pronounced in FMCG and cement stocks, led by Hindustan Lever, ACC and Gujarat Ambuja Cements.

The benchmark 30-share Bombay Stock Exchange Sensitive index which was flat week-on-week ending at 4,084.71 on Friday is seen choppy as it has a fair mix of old and new economy stocks. The index has largely moved in tandem with the Nasdaq composite in the past two weeks and that is unlikely to change.

"The basic market sentiment is still driven by the Nasdaq and any amount of local good news has but a temporary effect," said N Rajan, chief investment officer of Kotak Mahindra Asset Management Company. Infotech shares are expected to remain weak in the coming days. Satyam which was down 12 per cent on Friday is expected to show a weak trend. As the Infosys ADR was down by $ 11.5 on Nasdaq on Friday, its share is expected to follow suit on the domestic markets as well.

The tech-laden Nasdaq index ended almost unchanged on Friday at 3,205.11, only 0.01 percent or 0.24 points lower than its previous close. A bout of fund buying in multinational consumer goods firms and cement stocks on Friday has many market participants feeling these sectors will shine for the next few sessions.

India's weather office last week predicted a normal monsoon, which has come as music to the ears of these firms which depend on rural consumption for revenue growth.

A severe drought in five Indian states had hit consumption of cement and led to concerns that lower rural incomes, if the monsoons failed, would hurt corporate bottomlines. India's agriculture is heavily dependent on rains. "Basically, what we saw was just a realignment of portfolios to shake off some of the tech sector weight," said Rajan.

"But it is unlikely to last long as if a few days' rally gives a 25 percent return on multinational stocks, people are bound to book profits".

While the rupee recovered briefly when the Reserve Bank of India announced a series of measures to contain market volatility, it weakened again to a record closing low of 44.37/38 per dollar on Friday. The weakness had started on routine corporate demand and an assumption that foreign funds will seek to take money out of the country after selling in the equity markets since stock prices were sliding.

The benchmark 30-share Bombay index has lost 34 percent from its mid-February peak of 6,150.69.

Stock and forex market participants will be watching for some definitive trend in foreign investments to show up. After being net sellers of $179.2 million between May 1-23, foreign funds turned net buyers worth $110.2 million in the last two sessions.

The rupee has lost nearly two per cent since the start of the calendar year, but analysts say foreign funds have already factored in a 6-8 percent annual depreciation. It is weakness beyond that which will be watched for, they said.