Cyclicals overtakeauto, IT sectors

A. Srikanth

THE indices continued to record losses through the week as fears about the health of the economy gripped the markets.

Heavy dollar demand from importers and FIIs resulted in the rupee losing 1.30 per cent during the week to close at 45.42.

Though some segments of the industry still hold some hope, the prospects for most others appear a little shaky. The information technology sector along with automobiles took most of the beating during the week. While computer software and hardware lost 8.32 per cent and 10.40 per cent respectively, the automobile sector (except for automobiles two- and three-wheelers which recorded lower losses of around 3.50 per cent) lost around 10 per cent on an average.

Most major frontline infotech stocks lost significant value during the week even as a few second-rung and third-rung stocks gained marginally. This is despite the fact that most frontline stocks have posted very impressive first quarter performance.

Long positions in infotech stocks, though they have fallen significantly over the last few weeks, are still on the higher side. Probably, warehousing operations of some of the brokers failed to take off as the FIIs surprised them by exiting from the market.

Relative attractiveness of other Asian markets has prompted the FIIs to exit. The fall in the rupee has only aggravated the situation. This could soon put the markets in a spot. On one hand, the financial performance of the infotech companies would get a big boost due to the depreciation of the rupee. But on the other, the weak rupee would delay any fresh investments.

Despite the threat of an industrial slowdown, major cyclicals continued to perform well during the week. These include Madras Cements, Gujarat Gas, MICO, Birla 3M, Hindalco, Revathi CP, Alfa Laval, Grasim, Indian Hotels, Gujarat Ambuja Cements, L&T and Munjal Showa.

Despite the poor performance by the automobile sector, the auto ancillary sector remained relatively strong with Widia, Sandvik Asia, Munjal Sowa and Motherson SS posting gains during the week.

But as it has been observed in the previous weeks, there were enough evidences of the market shifting to the defensive gear. The fact that many companies in the pharmaceutical and FMCG sectors, which are perceived as defensive sectors, gained is a pointer to the above view.

Major gainers among pharmaceuticals include Dr. Reddy's Labs, Ranbaxy, Rhone Poulenc, Wyeth Lederle, Fulford, Hoechst Marion Roussel, German Remedies, E.Merck, Nicholas Piramal, SmithKline Pharma and Cipla. Indian pharma firms were conspicuous by their absence in the rally.

Though the FMCG sector was a late entrant in the rally, it posted significant gains. Except for SmithKline Consumer, most others gained in value only during the fag-end of the week. The major gainers include Hindustan Lever, Nirma, ITC, P&G, Nestle and Cadbury.