Markets in flat terrain

S. Vaidya Nathan

AFTER five weeks of significant price action in 2001, the stock prices have been in flat terrain in the past week.

The narrow benchmark indices such as the BSE Sensitive Index and the S & P CNX Nifty Index. Both these indices have been more or less flat. The broad-based market indices such as the BL 250 as well as the S & P CNX 500 have posted losses as well. This is rather surprising in a week when investments by foreign institutional investors (FIIs) have been fairly strong in keeping with the trend through 2001 so far.

The FIIs have been pouring money into the Indian markets and in just 35 days of 2001, the net inflows are within touching distance of $ 1 billion. Much of the FII inflows appear to be going into frontline information technology stocks as well as stocks such as Reliance Industries, Grasim Industries, HDFC Bank.

The past week has seen losses across most sectors. Only select stocks here and there have managed to post gains which is not a surprise in a flat market. The stock of Reliance Industries has been showing strong trends. The company, as usual, has announced that it had managed to maintain its profitability and declared an earnings growth of 21 per cent for the October - December 2000 quarter. Overall, the price trends suggest that the earnings announcements have not generally played any significant role in influencing price trends.

Stocks in sectors such as agrochemicals, fertilizers, media and telecommunication have shown price weakness. In the agrochemcials sector, the Cyanamid Agro stock has come under pressure following the announcement of a swap ratio for its merger with BASF. The stocks in the oil sector have also come under some pressure after a fairly extended spell of firm price trends.

In the cement sector, the price trends have been somewhat muted in comparison to the preceding weeks. But one surprise has been the firm trends in the Gujarat Ambuja Cements' stock. Despite a decline in earnings growth to the extent of 43 per cent, the stock managed to post gains and close the week on a firm note. As a traditional FII favoured stock, the possibility this stock being the recipient of FII inflows is distinct.

The announcement of disinvestment programme of up to 26 per cent in the equity has helped the valuation of the CMC stock. A similar announcement has been made for VSNL too. Following improvement in reported earnings, the steel sector stocks have shown a firm undertone.

With the earnings season more or less out of the way, the focus may well be on the Budget and the trends in the FII flows. If the trend (close to $1 billion) continues, there could be high degree of concentration in FII flows in much the same manner as in 2000. Further inflows of the same order could trigger a price rally that could take stock prices out of alignment with underlying fundamentals.

The Budget could also be a factor though any major fiscal concessions appear unlikely. The imposition of a 2 per cent surcharge on corporate tax and the Supreme Court ruling against the stock brokers could also have a bearing on price trends in the near term. If FII inflows tend to cool off somewhat, price weakness and flat trends may be the order of the day.