Mutual funds reversing roles

S. Vaidya Nathan

Stock prices headed south in the past week after a close to two months of a steady uptrend.

Much of the decline has come in the information technology sector where divergent trends have been in evidence. The week also saw FIIs and domestic mutual funds reversing roles. The former were net sellers while the latter for a change were buyers in a fairly big way.

The terrorist attack on Parliament served as a good cover to usher in a correction in the sharp spurt of the last two months. The decline in the NASDAQ also had a spillover effect.

Outlook : The markets may move in a narrow range as some uncertainty regarding the direction of FII flows seems to be in evidence in the first two weeks. While the first week saw strong FII buying, the reverse happened in the second week. The fact that tech stocks have run - up sharply may also limit the scope for upside. Profit booking appears to be taking hold of stocks in this sector. Most old economy stocks continue to hold their value

with cement sector stocks in the limelight in the wake of a 7 per cent growth in November.

Key Board Meetings : The ones to watch are : ABB for issuance of shares to amalgamating companies, Geometric Software for a venture with Dassault Systems and a 70 per cent stake in the joint venture and State Trading Corporation to cut equity by returning cash to shareholders.

International Markets : Most major markets took a knock. The Nasdaq, the Nikkei and the Taiwan market were prominent in this category. Earnings warnings by the likes of Lucent and Cienna have dented the recent upbeat sentiment in the tech sector. The cut in interest rates by the U.S Federal Reserve at 25 basis points appears to have been below expectations and perhaps induced caution of further downside to interest rates. The U.S Fed Rate is now at a 40 year low.

Key Pointers : Some of notable trends in the last week trading were :

* Frontline tech stocks such as Infosys, Wipro, Digital GlobSoft, Satyam Computer and the likes of NIIT suffered a sharp decline. But interest continues to be riveted on second and third line stocks such as Mastek, MphasiS BFL, Geometric Software and Polaris were very much in the limelight.

* Zee Telefilms shed some speculative fervor linked to a possible stake by AOL-Time Warner. The two groups have formed a joint venture which appears to be heavily in favour AOL-Time Warner. The stock may continue to show weak trends as one major prop for its recent rise is out of the way.

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* FMCG and pharmaceutical stocks have been rangebound with market interest riveted on other sectors.

* A Rs 75 per share dividend by VSNL led to strong volumes in the stock at the turn of the week with some marginal price gains. Some limited upside may be in prospect.

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Fund Flows : FII purchases for December have been Rs 2323.7 crore, sales Rs 2098.9 crore and net inflows Rs 224.8 crore ($ 46.8 million). Mutual funds have made purchases to the tune of Rs 840.66 crore, sales of Rs 641.09 crore and net purchases of Rs 199.57 crore. FII flows for 2001 to date at $ 2.85 billion are still within touching distance of the 1996 high of $ 3.06 billion with two more weeks to go.