labels: birla sun life distribution, economy - general, investment - general
Bourses to benefit news
Sanjiv Roy
09 April 2003


Mumbai: Given the present-day scenario, with external factors affecting market movements more than anything else, it is pertinent to analyse how the capital market would perform once the war in Iraq draws to an end.

Indian equity markets have not performed for a long time now and in the recent past, the US-Iraq war has taken its toll on the bourses. In such a scenario, with sentiment remaining understandably cautious, it is difficult for one to take a call in the short term.

In the near term, corporate results would be a key driver for the market - there has already been some front-running in IT stocks.

Infosys' fourth quarter results (on 10 April 2003) and its outlook for the next year would be very closely watched by the market as it would give an overall view on the global situation, billing rates, fresh orders and an impact on the Indian software sector. If we go by Nasscom projections for the current fiscal (FY 2003-04), the sector should grow at 30 per cent over the last year.

Besides, we are of the view that sectors like auto and banking would continue to do well on the back of several positives. A higher spending on infrastructure and softer interest rate should augur well for these sectors.

Further, an increase in treasury income would give a boost to the bottomline of the banks. Despite a run-up in the banking stocks in the recent past, most of them are valued at attractive levels and getting historic price earnings (P/E) valuations of four to five times of their earnings.

The banking sector is poised for sustained growth and it has been observed that most diversified equity mutual funds have increased their exposure in banking to the extent of 18-20 per cent. Overall, the performance of core sectors has been promising, underlined by the latest economic numbers.

Disinvestment would continue to be a key trigger for the market, which should drive oil public sector companies like Hindustan Petroleum Corporation and Bharat Petroleum Corporation. A decline in crude oil prices post-war should also benefit these refining companies.

What does the technical chart indicate for the near term?

The Sensex daily technical chart depicts that it has taken support near 3037 levels in the near term and witnessed an upward movement. At current levels, the MACD (moving average convergence divergence) has also given a buy signal - exhibiting further strength. Thus, it is likely that the Sensex would move up to test its near-term resistance near 3225 levels. If this level is convincingly broken, it could go up to 3300 levels.

At current levels, the valuations are very attractive with the Sensex trading at a historic P/E of around 12 times. The future P/E should be even more attractive as we expect most Sensex heavyweights to show a robust growth in the coming years. Thus, even purely on a valuation basis, we expect sustained buying to come at these levels.

Abolition of dividend tax and long-term capital gain tax should also give a spurt to capital markets and attract more long-term investments. Once the war is over, we also expect a follow-through buying from foreign institutional investors - this is crucial for a sustained rally.

Overall, we remain bullish on the market and believe that any investment made at these levels should reap good returns to the investors, in the long run.

(The writer is the chief executive officer of Birla Sun Life Distribution)

 


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