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Equity market likely to be firm in last quarter of 1997

The equity market, which had recently exhibited a bearish trend for a long period, is likely to witness a firm trend in the last quarter of the calender year 1997.

According to the 'SBI Cap Equity Market Review', the domestic funds and small investors are now fund surplus and are expected to provide support to the market presently.

In its outlook, the report says, "December being the year ending for most institutional investors, there has been lower net investment by foreign institutional investors in the calender year (CY) 95 and CY96. In CY94 and CY95, the Sensex peaked around September and in CY96, it peaked in June. However, CY97 is different because the domestic funds and small investors are fund surplus and are expected to provide support to the equity market."

The report says that the 3800 level of the BSE Sensex would prove to be a good support level in the coming period, and analysts are expecting the Sensex to be traded between the 3900 and 4300 level.

The market traded in a band of 4320 to 3876 during the period August 14-September 12. The upward momentum could not be sustained on account of currency depreciation. Liquidity was also tightened a bit and call rates have edged up. The Reserve Bank of India's dollar selling also affected the liquidity in the market. At current levels, the market is 13 per cent lower than the peak achieved in the last period, the report said.

According to the report, FII buying is expected to be better in the coming month and this should sustain the Sensex above the 4000 level. The undertone is still bullish and the Sensex is expected to continue trading in the band of 3900 to 4300.

In its analysis, the report remains positive on banking, oil, telecom aluminium, and two-wheelers (premium scooters and motorcycles) on a one-year horizon, while it is neutral on steel and cement, and added that the outlook for the hotel stocks has improved after the currency depreciation.

The banking sector underperformed in the secondary market though in the primary market, banking issues continued to evoke a good response. The SBI Cap Banking Index was driven by a 11 per cent fall in the SBI and a 22 per cent fall in the BoB. Barring GTB and UWB, all others closed lower than last month.

Oil was relatively better performer vis-a-vis the Sensex. The fall was marked by 12.3 per cent fall in CRL, 23.7 per cent fall in MRL and 11.9 per cent fall in BRPL. The performance of the oil sector was buoyed by the hike in prices of some of the petro products and the proposal regarding issuance of bonds. The hike in prices would check further deterioration of the OPA deficit and thus have positive fallout for the oil companies.

As compared to the previous month, there has been a slowdown across all the segments of the automobile industry in the month of July. Only cars and multi-utility vehicles registered improvement in sales. Hero Honda continued to register improved sales. Sales in the month of September and October would be crucial and the trend will determine the stock prices, the report said.

The analysis further pointed out that consumer durables under-performed the Sensex by 11.4 per cent. The levying of excise on the maximum retail price of colour TV and its possible extension to other consumer durables has raised expectations of increase in prices of products. Also the implementation of the Fifth Pay Commission was delayed due to which the anticipated demand did not materialise.

Steel also underperformed the Sensex. The sentiment turned bearish on account of oil price increase. There was profit-taking in SAIL as the shares allotted to the employees of SAIL came out of the lock-in period. Because of the hiked diesel prices, the transportation of steel by road will become more expensive.

Aluminium stocks performed better than the Sensex on falling inventories and forecasted firm prices. Depreciation of the rupee would add around 2.5 per cent to the export profit of aluminium companies.

Tea stocks remained firm and did not fall because of firm global prices, while the commodity stocks have been moving in line with the global commodity prices and are being less influenced by the domestic market movements, the report added.