Continuation of a relative strength in greenback against rupee appears to have enthused the market to place additional premium to exporting sectors, particularly IT.

Jayanta Mallick

AS expected in these columns, market sentiment improved last week, even though volumes were yet to catch up. It appears, the benchmark indices would remain firm this week and the volumes are also likely to go up in comparison.

After the recent correction from the peak, the valuations seem to be in line with the reality. The second quarter net profit growth proved that the expectations were overstretched. But on a higher base, the average profit growth was clearly positive.

After substantial profit taking, large long-term investors appear to be taking fresh look at the fundamentals and the growth potential.

Prospect of a serious upturn in capital expenditure cycle, particularly in the manufacturing sector, seems to have captured imagination of the market players. On the other hand, continuation of a relative strength in greenback against rupee appears to have enthused the market to place additional premium to exporting sectors, particularly IT.

The correction has also proved to be a welcome breather for overseas funds for taking a fresh look for the Indian equities amid others in the emerging markets. Officials in the institutional brokerages handling overseas clients admit that absence of fresh reforms signals has caused flagging of some interest. But it may gradually return as a number of greenfield projects get going raising hopes of higher scales for the India Inc.

Increasing concern over the sustainability of growth of the `red hat' Chinese companies has turned many global investors to the slow-but-steady Indian companies. Things may not happen overnight. But a fresh list of Indian companies may figure in the global investors' radar in the near future.

Strong growth indications from the US in the fourth quarter (October-December) and chances of relatively contained global crude prices in anticipation of a warmer North American winter may also help global investors to look around for assets in the emerging market.

This week may display a shift in FII investments. Instead of being net negative (on a weekly basis), they are likely to turn positive. This should bring in a sense of consolidation in the benchmark indices. However, a broad-based upward move may not happen in the immediate-term.

(This article was published in the Business Line print edition dated November 7, 2005)
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