Investors seek value in badly hammered tech stocks

By Denny Thomas

MUMBAI: Shares are expected to trade in a narrow band this week with cautious investors likely to seek value in beaten down technology stocks and book profits in the old economy sector which rallied last week, analysts said. The benchmark Sensex rose 4.23 per cent last week to a seven-week closing high of 4,031.96 on Friday, with dealers saying they expected the index to trade between 4,150 and 3,900.

The market was not in a mood to blindly follow Nasdaq, but short term, overall sentiment will still be determined by overseas markets. Fund managers have been looking for steady growth firms in the non-tech sector in recent days, they said. "Over the past few weeks the Indian markets have held on their own despite sharp falls on the Nasdaq," said Vibhav Kapoor, managing director of IL&FS Asset Management. The Nasdaq composite lost 23 per cent in November, its most dismal performance in 13 years. Uncertainty over earnings of the tech sector and the outcome of the US presidential elections could mean more falls this coming week, analysts said. The benchmark Bombay exchange index, in contrast, gained 7.7 per cent in November.

Software firms under pressure

Nikhil Khattau, chief executive officer with Sun F&C Asset Management said since Indian software firms had ridden piggyback on the Nasdaq's earlier rally, they were naturally under pressure as it came off. But he said the fundamentals of Indian software companies, most of which are service providers with strong growth prospects unlike the Nasdaq's technology shares, would be recognised in the market. Analysts said the market was unlikely to witness a big rally without the participation of software shares.

"Software shares are still formidable and we believe this sector to be key driver going forward," said Sanjay Sachdev, managing director of IDBI Principal Asset Management. Kapoor picked NIIT and Digital Equipment Ltd. as good buy value in the software sector. Their shares closed Friday at Rs 1,764.50 and Rs 510.15, respectively. Fund managers said the market is keenly following the government's initiative to reduce stakes in state-run firms.

"The market needs a catalyst for a fresh rally and a positive move on privatisation could provide the desired push," Khattau said. Fund managers said the foreign inflows in the next quarter would be largely determined by the outcome of government's privatisation moves. "We believe privatisation will improve investor confidence going forward," Sachdev said.

Old economy gains seen limited

Dealers said fund managers would buy old economy shares while they offered good value, although their recent rally meant many would be tempted to lock in profits. "Cement shares will benefit from the recent price hikes by the select firms and we believe the worst is over for the sector," Kapoor said.

Fund managers said while valuation of old economy shares was driving fresh money into the sector, future investments would be determined by the operational efficiency of individual companies. "It is going to be more stock specific buying rather than general sector investment," said a portfolio manager with a local fund.

(C) Reuters Limited 2000.