MUMBAI: Indian share markets will be more worried by what foreign funds do this week than by any potential knock-on effect from sickly US markets, dealers said.
Foreign funds cutting their exposure in India was a major factor in the benchmark Bombay index's 10 per cent fall in July, but heavy buying toward the end of last week gave a flicker of hope the retreat is coming to an end.
"Though foreign funds made their biggest net purchase of the month on Thursday, we need more proof in the next few days to be able to say the trend has reversed," said Rajiv Sampat, a director at Parag Parikh Financial Advisory Services. "The outlook is still hazy. One should stick to defensive stocks and avoid momentum play," he said.
The benchmark 30-share index of the Bombay Stock Exchange closed 4.2 per cent lower at 4,276.70 last week, diving at one point to a two-month low of 4,052.61 mid-week on foreign portfolio outflows. Ashish Mehta, a director of Mehta Vakil & Company Pvt Ltd, said the market was concerned about foreign funds shifting funds to other regional markets, but thought the worst was over.
"I expect to see consolidation at lower levels," he said. "I am recommending to stay invested at 4,000 levels." Net foreign fund sales during July 1-27 totalled $323.9 million, which was partly cushioned by a net inflow of $49.4 million on Thursday, according to latest figures released by the Securities and Exchange Board of India.
This followed net outflows of $230.7 million in June. In the previous five months the foreign funds had made net purchases of $1.67 billion.
Nasdaq link stretched
The Nasdaq composite index slid 4.7 percent to 3,663 on Friday, its lowest close since June 1, on fears of another rise in interest rates after news of strong U.S. economic growth and earnings disappointments from technology companies.
But the declines of Indian firms listed on the Nasdaq was limited with the American Depositary Receipts of local market favourite Infosys Technologies Ltd ending Friday at 130 compared to the previous close of 130/08 while Satyam Infoway lost $0/07 to $15/09.
"The link of the local stock markets with Nasdaq's movement has become tenuous in recent sessions," said Arun Kejriwal, head dealer of Nikko Stock Brokers, citing their divergent movements in the last few sessions.
Mehta said India's software services sector offered some bargains as companies posted robust earnings growth.
Diversified computer services and hardware firm Wipro Ltd last week announced a 129 percent jump in first quarter earnings which beat expectations of 70-80 percent growth, but the shares finished 35.45 rupees lower at 2,461.85 on Friday.
"Nestle (India) and Dabur seem to be good buys too," Mehta said.
The board of directors of Dabur, which makes traditional medicines and fast moving consumer products, is scheduled to meet on Monday to consider a stock split.
Mehta also said the paper industry offered potential because of a turnaround in fortunes.
Dealers said overall sentiment was handicapped by potential higher interest rates following the central bank's liquidity tightening measures on July 21 to stabilise a wobbly rupee.
The rupee ended stronger at 44.87/88 per dollar last week after dipping to a record intraday low of 45.075 on July 21.
P. Krishnan, country manager at Carlson Investment Management Far East in Madras, said consumer products firm Hindustan Lever Ltd's could drag the market down this week, as results released after market hours on Friday were disappointing.
Hindustan Lever, which has the highest weighting of about 17 percent in the Bombay index, posted a 26 percent rise in net profit to 2.87 billion rupees for the three months to June 30 but sales revenue grew just 4.6 percent to 28.80 billion.
(C) Reuters Limited 2000.