Tech stocks likely to lead stock market rally

By Sriram Ramakrishnan

MUMBAI: Technology shares could lead a charge on Indian stock markets this week as investor confidence returns after the government gave key sectors tax breaks and pushed through politically sensitive budget proposals.

"Markets are definitely more sure than they were last week, but it may still take some time for a strong rally like the ones we saw earlier this year," said the chief dealer of a domestic brokerage. Technology stocks soared last week, recovering from a recent battering, but select cyclicals will also look up, dealers said.

The main Bombay Stock Exchange Index ended Friday up 0.78 per cent on the week at 4,693.88, rebounding from a mid-week plunge on talk the government was investigating market dealings by infotech firms with regard to mergers and acquisitions. Chartists said the index's next resistance level was 4,800.

"If the index pierces this level, the market should rally and looking at Friday's strong close, that looks very likely," said Jignesh Shah, assistant vice president for research at Triumph International Finance.

The market had lost 33 per cent from its mid-February life-high of 6,150.69 until last Wednesday, tracking Nasdaq losses amid concerns over tech stock valuations and fears of tax claims on Mauritius-based foreign funds.

Sentiment improved after the government announced tax breaks last week for sectors like software and pharmaceuticals.

Parliament also approved proposals in the budget for fiscal 2000/01 that included contentious cuts in food and fertiliser subsidies, showing the government's commitment to reform.

FUNDS TO HUNT BARGAINS

Technology stocks, should sustain gains next week as funds resume bargain hunting. Many infotech stocks rose for the second successive day on Friday and analysts said the rally has not ended. Infosys Technologies ended Friday 4.01 percent up at 8,500 rupees, while Satyam Computer Services Ltd rose 12 percent to end at 3,274.05 rupees.

"Most of them have formed the 'perfect upward bar reversal pattern' - where the low is lower than the previous low and the close is higher than the previous high. It retraces the whole of the previous falls and shows signs of a reversal," said Shah. U.S. stocks were up on Friday, though jobs data indicated the Federal Reserve could hike interest rates by 50 basis points, as investors welcomed the end of the uncertainty. Tech stocks, seen as less vulnerable to rising interest rates, were leaders.

But, dealers said other concerns still remained - for instance, the impact of India's spreading drought on the economy - and could surface if the situation worsened.

Five states have been affected by the drought, considered the worst in recent times, and analysts said growth prospects for the current year hinged on another normal monsoon season.

The drought would hit many of India's leading companies like consumer products firm Hindustan Lever Ltd, cement firms Associated Cement Companies and Gujarat Ambuja Cements as a good chunk of their demand comes from India's rural areas, analysts said.

STOCKS TO WATCH

Media and entertainment giant Zee Telefilms is set to announce its 1999-2000 results on May 9. Zee shares ended Friday up 2.82 per cent at Rs 685. A Reuters poll in March showed Zee net profit to rise 45 per cent to Rs 885.53 million versus Rs 611.40 million in the previous year.

(C) Reuters Limited 2000.