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C. Kutumba Rao's Weekly Column

Markets ignore inflation dip, rise in Jan. exports

Unnerved by factors like the widening of probe by the CBI in the 2G spectrum scam, rumours over the fate of a large industrial house, slowdown in the corporate earnings and sustained selling from FIIs, markets fell for the third straight week.

On the BSE, the Sensex shedding 280 points closed at 17,729 and the Nifty on the NSE ended 86 points lower at 5,310. A sharp fall in midcap and smallcap indices reflect the nervousness among market players.

Advance estimates revealed by the government show that the economy would grow by 8.6 per cent. Despite IIP growth falling to a 20-month low of 1.6 per cent, experts say RBI's primary concern will be inflation and not growth. Fall in the food inflation and a robust 32 per cent rise in January exports are positive data that have been ignored by the markets.

Till the restoration of a stable government and peace in Egypt, international crude oil prices will be on the boil, warn analysts. With the US markets flirting with multi-year highs, barring any fresh negative domestic cues, traders expect the Friday recovery to gain momentum and transform into pre-budget rally.

Political insiders hint that the government will resolve the stalemate over the joint parliamentary panel issue ahead of the Budget Session. For the week ahead, char-tists predict a trading band of 17,300 and 18,240 for the Sensex and 5,180 and 5,475 for the Nifty. Lighten long positions, if indices fail to stay above 18,000 and 5,380 levels on closing basis.

Despite prevalence of the nervous sentiment during the week that ended, robust trading volumes were seen in the derivatives segment. Open interest rose further to Rs 1,42,000 crore. VIX and PCR slipped mildly indicating addition of calls and possible recovery in the near term.

A short squeeze cannot be ruled out, warn punters. As expected realty stocks continued to be under pressure over fears that high interest rate environment will hurt the sector. However contrarians suggest a selective buying. The strength of the dollar against the euro and a interest rate hike by China took the shine off metal counters.

Industry sources indicate that recent price hikes by some companies reflect robust domestic demand. Buy on declines Tata Steel, Hindalco, Sterlite and JSW Steel. Fall in the telecom stocks has been attributed to the Trai's recommendations on the purchase of 2G spectrum. Use the present correction to accumulate Bharti Tele and Idea.

Increase in car sales by 26 per cent in January to all time monthly high was pleasant surprise to industry watchers. Buy on declines M&M, Ashok Leyland and Tata Motors. From two-wheeler space, Bajaj Auto and TVS look good for near term. Post the recent low IIP number, some analysts feel that RBI will have to rethink its strategy of combating inflation only by interest rate hikes.

Renewed buying interest was seen in many banking counters. Buy on declines SBI, ICICI, Canara Bank, Kotak Bank and HDFC Bank. A pullback in ADAG counters is indicated by some insiders. Among the stock futures looking good are REC, Colgate, Aditya Birla Nuvo, Bhushan Steel, YES Bank, Dish TV, Welcorp and IDFC.

When times are good, investors think the happy days will last forever, and they are willing to pay exorbitant amounts for earnings. But when times are bad, they assume world is ending and refuse to pay much of anything. In assessing how much a stock is worth check 'valuations' relative to a number of criteria. Some of today's most hated but possible winners in next few months are Jupiter Biosciences, 3i Infotech and Sujana Metal.

Despite the recent dilution of equity, the book value of Jupiter Bio is `66 and the patented value of its peptide portfolio is also significantly higher than the present depressed market cap. Though 3i has performed decently, the sto-ck price has fallen sharply. It's a possible M&A candidate at current valuations, say industry watchers.

Sujana Metals is the largest TMT long products manufacturer with widest range in the country. Despite the concerns over the erratic stock price mov-ement, there is a good value in the company, warranting a bounce back, say punters.

Watch the space every week for today's most hated and value hunting in them.

C. Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.


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