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ICE stocks tumble as real economy makes way in portfolios

NetScribes/Rajiv Banerjee & Pallavi Rao

Two days of the Budget and some initial gains later, software stocks are facing rough weather. The markets are looking for their next favourites. And topping the list of probables are FMCG, pharmaceuticals, auto and banking.

The BSE Sensex lost 176 points on Friday as the four infotech/communication stocks (Infosys, Satyam, NIIT and Zee) in the Sensex tumbled.

On Friday, in response to the previous day's Nasdaq crash - it hit its 2-year low -- software giants like Infosys and Wipro came tumbling down on the BSE, dragging the Sensex along with them. Infosys closed at Rs 4,939.85, against Rs 5682.70 on Thursday. Satyam lost Rs 50 to close at Rs 262.65 and Wipro ended the day at Rs 2,079, down Rs 347.50. NIIT lost Rs 155 to Rs 1015.

In telecom, Himachal closed at Rs 604.80, down 15.77 per cent and Global closed at the lower end of the circuit filter losing 16 per cent at Rs 312.60. Zee Tele fell also fell 16 per cent to Rs 136.35.

Friday's events have not only fuelled further fears of a cut in US IT spending, but also prompted analysts and fund managers to take the view that from now on domestic software stocks will become more sensitive to global trends than to policy announcements back home.

R Sreesankar, chief investment officer, DSP Merrill Lynch, attributed the negative sentiment in the Indian software counter to the slowdown in the US IT industry. "The market abroad, particularly the US, is going through a recession. With the slide on the Nasdaq and profit warnings from global software majors, the feel-good factor on software stocks is low," he said.

Tarun Sisodia, senior vice-president at Anand Rathi Securities, agreed that software stocks were witnessing selling pressure on account of major funds reducing their IT exposure in the wake of the global slowdown. "Reduced exposure to IT stocks augurs well for other counters like fast moving consumer goods (FMCG), pharma and auto; investors will build positions in these counters over a period of time," he said.

The latest bullishness on these sectors comes from the various sops held out them in the Union Budget.

Sweeping reforms announced for the banking and financial sectors - lower interest rates and abolition of the Banking Service Recruitment Board - have also generated much optimism for these stocks.

Local brokerage outfits such as KR Choksey Shares and Securities, Asit C Mehta Brokerage and Khandwala Securities have rated SBI, Corporation Bank, ICICI, HDFC and HDFC Bank among their best buys in the banking sector.

"The 1.5 per cent cut in small saving and PF rates is a clear indication of a lower interest rate regime. The cut in the Bank Rate is another strong indicator of this. All this will create greater interest for banking stocks. The US slowdown has come at an opportune time for funds to make some changes in their portfolios with greater emphasis on banking, FMCG and pharma," said a fund manager at Asit C Mehta Brokerage.

"The doing away of the surcharge, except the earthquake surcharge, is good for FMCG companies as they are among the highest tax-payers. Hindustan Lever and Nestle will benefit while ITC will lose on account of a 16 per cent excise on cigarettes," said Gaurav Narain, FMCG analyst at SG Asia Securities.

Divya Krishnan, chief investment officer at SBI Mutual Fund, said that the positive news for the FMCG sector would result in institutions to build positions. "Some of the institutions had reduced exposure to FMCG counters; this will now be reversed and there will be some presence in heavyweights like HLL," she said.

The proposal to decontrol bulk drug prices before the end of the next fiscal will bring pharma stocks back into the limelight. "More multinationals will now have the much-needed comfort level in starting this area of business. Pharma is also going to benefit from the 150 per cent weighted deduction on expenditure made in R&D pertaining to biotech, clinical trials, filing of patents for seeking approvals," says a KR Choksey post-Budget report.

Pharma stocks like Cipla, Ranbaxy, Wockhardt and Dr Reddy's are also set to become hot favourites, said Sisodia.

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