Indian Shares to Tread Warily as Euphoria Settles

By PRIYA RAMANI

MUMBAI: Indian share markets will tread carefully this week as the fizz settles after a 16 percent surge in values prompted by last month's federal budget which slashed taxes and boosted industry morale, brokers said.

"There was aggressive buying after the budget and investors are bound to ease off positions," said an equities trader at a US brokerage firm.

"Fund managers are going to be reading the fine print and looking for post-budget bargains."

Mumbai's benchmark stocks index--which closed at 3474.79 points in a special pre-budget trading session, February 28, rose sharply after Finance Minister P Chidambaram announced cuts in personal and corporate taxes in the budget for 1997/98 (April-March).

The 30-share index jumped a hefty 554 points, or 16 percent, to hit a mid-week high of 4,029.56, before profit-taking trimmed gains. The index ended the week at 3876.04 March 6.

Stock exchanges across the country were closed March 7 for a Hindu religious holiday.

Analysts said Chidambaram cheered investors and lifted the gloom that has hovered over the country's stock markets for most of 1996. High interest rates, an industrial slowdown and lower global commodity prices have hit profits of leading companies in the current financial year.

"Sentiment has seen a major turnaround after the budget but then sentiment is very fickle," said a chief dealer at a foreign institutional investor. "I'm telling clients to sit it out and wait for a clearer trend."

Chidambaram withdrew a 7.5 percent corporate surcharge on company profits and removed a tax on dividend incomes. He raised the limits on foreign institutional investment in firms to 30 percent from 24 percent and allowed companies to buy back their own shares.

Firms likely to benefit from the raised limits include the Housing Development Finance Corporation and Infosys Technologies, UTI Securities said in a report. The securities firm said share buybacks were likely to benefit two-wheeler maker Bajaj Auto which "appears to be favorably disposed to such an idea."

"Initially there was a fair amount of euphoria generated after the announcements. The market had low expectations and prices ran up around 16 percent," the chief dealer said.

"But investors couldn't buy as much as they wanted to at sensible levels and the market is now correcting," he said.

Most traders said they expected Mumbai's benchmark index to trade between 3750-3900 points during the week. They said shares of India's state-run overseas telecommunications monopoly, Videsh Sanchar Nigam Ltd would be in the limelight as it began roadshows for a long-awaited issue of global depository receipts.

Roadshows for the issue, worth $567 million at the current market price, begin March 10. VSNL shares ended 38 rupees up at 1,075 March 6. (Reuter)