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Indian stocks seen boosted by rate cut

BOMBAY: Indian shares are seen starting the week on a buoyant note, boosted by the cut in interest rates announced by the central bank at the weekend, analysts said.

The Reserve Bank of India (RBI) on Saturday cut the bank rate, at which it lends to commercial banks and primary dealers, to seven percent from eight percent.

It also freed more cash for the economy, cutting banks' cash reserve ratio to eight percent from nine in two stages of 0.5 percentage points each. The cuts become fully effective April 22.

"The markets will open higher, with old economy stocks likely to see more of the buying," said Milind Karmarkar, head of research at Dalal & Broacha.

"The RBI moves, coupled with the changes in the export-import policy, will add to the feel-good factor in the market," he said.

India on Friday scrapped import curbs on more than 700 items, relaxed capital goods import rules and rationalised export incentives, to be more in line with the World Trade Organisation.

Value buying had started in the cyclicals on Friday and was seen picking up with the boost to the economy from the rate cut.

"From the corporate's point of view, it (rate cut) translates into lower costs on existing debt and that is a big boost," said Arun Kejriwal, chief dealer at Nikko Stockbrokers.

Speculation on corporate India's earnings prospects, which roll in from the second week of April, would also offer direction, analysts said.

The top-30 share Bombay exchange index, hit by a correction in the information technology sector and disappointment over the federal budget, has dropped 18.68 percent in the last six weeks from its record high of 6,150.69 on February 14.

As a result, the index has been nearly flat in the first quarter of 2000.

Market leader and index heavyweight Infosys Technologies INFY.O closed $30 lower at $193 on Nasdaq on Friday. The local share ended eight percent down at 8,901.95 rupees.

But analysts said strong earnings prospects for software shares could offer some support in the weeks ahead, despite the current weakness in the technology sector.

Seven listed technology companies, in a Reuters poll of 15 brokerages released last week, were expected to show an average profit growth of 74 percent in annual profits for 1999/2000, outstripping the 21-percent average earnings growth for 30 leading companies covered in the poll.

"The local tech stocks are backed by fundamentals, there might just be a rationalisation of prices as some have run ahead, but the results can trigger a recovery in sentiment in the sector" he said.

DSP Merrill Lynch's head of research Jyoti Jaipuria said other buying opportunities in the market included sectors like cement, petrochemicals and banking.

"The reducing demand-supply gap in the cement industry offered scope for price increases, rising global petrochemical prices augered well for petrochemical firms and steady economic recovery would help the banking sector," he said.-Reuters