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Indian shares to rise cautiously

BOMBAY: Indian shares are likely to open the week higher, with sentiment buoyed by an interest rate cut, but the rally is unlikely to continue unless foreign funds buy aggressively, dealers said.

However, select stocks will continue to head north, driven by corporate developments and earnings announcements.

Key firms announcing earnings numbers this week include Pentafour Software and Exports, Dr. Reddy's Laboratories, Gujarat Ambuja Cements, Reliance Industries and Bajaj Auto.

Shares of engineering and construction conglomerate Larsen & Toubro Ltd are also expected to rise after the firm announced on Friday it planned to set up a separate subsidiary for its cement business and make its infotech subsidiary public.

Foreign exchange dealers said the rupee, which ended Friday at 42.525/53 per dollar, was unlikely to weaken despite the decline in interest rates. But forward premiums would ease from current levels as the gap in interest rates was likely to narrow.

Bond dealers said the government securities outlook was still bullish as the liquidity situation was very comfortable.

"The stock market could open with a 50-70 point gap on the upper side on Monday with this interest rate cut and buoyant U.S. markets," said a dealer with a local share brokerage.

But the longevity of the rally was in question.

"Unless foreign funds become aggressive buyers, the market will remain in a volatile zone," said Anthony Sequeira, managing director of Arcadia Share and Stock Brokers.

Foreign funds have been net sellers of $60.6 million in the first two weeks of January, being both buyers and sellers intermittently. They were net investors of over $1.5 billion in 1999.

The top-30 share Bombay exchange index ended on Friday at 5,471.27, up one percent on the week.

Volatile market movement during the week prompted the Securities and Exchange Board of India to tighten margins, on the heels of a similar move in the previous week. This was likely to restrict speculative activity, dealers said.

Shares are off an all-time high of 5,668.28 hit on January 10. Some analysts were optimistic that the lower levels in the market would attract funds.

The technologies-rich U.S.-Nasdaq composite index registered robust 2.71 percent gains on Friday but Indian listings there -- Infosys Technologies Ltd and Satyam Infoway Ltd -- lacked strength.

On Friday India announced a cut in interest rates on public provident fund deposits, a government-run savings scheme, to 11 percent from 12, which is expected to trigger lower bank rates.

Securities analysts said a flight of money to the equity markets was unlikely, although the cut would improve sentiment.

"People who traditionally invest in such instruments will continue to do it, irrespective of a rate cut," said Hemant Majethia, director at Ventura Securities.

But with the growing popularity of mutual funds, some analysts feel money could get diverted there.-Reuters