Infotech, steel shares may be in focus

Next week, equity fund managers may invest in shares of information technology, steel, shipping, and textile companies. Debt fund managers are expected to remain invested in cash due to the volatility in the debt market.

The announcement on Friday of the sharp rise in inflation to 7.51% in the week ended Jul. 24 from 6.52% in the previous week dampened the mood.

"The inflation data spoilt the uptrend in the market," commented Jayesh Shroff, equity fund manager, BOB Mutual Fund.

Friday, equities snapped their two-day winning streak. The Bombay Stock Exchange's 30-share Sensex ended at 5197, 1 per cent lower from Thursday.

"But the sentiment is still positive," Shroff said, expecting the market would look up although "We do not expect a big upside from these levels, may be 100 points."

Jayshankar Madhavan, fund manager of Birla Sun Life Mutual Fund expected the Sensex to trade around Friday closing level Madhavan was bullish on IT-oriented sectors, and also on metals because the commodity prices were firming up.

BOB Mutual's Shroff was optimistic about petrochemicals "due to the rising petrochemical cycle."

He also favoured steel because steel companies had posted good earnings for the quarter ended June and there was good demand for steel.

Shipping was another sector that he was bullish about because high crude prices had boosted tanker prices.

Shroff said "if the market goes down, we will be accumulating the stocks in these sectors."

Debt fund managers expect the debt market to trade in a narrow band next week amid concerns about rising inflation, and worries that it could rise further because of last week's hike in prices of petrol and diesel.

Friday, the yield on the ten-year benchmark government bond rose to 6.2750% from its previous close of 6.1367% because of the big jump in inflation.

Sandesh Kirkire, head, debt funds of Kotak Mutual Fund said "The debt market will trade in a narrow band till some clarity on the inflation front emerges."

He expected the 10-year gilt security yield to trade around 6.25 per cent.

Rising yields have forced fund managers to invest mostly in cash and money market instruments. That strategy is unlikely to change next week, fund managers said.

"We have exposure of 5-6% in short-term money market instruments. Most of the exposure is maintained in cash," said Birla Sun's Madhavan. "Looking at the current market, the portfolio allocation will remain more or less the same (next week)."

"We have reduced the average maturity of our portfolio. We have moved to cash anticipating this volatility in the debt market," Kirkire said.