The Indian stock markets have had a really bad run of late. A gamut of factors, both domestic and international, have kept the major indices under the gun. Come results season, and investors still have nothing to cheer about.

The dismal to not-so-good performance by frontline companies has only sent tremors down the already shaky survivors of the downturn. Index heavyweights such as Infosys, Satyam, Reliance and HLL have seen a lot of erosion in their stock prices and look like a pale shadow of their former selves.

The big shock at the outset of this earnings season came from Infosys when the company rattled market sentiment by giving a pessimistic earnings guidance for 2003-04(FY04). The fact that the company had registered an 18.6 per cent growth in net profit at Rs 957.93 crore in 2002-03 and a 39.1 per cent growth in revenues didn't quite help.

Although the growth in revenue has beaten the company's own projections handsomely, the rise in profit has just about met them. Profits were under pressure throughout the year, with growth falling from 30 per cent in the first quarter to less than 25 per cent in the last. The company's consolidated revenue guidance for 2003-04 was in the range of Rs 4,484-4,565 crore, which made the stock fall out of favour. The stock lost 40 per cent in the span of two days.

Barely had the markets digested the Infosys results, that Wipro reported a 4 per cent fall in net profit for 2002-03 to Rs 820 crore, and warned of sliding profit margins. This jolted investors already shaken by a tepid outlook from Infosys Technologies. The unexpected drop in quarterly earnings and the company's profit warning added to the sector's woes.

However, Satyam Computer Services managed to lift some of the gloom surrounding the software services sector, after it posted a quarterly loss but gave a bullish outlook, reducing fears of sliding margins in a maturing industry.

On the old economy front, heavyweights like Reliance and HLL have posted results that at best could be termed lukewarm. Reliance Industries reported a 41 per cent rise in net profit at Rs 1,101 crore on a gross turnover of Rs 17,679 crore. However, analysts were not too upbeat on the company's telecom business.

HLL posted a 8.22 per cent rise in net profit before exceptional items to Rs 382.92 crore for the quarter ended March 31, 2003. It posted a net profit of Rs 353.82 crore in the same period last year. Net sales for the quarter increased 1.2 per cent to Rs 2,367.50 crore against Rs 2,338.46 crore in the first quarter of 2002 (January-March 2002). The growth in net profit was aided by a 47 per cent jump in other income to Rs 141.27 crore from Rs 95.93 crore in the corresponding quarter last year.

The unimpressive fourth quarter results by these index heavyweights have only dragged the Sensex lower. Since April 2, the Bombay Stock Exchange Sensex has lost 143 points and is currently languishing at the 2900 levels.

In the last few weeks, indices were trading in a narrow range but with occasional spurts of activity related to certain stocks or sectors. The lack of clarity in direction amid the volatility that had characterised trading made die-hard investors stay off the markets for the time being.

But the moot question remains- till when? When will the indices stage a recovery and if it comes, which sectors will lead the rally? Valuations have been tempting for a really long time, but cherry picking is not foremost on the investors' mind at the moment.

The question of the erstwhile darling of fund managers - technology stocks and their future place in the fund managers' portfolio also need to be addressed. To answer these questions, we spoke to a number of analysts and fund managers about the prognosis for the next six months.

An overwhelming majority of the market people surveyed was of the opinion that the downturn is by no means over and that the markets will be trading in a lackluster manner, characterised by stock-specific activity for a major part of the period. "We have had an overdose of pessimism with the transport strike, SARS and its effect on the earnings of companies," says Sandeep Shenoy, equity strategist, Pioneer Intermediaries.

"The bad news will be discounted in a couple of months and the 3250 levels will emerge as the base for the Sensex. The right signals will emanate from June onwards," he adds.

Nihar Dave, director, AKD Securities puts 2850 as the base for the Sensex for the next six months. "The index could top at around the 3600-3700 levels. Participation will be limited to certain sectors and is more likely to revolve around individual stories where the participation of the rest of the stocks will be minimal. The indices are likely to be in a trading range for the period," he adds.

"Going forward, the Sensex may trade between the 2900-3500 levels in the next six months," says Rajesh Jain, head of research at Pranav Securities. He adds, "The index may touch the 3500 levels at best, with the help of sustained operator activity and no adverse news on the monsoon front. Market activity will be stock specific and investors may enter fundamentally strong stocks."

'Old is gold' is fast becoming the mantra for stock picking and old economy stocks have come into the limelight on the strength of their endurance. Stability and fundamentals along with strong revenue models are the traditional attributes that have come back in fashion to aid stock picking. However, before one yells 'sell' on the technology portfolio, analysts are of the opinion that the downside for technology stocks from the present levels is not too much.

Rajesh Jain feels that IT stocks will see better times. He says, "The worldwide trend in tech stocks is changing, especially in the US markets where there is a growing number of new economy stocks raising their earnings estimates. The Indian tech revival should probably start in the next few months." The point is echoed by Sandeep Shenoy. He says, "Indian tech companies will take their time to shake off the negative factors like SARS which will affect business in the short-term.

But, by the end of the next quarter, they should pick up pace." However, Nihar Dave warns that "The bad news is that the upside in tech stock prices is also limited because all those who burnt their fingers during the downturn would bombard their sell orders at higher levels."

That apart, there are few more negative factors. Rajeev Sampat of Parag Parikh Financial Advisory Services expounds this. "Most companies will take a one-time hit on account of value added tax (VAT) and this would lead to a decline in earnings which would ultimately affect their stock price," says Sampat.

Analysts also point out that the macro economic picture does not look encouraging with the GDP target of 6 - 6.5 per cent looking to be difficult to achieve. Stock markets being the barometer of the economy, any adverse effect on the economy will reflect on the performance of the markets.

"The government must take up measures to control the fiscal deficit, increase exports and productivity of PSUs and push the reforms process and be pro-active in achieving the divestment targets. That would aid the recovery process" Sampat adds.

The spectre of SARS also looms large on the world markets. The virus has had its repercussions on the GDP growth rate of most Asian countries. In fact, Morgan Stanley has reduced the GDP growth rate estimate for Asia by 0.6 per cent on account of SARS. China, Singapore, Malaysia, Korea and Taiwan will be most affected by this. However, the good news is that the effect is likely to be minimal in India, Japan and Australia.

Yet, foreign investors are shying away from allocating more funds to India. Rajesh Jain says that in the near term, the only thing that will take the markets up strongly will be fund inflows. But that does not seem to be happening as of now. In fact, FII inflows have declined considerably in the last three years.

Looking at historical data, the FII investment in the first four months of the year have nose-dived from the highs of Rs 9,224 crore in the first four months of 2001 to Rs 2,836 crore in the same period in 2002. FII investment slipped further in the current year, with the investment since January to April 23 being only around Rs 1,987 crore.

Rajeev Sampat says "The markets have been bereft of FII inflows on quite a few occasions like the budget and the geo-political situation following the war." But market participants are hopeful that FII flows will be better in the coming months. "Inflows should increase in the next few months" adds Sampat.

With tech thrown out of the window, at least for now, analysts and fund managers are looking at the pharma and banking as an alternative. They are betting on domestic pharma companies having an exposure to the US markets.

In fact, Ranbaxy figures in the wish list of almost all analysts, followed closely by SBI. ITC is also a stock that finds favour with most analysts. Sachin Shah, assistant vice president - Equity Advisory Group, Motilal Oswal picks his favorites. "Dr Reddy and Ranbaxy look good because of their US exposure.

Among four-wheeler auto stocks, Mahindra & Mahindra and Tata Engineering would be good buys while two-wheeler major Bajaj Auto could be bought at lower levels. Container Corporation and ITC are also set to rise. The latter would benefit because the recent price hike in cigarettes has had no impact on volumes."

Banking analysts are pretty upbeat about the SBI stock. The bank is expected to reap rich dividends from the budget sops which would have a very favourable impact on its earnings. PNB, Canara Bank and J&K Bank also find favour with analysts. Nihar Dave holds that the SBI stock will continue to do well. "Even in the bear market, the stock has not fallen and has outperformed the indices.

That speaks volumes of its resilience. Media would be a major play in the next two months with the conditional access system likely to come into play by July 14.

Steel, cement, pharma and select auto stocks are also expected to do well," he says. However, Sandeep Shenoy begs to differ. "The banking sector, with the sole exception of SBI, has run up too sharply and the growth potential in the sector is not too much," he says.

"Steel, Auto and manufacturing would stand to gain the most from the portfolio churning," says Sandeep Shenoy. "However, the magnitude of the fund holdings in tech stocks is too huge and the result will be that a lot of old economy sectors would see the benefits. Ranbaxy would be my pick among the pharma stocks. ITC also looks good," he adds.

"Reliance has the knack of bouncing back when you least expect it," is the refrain of most analysts. Despite the not-so-encouraging recent newsflow on the company's telecom business, analysts hold the stock to be a good long-term bet.

Ditto for HLL -- however, the stock does not enjoy the same kind of support and is advised for the conservative investor. "The fact that even though monsoons are not expected to be up to the mark, the fact that there is no drought expected is a positive," says Nihar Dave.

Looking for the right investment strategy, the verdict in the market is unanimous. "The right investment strategy is to follow the thumb rule of picking stocks on the basis of its fundamentals and earning capacity. One should go against the current and buy stocks on declines. Do not look for overnight gains," says Rajeev Sampat.

Looking at the current scenario, one could hardly agree more.