The impact of both is bound to be the same, for the UTI inflows have provided major support to the market. The fall in the market on Monday was mainly driven by short-sellers in anticipation of UTI selling its top holdings. Selling from the operators were concentrated in all the top holdings of the US-64 scheme. A major part of the sales was pressed in stocks like Reliance Industries, where UTI is known to have huge holdings, and also in stocks like ITC, Grasim, IOC, Gail, HPCL, BPCL, Tisco,SAIL and Bharat Heavy Electricals (BHEL).

Further, large blocks of development financial institutions' (DFIs) stocks are held by UTI's US-64 scheme, all of which have been hammered to all-time lows. Unfortunately for bank stocks, large blocks of Bank of Baroda, State Bank of India, Corporation Bank, ICICI Bank and a few other banks have been accquired in a big way by UTI in recent weeks. Along with the DFIs, these also have consequently become the target of large-scale selling by market operators. State Bank and Corporation Bank were major targets for short- sellers, losing 10-12 per cent of their market capitalisation, far in excess of the cumulative dip in the Sensex, over a two-day period.

Whatever the supposed reason, the fall in the market was excessive on Monday. But then with so many contradictory statements emanating from the top management of the fund, operators are making the most of it. It would be in the fund's best interests for the management to keep quiet about its strategy as the marketsare liquid enough to permit UTI an exit from the required quantity of stock over the next three to four months without affecting valuations too much.

But instead of exiting, UTI has decided to provide short-sellers with a further opportunity. It has also given the FIIs a chance to get out of the market by virtue of its strategy to push up the Sensex. It has tried to support the Sensex with purchases in ITC and Hindustan Lever, and the FIIs responded by pressing sales in all the public-sector unit (PSU) stocks like MTNL, VSNL and BHEL, where UTI could eventually turn out to be a major seller, as redemption pressure is inevitable.

Nalco

The downtrend at the Nalco counter is coming to an end. The main assuption behind this theory is that international aluminium prices have bottomed out. After falling to a four-year low of $1,258 last month, aluminium prices on the London Metal Exchange (LME) have bounced back to $1,360 and now hover in range of $1,300-$1,320 per tonne. The aluminium prices have astrong support in the range of $1,260-1,290 and according to analysts, a fall below this level is highly unlikely.

These levels are confortable for producers like Nalco and Hindalco. Both these companies have an advantage of easy access to bauxite at a cheaper rate, which makes these producers competitive even at these prices. Profit margins are further cushioned by a steady rupee depreciation.

For Nalco, since the company has cleared all its debts, gross margins are expected to improve. During 1996-97, Nalco's interest burden was Rs 40 crore. The company's smelter has also re-started. The closure had badly affected the stock price, which fell to Rs 15. At present, the stock is available at Rs 19.

Another good news for the company could be the restructuring of the present equity of Rs 1,288.62 crore. The company had reportedly proposed to swap Rs 644.31 crore of equity at par with debt of five-year tenure, at a coupon rate of 13 per cent per annum. Although this would result in an additional interestburden, the reduction of equity is expected to give a boost to the market sentiment for the stock.