SBI Caps has rated FMCG, commercial vehicles (premium scooters and motorcycles), software and oil and refining stocks as `outperform' on a one year horizon. SBI Caps is neutral on banking, cement, steel, telecom, two-wheelers and power on a one year horizon. SBI Caps has provided the highest weightage of 25.5 to the software followed by oil and refining with 19, auto 15, pharmaceuticals 14, FMCG 12, telecom 5.5 and cement 4.

The sustained rise in indices has seen buying spread to the banking stocks, with SBI up 19 per cent and similar growth in other banking stocks. Besides the general improvement in sentiment, expectations of a interest rate cut have aided the rise in prices of banking stocks as lower interest rates would mean lower or no provisions for investmentdepreciation.

However, despite these gains in the short-term, SBI Caps believes that banking sector will continue to underperform the Sensex as the basic problems with the sector -- slowdown in industrial growth and exports and threat of higher NPAs -- have not been attended to so far.

The perception of SBI Caps is no different as far the software sector goes. According to SBI Caps, the sector will outperform the market index as the software stocks continue to lead the rally on the bourses. Valuations of software companies on the Nasdaq remained strong and this helped improve sentiment towards software stocks in India. Valuations of Pentafour Software improved after foreign funds reportedly bought into the company and on reports that the company is contemplating sale of stake to a strategic investor. DSQ Software improved and formed a new high, on reports of sale of strategic stake to a venture fund. Infosys and NIIT announced bonus issues.

Improvement in valuations in Infosys after the announcement ofbonus was sharp and the company is now trading at a new high. Satyam and Wipro are also trading at peak levels. The quarterly results from DSQ and Satyam have been as per market expectations and signal continuance of high growth rates.

SBI Caps continues to rate steel stocks `neutral' as domestic demand for steel is still sluggish. Valuations of Tisco and SAIL have improved. Cash flows for Tisco are expected to improve on sale of its cement division. The company is undergoing restructuring and would be focussed on value added steel. Outlook on steel companies in general and SAIL in particular has improved after imposition of anti-dumping duties as discussed in last edition of India Strategy. SAIL is also reportedly trying to sell off its power plants to a joint venture company. This sale would improve cash flows for SAIL and improve its leverage. If sale is concluded before the end of fiscal 1999, profit outlook would improve depending on sale price. Among other steel companies, JISCO and other re-rollingcompanies would find their margins squeezed after imposition of anti-dumping duties.

In the auto sector, Telco is rising and regularly hitting circuit on the upside. The rise was triggered by favourable reports of its car and expectations of good bookings. The company is reportedly also expecting some sales tax exemptions for its small car. Cut in price of diesel also improved the outlook because most of the company's vehicles are diesel driven.

Volumes of commercial vehicles have been improving and outlook on both Ashok Leyland and Telco has improved. Two wheeler sector looks fully valued with positive sales surprises not expected. LML firmed up further on positive outlook for its motorcycles. SBI Caps rates TELCO as `outperform' and two-wheeler companies in general as `neutral'.

Oil and gas were in news on account of buybacks proposed for GAIL, ONGC and IOC. Market expected buyback pricing to be above market prices and valuations of these stocks improved in anticipation. IOC is being aggressive intying up product supplies to feed its marketing infrastructure (expected to be the most profitable segment after de-regulation). SBI Caps continues to be bullish on IOC. HPCL and BPCL are rated `outperform'.