Reddy believes that foreign institutional investors continue to be a strongdriving force on the Indian bourses. ``Everybody says the markets fellbecause FIIs withdrew money. While there is a strong positive correlationbetween FII investment and the movement of indices, it is still verydifficult to predict what FIIs, as a group, will do,'' he states. WithIndian markets as one of the best performers in the the current calendar,Reddy expects a higher allocation for India.

On the performance of corporates in the second quarter, Reddy is not veryenthusiastic about talks of an economic recovery. ``Recovery is there butthe growth has been on a very low base (of last year's). Economic vibrancyis yet to come into the system and corporate profitability will be the keydriving force for the markets,'' he elaborates.

Reddy expects the culture of mergers and acquisitions to dominate the ITsector. ``There are a number of companies operating in the IT sector now andwe are likely to see emergence of the M&A game. M&As will surely give aboost to the valuations of the companies in the IT sector but only if thisexercise is to the advantage of the company or companies,'' he points out.

On returns from the IT sector, Reddy opines that the big performingcompanies will continue to give returns in the band of 40-50 per cent whilereturns will be higher in the case of small companies with a track recordand operating in high growth areas. ``Unlike two years back where any ITstock would have delivered returns, the markets have now becomestock-specific. Hence, investors ought to be careful,'' he adds.

The current round of disinvestment has not started on the right note withthe Government being criticised for sale of GAIL GDRs at a price of roughlyRs 70 per share. In the case of NTPC, there are lot of thorny issues thatneed to be sorted before the selloff takes place. However, he Pioneerbelieves that these issues will be resolved and the intrinsic value of thesecompanies will soon be unlocked.

``I am of the view that the disinvestment programme of the Government willget a big push in the year 2000. That is when valuations of public sectorcompanies, which are currently trading way below their book values or theirprivate sector peers, will catch up. For example, a company with Governmentstake of 51 per cent currently trades at Rs 300. If the Government bringsdown its holding to 49 per cent, the stock will zoom to Rs 400-levels. Thegovernment has to just formulate policies conducive for investments and letmarket forces decide,'' he states.

While there have been a number of primary issues from IT companies in therecent past, there is hardly any activity on the primary front as far asother sectors are concerned. ``The IT sector has been performing well forthe last 2-3 years and now, these companies are tapping the market. I expecta similar trend for other sectors, which will have to give returns beforecompanies operating in that sector start to tap the IPO market.'' The fundsunder Kothari Pioneer have cornered 1.14 lakh shares of the recentlyconcluded Hughes Software issue. On HCL Technologies, Reddy says they arestill in the process of evaluating the company though he expects a similarresponse to the issue. ``It is good for mutual funds that IT companies aretapping the primary market,'' he states.