One group of stocks marked out by these funds as good long-term investment picks are the FMCG companies; in fact, a lot of buying interest was spotted in many of these stocks towards the end of December itself. Most of the FMCG stocks have been brutally dealt with during the earlier part of 1999, with stocks losing between 30 to 50 per cent of their market capitalisation; with many available at two and three year lows. Stocks like Indian Shaving Products, Reckitt & Coleman, Nestle and Cadbury have seen interest building up.

A part of the investment demand for the FMCG sector has emerged, partly because of the launch of a number of funds targetting investments in this sector. For example, Alliance and Birla mutual funds have launched sectoral funds looking at investing in the FMCG sector. The fact that many of these companies have a December year ending could also play a part in driving these valuations.

To some extent, analysts are beginning to talk of stocks such as Smithkline Beecham and Smithkline Consumer Healthcare, despite an acute lack of market interest in these two companies. Analysts say that the earnings potential of the companies are intact and the investment story is still sound.

To a large extent, the expectation has been that the transition into a post-Y2K era would be a troubled one. But that has not happened and has fuelled a demand for IT stocks on the assumption that business opportunities will flourish as investments in IT will pick up globally. But by that reasoning alone, the view gathering pace is that investments in the Indian IT sector will have to be done very selectively.

There are a number of companies whose revenues will be hit while others will have to focus on new technologies and essentially move up the value chain in order to sustain growth and justify these lofty valuations. The financial results, especially of the last quarter, will start throwing up the laggards and the potential winners. So post-results, there could be a sharp divergence in valuations in the IT sector, against what is being seen now.

Two other factors will continue to drive valuations; one is the emergence of increased mergers and acquisitions and the other will be the PSU disinvestment process. M&As have already thrown up several cases of revaluation and more could follow. The disinvestment process has already thrown up several positive investment arguments such as those in VSNL and IPCL.