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WEEK AHEAD-India old economy shrs seen rising in cautious trade

BOMBAY, June 30 (Reuters) - Shares in Indian old economy firms are poised to rally this week, as investors price in expectations of improved quarterly results over growing hopes of an economic recovery, fund managers said.

The key Indian index ended the previous week and the first half of 2002 flat at 3,244.70 points on Friday, but brokers said the second half appeared bright for smokestack firms, as the latest economic indicators reaffirmed hopes of a revival.

"With the core sectors showing early signs of revival, a ten percent rise in the index from the current levels does not look difficult," said C. Jayaram, CEO of Kotak Mahindra Asset Management.

"We expect that rally to be led by old economy companies."

The Indian economy grew by 5.4 percent in 2001/02, spurred by a rise in farm output, putting the world's second-most populous nation in the ranks of fastest growing economies, government data released on Friday showed.

"Fundamentally, we seem to be on a firm ground though technical factors are not very supportive. One needs to have patience to survive in such a market," said Vibhav Kapoor, managing director at IL&FS Asset Management.

Leading Indian companies will start rolling out June quarter results by the second week of July, and analyst said earnings of steel and auto companies could beat street expectations.

Some of the leading steel makers, including industry leader Steel Authority of India and Tata Iron and Steel Co , have said they would hike product prices from Monday.

Most automakers have reported strong year-on-year sales growth over the past few months, raising hopes of improved earnings.

However, expectations surrounding earnings of technology companies are largely muted due to a patchy recovery in the United States, which accounts for about 60 percent of Indian software services companies' exports.

A change of guard at the Finance Ministry, with the Prime Minister expected to swap his foreign and finance ministers on Monday, will not upset the markets, fund managers said.

In a mid-term cabinet reshuffle, external affairs minister Jaswant Singh is expected to exchange jobs with finance minister Yashwant Sinha.

"The portfolio reshuffle should be mildly positive for the markets. Jaswant Singh is perceived to be a more articulate person and should be able to convince the party members to carry on economic reforms," said U.R. Bhat, chief investment officer of JF Asset Management:

Sanjay Sachdeva, managing director of IDBI Principal Asset Management Company said Singh's track record in the foreign ministry seemed good and the market was hoping he would do well in the new portfolio.

U.S. WORRIES MAY LINGER

But some fund managers said the gloom in the global markets could cap the upside after the recent accounting irregularities revealed by big U.S. corporates rattled investors across the globe.

"There are no India specific concerns but in the backdrop of weak global markets, it will be difficult for domestic bourses to move up," said Chandan Desai, a fund manager with J.M. Capital Asset Management.

Other fund managers echoed those concerns.

"The main factor to watch out for is the behaviour of the U.S. markets," said Ashim Syal, the chief investment officer at ING Investment Managers.

"Our markets will watch how U.S. investors will deal with the WorldCom and Xerox accounting problems," he said.

On Friday, the Dow Jones Industrial Average ended down 0.29 percent at 9,243.26 while the Nasdaq Composite gained 0.27 percent at 1,463.21 points.

Foreign funds, which significantly influence trading on the domestic bourses, made stray purchases in the past week after dumping Indian shares worth $86.6 million in eight straight days to last Wednesday.

"While you have sentiment improving on account of foreign fund data turning positive, the upside will be capped on global issues," Desai said.

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DIARY

The following companies have their board meetings to declare their March quarter results during the week.

TUESDAY July 2 - State-run Bharat Electronic , which makes telecommunications and defence equipment.

FRIDAY July 5 - Storage battery manufacturer Exide Industries .

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