BOMBAY, 7 January — Well, we have ushered in the New year and have got over all the partying hangovers. So now it is time to make those New Year resolutions. So what even if they are meant to be broken! The year 2002 has started on an extremely positive note with the Indian bourses notching up gains almost through the entire week. With the war clouds also dispersing, most of the Indian analysts say that the Indian stock markets would have a good year.

This is expected to be driven by two important factors. First, all are expecting to see a burst in outsourcing for Indian software companies. The Indian software sector is now around 15 percent of MSCI and the prospects of the entire sector will be boosted by the outsourcing initiatives by large Fortune 500 companies.

Secondly, despite all the troubles unleashed by terrorists, an economic revival is expected. Moreover positive moves made by the government on the PSU disinvestment front and its willingness to take strong steps to kickstart the economy is expected to in turn give a kick to the Indian bourses.

Infact positive news on the Indian economic front has started coming in. The Central Statistical Organization has recently released data showing that the economy actually grew at 5.3 percent during Q2 (July-September). This marks a significant pick-up over the growth of 4.4 percent in Q1 and it is also the highest growth rate in the last four quarters.

The pick-up in GDP has been primarily driven by the 7.5 percent growth in the services segment in the second quarter, which account for more than half the GDP growth. The services sector has been powered significantly by the financial and business services segment.

There is some news on the Indian rupee front too. Traders said the movement of the rupee, which is only partly convertible, will be directed by the central bank in a tightly policed market in which there is little scope for speculation. Most currency traders and analysts expect the rupee to depreciate by 3-4 percent in 2002.

Analysts also rule out a sharp fall in bond yields in 2002, with interest rates remaining rigid at the longer end and the government unlikely to curb spending as it tries to pump prime a sluggish economy.

Liquidity continues to be ample in the domestic and the global markets. According to some estimates, the liquidity released by the Fed this year has been more than what it did in end-1999. The liquidity will find its way into the stock markets. It resulted in a sharp rally post October and continue to drive the markets.

Given the surge in global liquidity, fund managers are also sitting on cash and will invest if the war clouds are seen receding.

The first month of the New Year would be dominated by results of third quarter. Infosys would kick off the result season on Jan. 9. Since no major negative news is expected and the software giant is expected to meet its target, there is likely to be a rally in the sector. The bad news from the UTI has also been discounted for by the markets.

Now based on these facts it’s time for us to make an investment strategy for the year 2002. It would be best if investors would be able to invest in stocks where companies have good prospects for five years. Most of the analysts agree on the fact that if one has to invest with a one-year perspective, the IT sector is the best pick and in that sector, Infosys and Satyam would be great in the portfolio. In pharmaceuticals it would be Dr. Reddy’s, HLL and ITC in FMCG and Bajaj Auto among two wheelers. Tata Eng. also looks a lot better now and it is a good time to buy.

And what does one avoid? Analysts say that it would be best to avoid the cement sector and second and third line pharma and IT stocks. Investors are also advised to stay away for the Ketan Parekh stocks, known popularly as the K-10 stocks like HFCL and Global Trust. Banking and financial services are a strict no and so are PSUs. It would be best to also avoid cyclicals apart from the correct sector strategy, the key to making money is timing.

One should buy aggressively in high profile stocks on bad news. Anyone who bought into these high profile stocks post Sept. 11, made gains of 50-100 percent gains from the trough levels.

So armed with all these strategies, it would be best to start this new year on the right footing and try and make the most out of the expected urge on the Indian stock markets.