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Benign expectations - Views on News from Equitymaster
 
 
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  • Feb 9, 2002

    Benign expectations

    It was a euphoric week for the stock markets with the Sensex moving up by 5%. In one of the landmark decisions, the government took some concrete steps on disinvestment. Buoyed by this news, valuations for most of public sector undertakings almost doubled. This will not only unlock hidden value but also benefit the government and the economy, as a whole, in many ways.

    Following the sale of VSNL to the Tata Group and IBP to IOC, the cabinet committee on disinvestment (CCD) has plans to divest BPCL and HPCL, the two big refining cum distribution majors, within three months from dismantling of the administered price mechanism. It has also given the mandate to sell 51% stake in the company to the investment bankers. Many foreign and Indian shipping majors like GE Shipping and Essar Shipping seem to be interested in SCI.

    If one were to look at the top gainers on the bourses from the BSE ‘A’ Group, of the top ten gainers, 8 were PSUs. Amongst the eight companies, five hit their new 52-week highs. Shipping Corporation of India (SCI) topped the list, gaining 54% to Rs 53, a new 52-week high. Indian software companies, despite the global slowdown, continue to receive orders from global corporations, which is a comforting factor.

    PSUs – Back in action…
    Company Jan 31, 2002 (Rs) Feb 8, 2002 (Rs) % change 52-week H/L (Rs)
    Shipping Corporation 35 53 53.9% 55 / 20
    HPCL 174 241 38.6% 248 / 95
    Corporation Bank 107 146 36.5% 165 / 102
    BPCL 216 291 34.7% 323 / 120
    MTNL 115 151 31.3% 200 / 99
    Ingersoll Rand 119 155 30.2% 187 / 92
    IOC 135 173 28.1% 224 / 102
    Gillette 287 359 25.3% 711 / 226
    BOI 17 22 25.3% 22 / 10
    IPCL 60 74 23.3% 85 / 32

    There is also positive news on the economy front. Higher forex reserves, low inflation, stable exchange rate, favorable oil prices and falling interest rates have led to a rise in business confidence. Auto sales, more notably commercial vehicle demand, has gained momentum in the second half of the current fiscal. CV sales are presumed to be one of the lead indicators of an improving demand scenario. Infact, Telco, the market leader in the CV segment, recorded the highest growth in CV sales in January 2002 in the current fiscal. If that is not enough, HLL’s fourth quarter sales growth was comparatively higher than previous quarters. But at the same time it needs to be noted that a good Rabi output is also vital for the economy for demand to sustain in the coming quarters. This is because, of the total agricultural output, Rabi output accounts for 50%.

    On the flip side, the US markets continue to languish on account of bleak earning prospects and concerns of accounting standards followed by US companies. The Bush government has also been under criticism following allegations of republicans' having close ties with Enron, the beleaguered energy trading major. Though companies like Wal-Mart managed to outperform earnings expectations, there is a sense of cautiousness in the air for technology stocks and rightly so. Just to put things in perspective, Intel slashed its tech spend by US$ 2 bn and estimates suggest that Intel accounted for almost 15% of total tech spend.

    Unlike US markets, Indian markets have much to look forward to. The countdown has already started for Budget 2003. The Finance Ministry is flooded with wish list from several industry representative organisations. The new fiscal i.e. FY03 would also bring with it lots of challenges. Dismantling of the Administered Price Mechanism (APM), telecom de-regulation, decontrol of sugar prices, DPCO order and gradual reduction in customs duty could change the face of India Inc. Threats of cheaper imports, which hitherto has been on the lower side, will increase as imports tariffs continue to fall to align with other Asian countries. But this would make domestic companies more cost efficient and globally competitive. Overall, the longer-term trend seems to be on the brighter side.

     

     

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