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Is this an old economy revival? - Views on News from Equitymaster
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  • Aug 3, 2000

    Is this an old economy revival?

    The markets are witnessing a surge in cement stocks for the past several days now. Tech stocks as usual are heading downhill. So is the revival in old economy stocks for real?

    Finally the first few traces of a trend are emerging in the markets with respect to tech and old economy. Slowly but surely tech stocks continue to slide, and with just the same degree of conviction cement stocks are on the rise. Buying interest in cement stocks can be attributed to the rise in cement dispatches in July.

    Personalfn.com decided to get the facts right on the revival in old economy stocks. So we posed this question to R Sreesankar (Chief Investment Officer, DSP Merrill Lynch Mutual Fund). R Sreesankar opined, ĎThis (i.e. the interest in old economy stocks) can be attributed to the run-up in technology, media and telecom (TMT) stock prices and the subsequent decline. Investors who pulled out their money from these stocks must put it somewhere else. Thatís why we have seen some sort of a resurgence in old economy stocks.í

    He added further, ĎIf you see any domestic mutual fund portfolio, including DSP Merrill Lynchís, you will find most funds with approx. 10% or higher allocation in Infosys. (Currently our allocation is lower than that) Now funds canít increase further exposure to Infosys and other tech stocks. They have to look beyond these stocks. Itís a simple demand-supply situation. When we find too many buyers for few stocks, there is a run-up in prices and then it gets unaffordable, and this we have already witnessed in TMT stocks.í

    However, our research shows us that funds donít seem to have bought cement in a big way so far, as is evident from fund portfolios.

    Diversified funds Date of holding % Holding NAV†(Rs)
    K 30 21 Jul,2000 6.4 17.91
    K P Prima Fund (Gr) 30 Jun,2000 3.4 21.45
    Sun F & C Value (Gr) 30 Jun,2000 3.0 20.78
    DSP ML Equity Fund 30 Jun,2000 2.8 17.88
    Cantriple 30 Jun,2000 2.7 18.93
    JM Balanced Fund (Gr) 30 Jun,2000 2.0 15.99

    (The above table only comprises of funds with over 2% exposure to cement)

    Given the surge in cement stocks, are funds going to take a fancy to them or will they persist with tech stocks? The answer to that question will come once funds disclose their July portfolios.



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