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The polarisation of valuations

Aug 18, 2000

The overall market valuations seem to have become synonymous with the valuations of TMT (Technology, Media and Telecom) stocks. A part of the reason for the BSE Sensex mirroring this trend is that at the level of 5,500 the Sensex was modified to include Satyam, Zee, Dr. Reddy’s and Reliance Petroleum. At these levels, Satyam and Zee particularly, were anyway quoting at stratospheric valuations. And with the subsequent fall in the TMT stocks, the Sensex was soon struggling to maintain its poise. That the present rally is being primarily led by the TMT stocks is well known. What is a surprise is the polarisation of valuations between the old and the new economy stocks. The list of companies which are quoting at or near their 52 week lows reads like a who’s who of the corporate sector.

Scrips CMP 52-week high 52-week low P/E
ABB Alsthom 24 119 24
Bata 55 212 55 12.4
KSB Pumps 71 254 71 9.9
Ingersoll Rand 163 561 162 6.0
Indal 91 170 84 7.1
ITC Agrotech 56 220 46
ITW Signode 52 127 48
Monsanto 930 2,638 805 12.5
Aventis Crop Science 90 187 90 50.1
Clariant 118 355 117 8.8
Ciba Specialty 105 193 103 7.6
BHEL 116 325 82 4.5
Telco 90 326 86 75.2
Indian Hotels 246 580 186 10.2
Goodlass Nerolac 134 251 122 6.7
MICO 3,350 6,300 3,053 12.1
Sundram Fasteners 432 825 432 10.5
Sundaram Clayton 150 389 132 10.1
Bayer 570 2,000 560 16.5
BASF 95 212 75 10.9
Cyanamid Agro 79 350 76
GAIL 49 106 35 4.1
Hoechst Marion 422 1,340 357 32.6
Wockhardt 384 1,100 358 17.9
MTNL 160 390 149 8.8
CRISIL 246 815 239 13.4
Indian Rayon 60 134 45
Sandvik Asia 670 1,570 666 7.4

Quite a few of these companies have a multinational lineage, many of them are leaders in their respective sectors and there are heavy entry barriers for competitors challenging their predominance. For instance Ingersoll Rand is the undisputed leader in compressors and pneumatic equipment. Indian Hotels remains not only India’s largest chain but is a market leader in both business and leisure hotels. ABB Alsthom is sitting on orders for creating almost 4000 MW of power generating capacity in India. Monsanto and Aventis Crop Sciences remain on the forefront of advances in biotech apart from being the leading agrochemical companies the world over. And, Gas Authority remains India’s only natural gas producer with a pipeline network that could be the envy of any multinational company.

The market however does not seem to be interested in these stocks, not for the moment. Is it because quite a few market players are still stuck with TMT stocks, bought at higher prices, which they’ve not yet got a chance to divest?

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