Nov 11, 2000|
Disinvestment: Glimmer of hope
After gaining almost 10% over the last fortnight, the markets finally went in for profit taking. This was largely expected. But we remain optimistic that the markets are in a correction mode. We had said earlier that even if there are bouts of selling, the downside from here on is on the low side and the upside potential seems immense. We stick to that.
Despite yesterdays sell off, there are enough reasons to be optimistic. For one, FIIs have been net investors to the tune of Rs 11.3 bn in the month of November. A bulk of their investments (Rs 8 bn) has come in during the week ended November 10, 2000. Trends for Friday are yet to be made public. However, the sell off on Friday seems to be operator led.
The disinvestment ministry’s recommendation for divesting 15-20% stake in the telecom PSUs, MTNL and VSNL, came as a shot in the arm. What is more important is that the ministry has recommended this disinvestment in favour of a strategic partner, giving them management control. This stand marks a major shift from the government dithering over management control issues, earlier. It is early days yet, but the stand underlines the fact that the government think tank is working overtime to give a definitive shape to its disinvestment plan.
This is likely to raise hopes that the disinvestment ball may finally roll. Many PSUs have been biding their time on the disinvestment list. The coming year is likely to see atleast some of them up for grabs. The government on its part, can ill afford to dither on disinvestment issues. The clock is ticking and if the government doesn’t act now, many of these PSUs will simply fade away.
There are however, near terms concerns such as the slow growth in the Index for Industrial Production (IIP) compared to the previous year. In the month of September 2000, IIP growth was 5.4% as compared to 7.4% in September 1999. However, the IIP growth has continued to display sluggishness over the last few months and this was one of the primary reasons for the market reverses earlier. In short, the IIP degrowth has already been factored in the bourses.
The valuations in many companies, especially, in the old economy continue to be at an all time low, the recent rally notwithstanding. Even some of the sturdy new economy stocks are trading at 30-50% discounts.
So, we repeat our message that the bourses are showing signs of getting out of a bear phase. It is therefore, a good time to invest in companies with good management, clear vision and a healthy business outlook. Happy investing.
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