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The PSU week… - Views on News from Equitymaster
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  • Dec 7, 2002

    The PSU week…

    PSUs show the way
    The week began and ended with PSU stocks attracting buying frenzy. PSU stocks, especially the oil PSUs, attracted buying interest as the week began on disinvestment expectations. However, there was a slump during the course of the week due to lack of clarity on the same. Infact, on Thursday, the divestment minister, Mr. Arun Shourie categorically stated on a national news channel that BPCL and HPCL were not even on the agenda for the cabinet meeting. Both HPCL and BPCL closed in the red on Thursday.

    However, the markets were in for a surprise. Post the cabinet meeting, there was an informal meeting, and concerned ministers reached a consensus regarding divestment. Consequently, HPCL gained 29% while BPCL moved up by 14% in the last week. Expectations are that HPCL is likely to be divested first. The government is expected to sell its stake in HPCL through strategic sale. As far as BPCL is concerned, the divestment will be through the market route i.e. there will be an IPO. The possibility of the strategic partner paying a significant premium to bag HPCL is on the higher side and therefore, a lot of people are expecting to make larger gains by submitting the stock in a open offer that will follow the change in management. This could be one of the reasons for HPCL gaining ground at a faster rate.

    One word of caution here, given the Government’s track record in the recent past, the markets might in be for an ugly surprise.

    Top gainers over the week : BSE 'A' Group
    Dec 6, 2002 (Rs) Nov 28 2002 (Rs) H/L (Rs)
    BSE-SENSEX 3,299.22 3,220.80 2.40% 3,758 / 2,828
    S&P CNX NFTY 1,070.40 1,049.70 2.00% 1,206 / 920
    PENTAMEDIA 31.7 24 32.40% 78 / 15
    HPCL 276.2 211.8 30.40% 339 / 132
    SILVERLINE TECH 31.2 24.1 29.70% 84 / 15
    NALCO 100.05 80.1 24.90% 131 / 47
    GSFC 21.5 17.5 23.20% 41 / 9
    PSI DATA SYS 102.15 83 23.10% 210 / 68
    DSQ SOFTWARE 21.2 17.4 22.20% 81 / 10
    EIH ASSO.HOT 11 9.2 20.20% 16 / 8
    SHIP. CORP. 67.65 56.5 19.70% 112 / 24
    LUPIN LTD 117 97.8 19.60% 150 / 90
    ROLTA INDIA 93.55 78.6 19.10% 195 / 65
    TELEVISION 18 72.55 61 19.00% 129 / 55
    TATA INFOTECH 204 171.4 19.00% 334 / 126
    VIDEOCON INTL. 32.05 27.4 17.00% 47 / 20
    IPCL 83.5 71.5 16.90% 157 / 50
    PUNJAB TRACTORS 150.75 130.3 15.70% 190 / 108
    TRENT LTD. (LAKME) 170 147.1 15.60% 188 / 64

    The ‘also ran’
    Expectations of increased outsourcing contracts to Indian companies gaining strength continue to drive sentiment for technology stocks. However, during the week, it was the smaller rung stocks like Pentamedia, DSQ Software, Silverline and Sonata that gained significantly. With clients looking for one-stop solutions, the larger companies that offer end-to-end services clearly have an upper hand. Therefore, it would be wiser to stick with quality stocks with credible management’s in the technology sector. One has also got to keep in mind that the software sector is dynamic in nature. As a result, only those companies’ with management depth will be able to spot trend earlier and capitalise on opportunity, if any. In that context, it would be also be wiser to avoid stocks like DSQ Software and Sliverline that have significant management concerns.

    Banking majors were also in favour during the week. The reasons for this optimism could be on account of the new NPA ordinance that has given sweeping power to lenders. After taking over a unit of Mardia Chemicals, ICICI Bank has turned its guns on the Patheja Group. The Pune-based group owes banks and financial institutions debts to the tune of Rs 12 bn. PSU banks are also looking to improve productivity by deploying technology solutions and realigning human resources. Most of the PSU banks are expected to launch a second round of VRS in April 2003, which would result in additional cost saving and higher productivity.

    Top 5 losers over the week : BSE 'A' Group
      Nov 28 2002 (Rs) Dec 6, 2002 (Rs)   H/L (Rs)
    HERO HONDA 289 266 -7.90% 402 / 230
    INDIAN RAYON 95 90 -5.40% 126 / 61
    WIPRO 1,687 1,598 -5.30% 1,965 / 1,063
    EXIDE INDUSTRIES 90 86 -4.10% 104 / 53
    CRISIL 290 280 -3.40% 413 / 120

    The technology sector is likely to witness a steady flow of orders, as the offshore model gains more credibility and wider acceptance with each passing day. However, the domestic economy continues to be a cause for concern. The late monsoon and drought-like situation in 14 states are likely to impact rural demand in the near future. Though there has been significant liquidity in the markets, the investment demand continues to be weak. Thus, while the going has been good, there might be ugly surprises ahead.

    Considering this, for those investing for a short-term period (less than a year), the choice of the sector becomes very important. For if our fears are proved true, then the numbers for those companies that are dependent on the domestic economy are not likely to be as strong in 2HFY03. However, for those willing to invest for a long term (three to five years), there are number of investment opportunities.

    For example, FMCG stocks are trading at historically low valuation levels on the back of short-term growth concerns. There is significant activity in the banking sector too. Empowered with the new Securitisation Act, select banks have acted swiftly to address the single largest concern with the sector i.e. NPAs (non-performing assets). Further, banks like SBI are now investing significant time, money and effort to deploy technology. This will help in improving productivity and consequently, improve financials. Along with the improving fundamentals is the fact that valuations for companies in select sector are still quoting at attractive valuations.



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