Is the worst over? - Views on News from Equitymaster

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Is the worst over?

Dec 12, 2000

The recession in the economy, the rising import bill for crude oil and its consequent impacts on government finances have all been factors used to justify the recent bear phase. However, the stock market is considered a leading indicator and the market prices always try to anticipate future trends. Though the recent upswing in the old economy stocks has taken quite a few people by surprise, there are valid underlying reasons for the same. Though there is no data about housing starts in India, the disbursals of 29 housing finance companies are up 30% in the current year. While the cascading impact on the cement would show over a period of time, there is hardly any new capacity, which is expected to materialise over the next year. And in a commodity like cement even a 5% shortage is enough to lead to higher prices. This is exactly what has started to happen. Even yesterday cement companies announced a hike in prices in Mumbai.

Though nothing much seems to be happening on the power front, the low valuations that engineering stocks such as BHEL, ABB and Wartsila Diesel have led to a rally here. And the recent takeover of Bank of Madura by ICICI seems to have rekindled hopes of a consolidation in the banking sector. Already, the bigger banks are receiving a better than expected response for their VRS schemes which will enable them to emerge stronger in a more competitive environment.

In automobiles, even though the overall car sales have dropped 4% between April and November 2001, the fact remains that the sales in the more expensive mid size segment grew over 60%. (The sales over the small cars declined 30% though.)

While there are concerns over tech spending in the US slowing down the fact remains that the Indian software service companies are far more cost competitive than their US counterparts. What is required is a decoupling of the share price movements of the Indian software companies from those of the NASDAQ. If that happens, we can expect 2001 to be a 'happy new year' in the true sense of the word.

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