• SEPTEMBER 30, 2000

Stock market: Old economy emerges winner

With the first half of fiscal 2001 drawing to a close, it’s time for a performance review of the Indian stock markets. From the face of it, the scenario is depressing. The BSE 30 Sensitive Index (Sensex) has lost over 19% during this six-month period. Beneath the headline numbers, however, there have been a number of developments, which make the exercise very interesting.

BSE Sensex
Company 3-Apr-00 29-Sep-00 % change
Nestle 373.0 491.7 31.8%
Hindalco 713.0 811.6 13.8%
Reliance 325.9 342.6 5.1%
BSES 218.8 226.7 3.6%
Colgate 156.7 158.8 1.3%
Glaxo 451.5 447.9 -0.8%
Reliance Petro 60.4 56.8 -6.0%
ITC 787.0 717.2 -8.9%
Ranbaxy 708.0 637.0 -10.0%
Infosys 8,189.8 7,343.6 -10.3%
Bajaj Auto 380.0 333.8 -12.2%
Novartis 910.0 797.6 -12.4%
SBI 211.8 177.1 -16.4%
Dr Reddy 1,560.0 1,256.1 -19.5%
BHEL 131.3 104.0 -20.8%
Hindustan Lever 263.5 208.7 -20.8%
Tata Steel 119.0 94.1 -20.9%
Castrol 305.1 236.2 -22.6%
HPCL 142.3 108.2 -24.0%
NIIT 1,887.0 1,425.5 -24.5%
ICICI 135.0 97.9 -27.5%
Gujarat Ambuja 215.0 155.2 -27.8%
Grasim 319.0 213.9 -32.9%
M&M 296.3 184.6 -37.7%
ACC 151.6 92.3 -39.1%
Satyam Computers 814.9 487.3 -40.2%
Telco 138.0 81.0 -41.3%
L&T 300.0 165.7 -44.8%
Zee Tele 940.3 449.0 -52.3%
MTNL 240.2 109.7 -54.3%
Let’s take a look at the performance of the BSE 30 stocks over this period. The top 5 gainers in this group are what are labeled as ‘old economy’ stocks. This comes as a big surprise given all that we hear and read about today is to do with the ‘new economy’ sectors including media and software. The top five companies have little in common – one is into foods (Nestle), another in consumer products (Colgate), two in commodities (Hindalco and Reliance) one in power transmission and generation (BSES). One must surely be asking what happened to software, media and pharma?

The flag bearer of the media sector can be found at the bottom of the listing. Zee Tele, which at one time boasted of having one of the highest P/e multiples across Asia, witnessed a 52% erosion in market capitalisation. The biggest loser, however, was the government owned (52% stake) Mahanagar Telephone Nigam Limited (MTNL), a telecom services company, which lost a whopping 54% of its value. The bottom 5 also included Satyam Computers (software), Telco (auto) and L&T (cement and EPC). Mention must also be made of a few heavy weights in the Sensex, which have lost heavily. Hindustan Lever (down 20.8%) and Infosys Technologies (down 10.3%) top this list.

One thing that is apparent is that there is no concentration of any particular sector among the leaders and the laggards. Markets seem to have been focusing more on the performance of individual companies rather than the sector as a whole. To give an example, while Colgate figures in the top 5, Hindustan Lever, which on the other hand recorded erosion in market capitalisation comes way down. With the markets opting to reward well managed companies that deliver results, the diversion in valuations is becoming apparent.

Let’s also take a look at a broader group – the BSE ‘A’ group. Here again the top 5 gainers are old economy stocks. These are Bombay Dyeing (textiles), Gujarat Gas (gas distribution), Raymond (textiles), G E Shipping (shipping) and Nestle (foods). These companies have benefited largely from exercises initiated to restructure operations.

The losers include India Cement (cement), Bata (consumer products), Wockhardt (pharma), Indian Shaving Products (consumer products) and Pentasoft (software).

BSE A group - Leaders
Company 03-Apr 29-Sep % change
Bombay Dyeing 53.6 101.2 88.7%
Gujarat Gas 333.3 628.9 88.7%
Raymond 63.1 92.4 46.4%
G E Shipping 17.5 25.6 46.0%
Nestle 373.0 491.7 31.8%
BSE A group - Laggards
Company 03-Apr 29-Sep % change
India Cement 89.0 39.2 -56.0%
Bata 109.5 47.9 -56.3%
Wockhardt 65.0 27.1 -58.4%
India Shaving 1,850.0 749.8 -59.5%
Pentasoft 1,063.7 422.9 -60.2%

The above listings clearly bring to light the wide variation in performances of companies within sectors. The reason, as mentioned earlier, is an increasing tendency in the markets to accord valuations on a more stock specific basis than before. For example earlier this year, most software stocks were accorded sky-high valuations. Now, however, a weeding out has taken place and valuations have been rationalized.

Every investor needs to understand that selecting a sector to invest in is not enough in itself. What is very crucial is the stock that you finally invest in. Going forward, valuation of stocks in the various sectors will continue to show a divergence, reflecting the market's perception of various key factors including management and performance.

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