Weekly update from Probity Research.
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Probity Weekly Newsletter # 30 Date : February 20, 1999
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Key indices Last Week This week % change
Major Indices
BSE Sensex 3,337.5 3,354.9 0.5
NSE Nifty 970.3 976.3 0.6
S & P CNX 500 674.1 683.2 1.3
GDR Index* 601.3 603.6 0.4
Hang seng 9,425.4 9,254.1 (1.8)
Nikkei 13,973.7 14,098.0 0.9
Dow Jones 9,274.5 9,340.0 0.7
FTSE 5,950.7 6,031.2 1.4
Exchange rates
Rupee to Dollar 42.5 42.4 (0.1)
Yen to Dollar 115.1 121.2 5.3
Rupee to Euro 47.7 47.4 (0.7)
Bullion (Mumbai)
Gold std. (Rs/10gm) 4,350.0 4,350.0 0.0
Silver (Rs/kg) 8,285.0 8,300.0 0.2
Inflation - WPI 4.6 4.6 (0.2)
Net FII Investment (Rs m) 929 1483 59.6
Probity IT index 751.4 792.8 5.5
Probity FMCG index 211.8 204.1 (3.6)
Probity Pharma index 180.7 188.6 4.4
* GDR Index is for the previous day.
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Budget and extra budget
The role of Union Budget in fiscal management of the country is diminishing. The political compulsions have been compelling the governments in the last few years, to take harsh decisions outside the budget. The good part of the budget is dedicated to elaboration of populist schemes, several of which account for a second decimal raction of the budget. For instance, this year the government has lready hiked prices of food grains distributed through public distribution system, LPG etc. Notwithstanding these extra budgetary provisions, let us take a stock of expectations.
* Rationalization of excise slabs and regulatory provisions.
* Removal of anomalies wherein finished goods are charged lower rate than the input
* Levy of customs duty on erstwhile duty free goods, in particular capital goods. However, we expect the peak rate to remain the same.
* Automobiles need a push. The sector has been in the reverse gear for quite some time. There could be excise cuts and/ or depreciation rate increase.
* Fast moving consumer goods which have witnessed significant demand growth, could be tempting for the finance minister. Cigarette is probably the only product where excise duty increase is politically welcome.
* Telecom and Infotech, vehicles for India's growth in the 21st century, will receive some attention. As usual, we expect a number of announcements. As usual again, hardly any of them will get implemented.
* Oil and gas sector could see some progress towards deregulation. There could be reduction on duty on crude oil and rationalization of duties on the finished products.
* On the fate of patent bills, our guess would be as good as yours.
* Capital markets need measures to encourage channelization of household savings through primary as well as secondary markets.The likely provision is reduction in tax on long term capital gains for domestic investors.
* Housing sector, which has a cascading impact on demand for all infrastructure products and the economy, is likely to receive a major package.
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Crude oil collapse
Crude oil prices broke the psychological barrier of US$10/bbl in the last week . Unlike in the past, OPEC and cartel's importance has reduced substantially, due to major jump in oil production in other countries notably Russia, Latin America and also some Asian countries. As most of these economies remain in crisis, any recovery in the near future is unlikely.
These unprecedented fall in petroleum product prices has coincided with the beginning of reforms process in oil sector in India.
The consumers in India however have not received any major benefits from the global fall in commodity prices of crude oil /petroleum products.
As far as stock markets and investment are concerned, we stand by our story in weekly newsletter # 28, dt Feb 4, 99 that the current depressed valuations, make sense for the long term investors to build up a portfolio in the sector. One has to be cautious of the companies that will have to endure the government's disinvestment desperation.
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Market mood
* In the last week, market mood was subdued. BSE Sensex and NSE Nifty appreciated by a nominal 0.5% and 0.6% respectively.
* Probity IT and Probity Pharma indices outperformed BSE Sensex, rising by 5.5% and 4.4% respectively. FMCG Index on the other hand declined by 3.6% during the week as HLL witnessed profit booking after hopes for a bonus or a stock split were belied.
* The second rung software companies continued to be in limelight.For instance, Digital, Fujitsu, Maars and Silverline recorded unprecedented jump of over 40% (circuit on all days) in a week!. In FMCG, Indian Shaving and Cadbury were the top gainers.
* FII figures released by SEBI indicated a healthy net purchase of Rs 1483m in the previous week.
* Petrochemical stocks Reliance and IPCL attracted heavy buying and appreciated considerably.
* In telecom, DoT has released major orders. JFTC and related companies have already spurted.
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Investment strategy
* Remain overweight in IT, FMCG and Pharma stocks. These stocks still offer value to long term investors. Also hold on to leading automobiles and oil refining companies.
* Medium size well run Indian FMCG companies with sizable market share in their product categories have attracted institutional investors. Investors can accumulate these stocks.
* For fixed returns, carry forward (badla) on stock market continues to give best returns yielding more than 22% per annum.
* In petrochemicals, one has to watch for developments on product prices and China buying.
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News snippets
* Inflation declined by 0.12% points to 4.58% for the week ended Jan 30 due to fall in prices of both food and non-food items.
* SEBI is mooting the idea of reducing par value of shares to Re1. The proposal will have legal issues before it sails through.
* The government has indicated that it may allow GDR/ institutional investors VSNL, to have board representation. This can have significant positive impact on the valuations of PSU shares.
* The investment ceiling for small scale industries was reduced from Rs30m to Rs10m. The union cabinet has allowed participation of domestic companies in mining and exploration of coal and lignite by amending the Coal Mines Nationalization Act. The FDI is allowed for technical collaborations.
* RBI is planning to make Indian banks balance sheets more informative with disclosures of maturity pattern of loans & advances, investments and deposits, foreign currency assets and liabilities, movements in bad loans and provisions and exposure to sensitive sectors.
* After SAIL, other leading Indian flat steel manufacturers have hiked prices of HR, CR and GP/GC by around Rs1000/tonne.
* Changing market dynamics are bringing two arch rival domestic oil giants closer. BPCL and HPCL are planning to form a strategic alliance. They are considering various options of an equity swap or buying into each others equity through a fresh issue,joint negotiations with private refineries like Reliance and Essar for marketing their products etc.
* SBI has drawn up an interesting gold scheme. It plans to offer 3-3.5% interest on gold deposits, almost 1-1-5% points above global levels. It expects a spread of around 3% on the same.Also, it will put some idle investment to productive use.
* There are unconfirmed reports that Mehta's of Torrent group plan to sell their 40% stake in Gujarat Torrent Energy to PowerGen Plc, technical-cum-financial partner, for a whopping Rs 11bn.
* The Parekh Committee on US-64, has suggested conversion of the scheme into a fixed income one, restructure of its administration, and providing liquidity support by Government during the recast phase expected to be 18 to 24 months).
* UTI has decided to enlarge the corpus of its $100m offshore Mauritius based India Information Technology Fund. UTI has appointed Credit Lyonnais Securities Asia to place the third tranche of the Infotech fund.
* In global news, US dollar surged against yen with Japanese government's reversal of monetary policy. The Japanese government is likely to issue $61bn in bonds for its banking reform.
* Indonesia's bank re-capitalization scheme is facing opposition in the Parliament debate. This will delay the process of reviving the economy.
* The deadlock between Pakistan and IMF officials continues,delaying disbursal of the revival package.
* US and Mexico have signed an agreement liberalizing air transport between the two countries. This will generate substantial additional revenues for the airlines and also enhance travel and investment potential of these countries.
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Results
Fulford India
Net sales PBIDT PAT Equity EPS
9812 (12) 1,282.9 76.7 38.9 32.0 12.2
9712 (12) 1,126.0 64.8 30.8 32.0 9.6
% yoy 13.9 18.3 26.3 0.0 26.3
Hindustan Lever
9812 (12) 94818.5 12607.7 8057.1 1991.7 40.5
9712 (12) 78197.1 9421.0 5603.7 1991.7 28.1
% yoy 21.3 33.8 43.8 0.0 43.8
Rolta India
9812 (12) 1203.5 629.8 418.9 548.9 7.6
9712 (12) 1003.2 453.9 283.2 548.9 5.2
% yoy 20.0 38.8 47.9 0.0 47.9
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While information has been compiled with care, Probity, any of
its directors or employees take no legal responsibility for
accuracy of the information given in this newsletter.
Probity Research & Services Pvt Ltd Snehdeep, Gokhale Road
Vile Parle (East) Mumbai 400057. INDIA.
Tel : +(9122) 6120994/6132999/6142867 Fax : +(9122) 6142286
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