The Hindu : Rush for tech stocks

Online edition of India's National Newspaper
Sunday, Mar 31, 2002

Business

Business

Rush for tech stocks

By Oommen A. Ninan

MUMBAI MARCH 30. As the Union Government has committed to ramp up the privatisation process of public sector enterprises (PSEs), investors are crowding the counters of State-owned companies to pick up stock at bargain-basement prices. There is also a rush for technology and entertainment related stocks. However, these stocks may continue to remain volatile as the earnings season progresses in April and May. Further, the indices closed on a subdued note for the current fiscal.

The benchmark Bombay Stock Exchange 30-share sensitive index (Sensex) down by 46.76 points at 3469.35 during the week ended March 28 against 3516.11 in the previous week. On the National Stock Exchange, the S&P CNX nifty index was down 7.45 points at 1131 against 1138.45.

In March (last month of the financial year) the Sensex lost a whopping 209.40 points, dragging it down from a high of 3678.75 at the close on March 1, 2002. In the financial year ended last Thursday, the Sensex lost 3.75 per cent.

However, on the last day of trading it gained marginally by 10.27 points as investors picked up technology stocks. According to analysts the year-end window dressing also helped the market gain. But they said concern about earnings growth of the technology sector continues to worry investors.

Shares of PSEs rallied after the Government announced the privatisation of Hindustan Zinc. In the last disinvestment of the current financial year, the Government, last Wednesday, cleared the sale of 26 per cent stake in Hindustan Zinc along with management control for Rs. 445 crores. Following this, the Government stake will be reduced to a minority shareholder in the company with 49 per cent stake, down from 75.92 per cent.

The Government also decided to divest 51 per cent stake in Engineers India to a strategic partner and offer 10 per cent equity to employees. The offer to the employees would be at one-third of the market price or the bid price, whichever is lower. This decision is perceived as a good move by market participants to weed out the misconception on privatisation among employees. It also cleared the shareholder and share purchasing agreements for Indian Petrochemicals Corporation where the Government holds 59.75 per cent stake. It plans to sell 26 per cent of its stake in the firm. It also decided to sell most of the hotels managed by the State-owned companies, Hotel Corporation of India (HCI) and India Tourism Development Corporation (ITDC).

Hindustan Zinc was sold to Sterlite Industries at Rs. 40.50 per share against the reserve price of Rs. 32.15. Sterlite earlier bagged Balco, another public sector company, which created a huge furore in the political and financial arena.

As in the case of Engineers India, it would be appreciated by market participants if the Government divested a certain percentage of stake to the employees at a lower rate. This was one of the models adopted in China for the disinvestment programme of its State-owned companies. This strategy had met with huge success and at the same time, satisfied the employees as well by ensuring their participation in the process.

Sterlite would now have to make an open offer for an additional 20 per cent stake in Hindustan Zinc in line with Securities and Exchange Board of India (SEBI) Takeover Code. Last November, the Government had to call-off privatisation of Hindustan Zinc as the only bid received by it was below the reserve price.

According the Union Disinvestment Minister, Sterlite's bid for Hindustan Zinc was nearly Rs. 90 crore higher than the reserve price of Rs. 353 crores.

However, it was reported that the Minister did not reveal the amount quoted by the only other bidder, Aditya Birla Group's Indo Gulf. This shows that the disinvestment process of PSEs is still not transparent.

Led by farm sector performance, the economic growth improved to 6.3 per cent in the third quarter of 2001-02 as compared to just 3.4 per cent in the corresponding quarter of the previous year. This is good news for the market.

The medium to long term view of the markets always depends on the economic health of the country. The development in the agriculture sector will have a chain effect in several sectors.

According to the quarterly estimates of the gross domestic product (GDP) released by the Government, showing continuous signs of improvement in the current financial year, agriculture and allied activities registered a growth of 7.1 per cent during October-December in the current fiscal against a decline of 0.8 per cent in the same quarter in 2000-01.

In the current fiscal, the agriculture sector had posted a growth rate of 2.3 per cent in the first quarter, 3.4 per cent in the second quarter followed by 7.1 per cent in the quarter under consideration.

The manufacturing sector, however, continues to be in the grip of a slowdown, growing at a mere 2.8 per cent in the third quarter as against 7.1 per cent in the corresponding period last financial year.

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