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ICICI: Cashing in on diversification

Reshma Krishnan

THE Bombay Stock Exchange (BSE) has seen a good run in the last fortnight and seems to have sustained the rally that began about two weeks ago. This is quite surprising in view of the recent decline in the tech-heavy Nasdaq Composite Index.

Considering the usual hype on correlation between the fortunes of the Nasdaq and the domestic stock markets, Nasdaq's biggest falls barely touched the domestic bourses. The Nasdaq saw its biggest low in 18 months, completely erasing the gains accumulated over the past year. With the market falling to 2,500, the market was braced to expect anything. In this context, the fact that the Sensex held its own is surprising.

A number of sectors have shadowed the Sensex's movements in the last two weeks. The cement sector has received a lot of attention of late. Stocks such as Madras Cements, ACC and GACL have witnessed rallies.

Among the stocks that gained considerably in value over the past two weeks was ICICI. The scrip has gained more than 11 per cent to trade around Rs 93. This is a comeback from the steep falls in October when it fell around Rs 27, or 25 per cent, to trade at approximately Rs 69 from Rs 110 at the end of October. It is still a far cry from the highs it touched in January, when it traded at Rs 180.

ICICI used to be, until the advent of economic liberalisation in the early 1990's, primarily involved in providing medium- to long-term project finance to Indian businesses.

The institution has since then diversified into areas such as structured finance and infrastructure finance. It has also started corporate finance activity focussing on medium- and highly-rated companies. It has also started developing a retail presence. All these steps have been aimed at becoming a universal bank. The move has been driven mainly by the need to avoid the risk of concentrating in one area.

ICICI is the second largest financial institution in the country. It has, through the above measures, demonstrated its ability to respond to changing conditions in the financial sector.

From the financial perspective, its gross interest spread has been declining unabatedly since the financial year 1997-98 by almost seven per cent. The market will not greatly favour the stock with regard to its latest second quarter performance, which is poor, to say the least. Its net profit in the July-September quarter of this fiscal was Rs 254 crore, down 8.6 per cent, from Rs 278 crore in the previous corresponding quarter.