Cyclical, FMCG stocks come to rescue

By Oommen A Ninan

MUMBAI, JULY 16. Bearish sentiment is still looming large over Indian stock markets. It remains an operators' market. With the absence of the investing community, the speculators are trying hard to prop up the market. Foreign institutional investors (FIIs), domestic institutions and retail investors are keeping away from the market. A silverline is that more funds are coming into cyclical and economy stocks.

``Basically the market is expecting FIIs to enter the bourses, only then will the investors show interest. Otherwise it is purely a trading market,'' said Mr. Rakesh Mehta, Chairman, Renaissance Securities. According to him, with good results from top-rung information technology stocks investors can invest in the market for short to medium term. The cyclical stocks and fast moving consumer goods (FMCG) stocks are also moving up. Mr. Mehta added, ``In general, the market is good as stock movements are widespread. So far the monsoon has also been good all over the country and this will create demand in all sectors.''

The Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) lost 49.12 points as it closed for the week at 4856.82 as compared to the previous week's close of 4905.94. The carry forward (badla) rate determined on Saturday was 11-12 per cent against the previous week's 12-14 per cent and the National stock exchange's automated lending and borrowing mechanism (ALBM) rate was 14 per cent compared to 16 per cent. The outstanding long positions remained almost at the level of the previous week at Rs. 2,500 crores. Zee Telefilm and Infosys have large long positions on bourses. As the outstanding positions are very high and institutional players are not providing any clear direction, the outlook of the markets remains gloomy. Hammering in IT stocks continues on the bourses. However, the losses in indices are not too heavy as many FMCG stocks as well as pharmaceutical stocks - Hindustan Lever, ITC, Nestle, Colgate, Cadbury and Novartis - have helped to keep the indices around earlier levels. But a fall in a high weightage scrip will result in a crash in indices which will lead to another bearish cycle on stock markets.

The open offer for 20 per cent additional stake in BSES by Reliance Industries and Reliance Industrial Venture Holdings is scheduled to close on June 16. The offer price was at Rs. 255 per share. On the last day of trading (June 14) the BSES share closed at Rs. 247.80. The financial institutions (FIs) decided not to sell their stake in BSES to Reliance as the offer price was considered too low compared in relation to its intrinsic value. They expected around Rs. 300 per share.

In recent days investors are showing a lot of interest in sectors other than information technology which is considered a healthy sign. Birla Mutual Fund has stated, ``We feel that the frenzy that was witnessed for IT stocks, in the not too distant past, has made way for sensible investing in the broader market. Valuations and fundamentals, which had taken a back-seat to momentum-investing, seem to be back in the reckoning. This characteristic change is a booster for the long-term health of the market.''

Six of the core infrastructure sectors, namely, crude oil, cement, electricity, steel, coal and refinery, which account for more than 25 per cent of the total weight of the Index of Industrial Production (IIP), have recorded a 7.5 per cent growth in the first two months of fiscal 2000-01. During the corresponding period of 1999-2000, their growth was 7.3 per cent. The IIP also posted a significant 12.2 per cent growth in April 2000, with the manufacturing sector growing by an impressive 14 per cent. ``There are, however, no signs of a pick up in capital investments and most of the growth is mainly on account of better utilisation of capacities,'' stated a report of Duff & Phelps India. While industrial growth in 1999-2000 was led by consumption - on account of strong rural demand - industrial growth in the current year will be difficult to sustain unless there is a pick up in capital investment, it added.

During the first three months of the current fiscal, cement consumption grew by a mere 5 per cent. This is in sharp contrast to the 22.6 per cent growth in the corresponding period and 15 per cent growth recorded during the whole of 1999-2000. Traditionally, during the April-June period, cement offtake increases owing to the rush to complete construction and infrastructure projects before monsoon. ``However,'' stated Duff & Phelps, ``the demand for cement was sluggish during these months primarily because of the recent drought in parts of Gujarat and Andhra Pradesh.''

With the monsoon active in most of the States, cement consumption is expected to be lower in the second quarter (July to September). Unlike in 1999-2000, when rural housing was one of the key demand drivers, the pick-up in capital investment will have a positive impact on the overall growth in this sector. The slower growth in consumption has not deterred cement companies from increasing their production. Nonetheless, with the capacity utilisation rate in the industry touching 90 per cent, prices have been feeling the heat.

Cement prices have reportedly declined by 4 per cent on an average since last February, with average prices falling from Rs. 131 to Rs. 126 a bag in May. The commercial capital Mumbai witnessed a massive decline of 12 per cent as result of the ensuing demand-supply mismatch. Duff & Phelps states that a good monsoon, as predicted, will be the key to a subsequent pick-up in cement demand and improved corporate results for the whole year. Investors who lost heavily in the IT stocks are keenly watching the developments in the core sectors.

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