The markets: Seasonal bears

For the stock markets, it's February, not April, that is the cruellest month. It is also a harrowing period for everybody else and, this time, particularly so for the finance minister, who must be wondering why all those fat little men have failed to show up with their bundles of crumpled currency notes at the Reserve Bank and State Bank counters.Are they perhaps waiting for the Supreme Court to pronounce its judgement? In any case, it seems doubtful whether the finance minister can lay his hands on more than a hundred crores of rupees on the outside, which will still leave him with possibly a yawning gap of something like Rs 2,000 crore in his budget. What will he do then?The bearish tendency in the markets for the last two weeks or so has a lot to do with how the finance minister goes about tackling this problem. Chances are that he may just decide to give up the ghost and do nothing, hoping-possibly against hope-that the improvement in infrastructure and the general liberalisation in licensing and other procedures would give enough push to the economy to help him garner a good tax harvest later in the year. This is probably his best bet and according to ministry sources no other alternatives are in sight. The stock markets will then have to face another year of deficit budget but that should not be much of a problem. Last year was also a year of deficit budget and it ended with an appreciation of nearly 20 per cent in share vaiues. On the supply side, there is good news.A number of companies have recently received industrial licences for expansion andor diversification including companies like Indian Aluminium, India Foils. Kirloskar Electric, Ciba-Geigy and Hoechst Pharmaceuticals. A number of other companies, namely, Vazir Sultan, Tata Oil, Garware Wall Ropes etc have put out excellent reports but the market had possibly already discounted these reports, for the market grapevine works overtime. With the budget out of the way, deficit or no deficit, the general improvement in the corporate performance should more than outweigh the other bearish factors and slowly turn the market around. Unless the finance minister comes down with a heavy hand on industry - which is unlikely - the Economic Times index seem poised to touch, if not cross, 250 (current level around 215) by Diwali.Future Trends: The most likely front-runners seem to be engineering shares, but chemical companies should also do well. With so many new projects in the pipeline -as many as a dozen fertiliser projects, each worth around Rs 500 crore are apparently on the drawing boards-engineering companies specialising in fabrication and machinery manufacture should have their work cut out for them. There are also a large number of thermal and other power stations in the pipeline which is also a plus factor. Companies like Larsen & Toubro, Walchandnagar Industries, Texmaco and others stand apparently to profit the most. Texmaco did pretty well last year but Larsen & Toubro remained on the sidelines. This year the roles may be reversed.Among other engineering companies, the most interesting seems to be Mahindra & Mahindra which, despite a recent bonus issue, is still being quoted above 40.0, an unusually high price for an engineering share. The group has been expanding rapidly and is also diversifying. Ashok Leyland of Madras is not in the same league - it has put most of its eggs in the same basket - but it is also expanding rapidly, in fact, so rapidly that according to a British source, it might be producing more vehicles in India than its parent company, British Leyland, does in the UK. Too rapid an expansion is not always a good thing but Ashok Leyland is among the better managed companies in the country and there is no reason why its shareholders should not eventually have a slice of the cake that the management is baking.Another set of companies worth watching are the so-called contractors - companies like Western India Erectors, Hindustan Dorr-Oliver and possibly Davy Ashmore M, which have a relatively small capital base but a large turnover with a reasonably large profit margin. Western India and Hindustan Dorr-Oliver are already among the bluest of blue chips and they may soon be joined by others.Published By: AtMigration Published On: Nov 26, 2013 11:24 IST--- ENDS ---

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The markets: Seasonal bears

The bearish tendency in the markets for the last two weeks or so has a lot to do with how the finance minister goes about tackling this problem.

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