April 22: The spate of foreign partners resorting to taking management stakes in their Indian joint ventures is a phenomenon that will accelerate. For the moment the Japanese seem to be on a investment binge increasing their stakes in their Indian joint ventures in the very recent past.

Koyo Seiko has sought to increase its holding in Sona Steering and Stanley Electric Company wants to increase its equity stake in Lumax Industries, both to 20 per cent of the equity. And now another Indian company has been added to this list. Yokogawa Blue Star, a company that has two engineering companies as its parents; the Japanese engineering company Yokogawa and its Indian joint venture partner Blue Star, is going into the fold of the Japanese company as its subsidiary company.

According to market sources, the Japanese company wants to increase its stake in Yokogawa Blue Star from the current 40 per cent it holds to 51 per cent, most likely through a preferential offer. Blue Star at present holds 28.5 per cent of the equity capital. Apparently, as a result of this move the stock is already beginning to be better valued in the market, gaining 15 per cent in the last few days to Rs 82.

This increase in the stake by the Japanese comes as the icing on the cake for shareholders for two reasons. Firstly, the company has just turned around and resumed earning profits in 1995-96 and second, the Japanese majority shareholders are the only ones (amongst other Indian joint venture partners) who have shown no desire of holding equity in their Indian ventures beyond a certain point.

Directionless market

Despite the overwhelming concern amongst market operators about the over due oil price hike, market sentiment is being hit badly by a combination of other factors. One, as the corporate results keep pouring out and to a larger extent fall below market expectations particularly amongst the better tracked companies, and second, the almost complete absence of institutional buyers, both foreign and Indian from the market.

Most of the foreign funds, particularly a couple who have been very active in automobile stocks have decided to stay out of the market at least until the oil price hike comes.

The Indian institutions on their part, particularly the Unit Trust of India are no longer sellers, which also means that they are effectively out of the market. The general expectation is that Unit Trust will be a positive market player only once their new financial year begins in July.

The impact that these factors have had on the market has been obvious and extends beyond the daily fall in the Sensex and other stock market indices; the turnover on the Bombay Stock Exchange in the specified section that is usually a very good indicator of sentiment has been falling very steadily for the past few days. The specified turnover is hovering around the Rs 500 crore mark and is expected to fall some more.

But in the end, brokers feel most strongly about the dithering over implementing the oil price hike. The overwhelming opinion is that a limited oil price hike coupled with a decision to dismantle the pricing mechanism within the next two to three years is the most desirable scenario which will improve sentiment as the longer term picture will be clearer. The other possibility of a steeper oil price hike without any move towards dismantling the pricing mechanism can only make things worse.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.