The week that ended closed with a rally on the bourses. What is the coming week likely to be? That depends upon a number of factors. First, we must recognise that we are in the midst of corporate results, which are still pouring in. The results are a mixed bag and it would take some time to figure out the larger picture that is emerging. There have been results from blue chip companies, PSUs and middle and small cap stocks. Put everything together and you can get some idea of the corporate fortunes.

The auto sector continues to perform well. Telco has done much better than most projections. All eyes were on the steel sector, with periodic reports on the industry witnessing alternate rounds of clouds and sunshine, almost like London's weather! Tisco left one a bit disappointed. But SAIL set one really thinking about the course of industrial recovery. And so did L&T results. While telecom sector did well, pharma companies reported mixed results. IPCL gave the thumbs down.

The Indian industry, whether it be petrochemicals, steel or pharma is passing through a phase, where it has to adjust against high cost funds and competitive lower product prices globally and nationally. It would take some time for the Indian companies to tone up. And the only capable ones will do that and survive.

Coming back to the results, it will take a while before we know the results of a large sample and draw up conclusions. But with results of around 140 companies which constitute around 30 per cent of the market capitalisation, there are trends which are disturbing. First and foremost, the second half performance has proved to be worse than the first half. Sales have grown at around 7 per cent compared to 23 per cent in the first half.

Perhaps this was expected. The industrial growth had slowed down to 8 per cent. The other income component usually contributes substantially in Indian corporate results. But in the present crop of corporate results, one finds that except for a few MNCs, other income has not come to prop up the bottom line.

On the other hand, the provisions made for depreciation are higher. This indicates building up of capacities and assets. The funding of these ought to come from internal resources. Debt has been proving costly, what with stock markets for additional equity mostly impracticable and GDR market not too enthusiastic for the Indian paper. Couple these with the fact that the investment market was becoming more and more risk prone, it is not surprising that there was not much other income to butter the bottomline. Lack of surplus funds at treasury for deriving other income could also be indicative of the pressure corporates have due to inventory build up and extending credit. The fact that credit to commercial sector was growing slowly during the year also explains this phenomenon.

Interest charges too have gone up for many companies. Roughly, while sales went up by only around 5.5 per cent, interest charges have gone up by 23 per cent. The interest rates in the second half appears to have come down, as during the first half, interest rates had gone up by around 31 per cent.MNCs and PSUs have done better. Amongst the small and medium size companies, there is much variation in performance. However, overall there are indications of a capacity build up in anticipation of demand. There is an increasing need for the investor to differentiate between the market risk and the individual/ industry/scrip risk or opportunities.

Last week, the rally was certainly triggered by RIL. There were other scrips which moved up because they were at the lower end of their price patter. EIH, Indian Hotels are examples. The weather experts have predicted normal rainfall for the 10th consecutive year. This should help improve the sentiment. On the agricultural front, the country is comfortable, though not on the longer term. Several measures have been taken to increase money and credit supply. The foreign direct investment flow has been positive and sizeable over the last 12 months. So is the FII portfolio investments.On the infrastructure front, power deficient states would continue to starve. The IIPs are taking too long to take off. The scenario on other infrastructural sectors have not recorded any significant change. What the corporates can look forward is to pick up demand from two fronts. First, with farm income going up and agriculture likely to post a growth of around 3 per cent, demand generation is bound to increase in the first half of the current fiscal. Second half would see the full impact. For the immediate period ahead, demand for goods can go up only in the busy season. That would mean nothing much to rejoice about the results of the first half for 1997/98. The gain can come from lower interest charges.

The Finance Ministry has taken several measures, both on the internal as well as the external front. Corporates cannot complain about lack of funds. It depends on their credibility, both at home and abroad. With market operators itching for action, they are unlikely to lie low next week. The petrol price hike, if it comes through, will give enough vibration to move the market sentiment. Several counters in the A Group are more on the lower side of their speculative highs. They could easily be played upon. While it is clear that investors would have to wait for over a year to see around 20 per cent growth in their stock values, there are other compelling factors. The stock prices are low when compared to international standards. This is what limits the downside risks. Overseas long term investors with a longer span of investment plan would not miss the opportunity to pick up scrips as they fall. That itself will provide the support and drive for speculators to move the market up.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.