The good news from the Unit Trust of India (UTI) could not have come at a more opportune time. The presence of funds in the market from new overseas institutional buyers would always have presented an opportunity for Indian institutions to sell. The market feared the unknown: how much of selling could come from the local funds, given that the Sensex has risen 500 points without a reaction. Which is why the equity market heaved a sigh of relief, with the UTI reporting a net inflow of funds.

And since they have raised the shorter term yield with the US-64 payout, they will obviously not be sellers in the equity market in the near future. This thought in itself is proving to be quite enough to cheer market sentiment further. Besides, the UTI chairman has expressed his optimism for the market; this optimism will not count for much without the UTI being a major buyer. The trust has sufficiently large holdings of index stocks in different schemes and thus they would look for deployment of their surplus in other segments of the markets.Backburner for Reliance

But this cheerful sentiment is not flowing into Reliance. After the initial euphoria on the day of the AGM, the stock has been more or less steady. Punters have obviously thought that with a doubling of its equity there will be twice the quantity to battle with; hence trading in the stock will become a more complex affair. The hesitancy to take positions here is already becoming evident. This phenomenon and the management's new approach towards its public image could reduce the volatility in the stock. In the past, this served as a major disincentive for a large number of prospective and genuine buyers in Reliance; this should change now. So there is a reason to cheer for Reliance after all.

Changing perceptions for steel stocks

The market was not willing to take a look at the steel shares few weeks ago. Things, however, seem to have changed last week. Major steel stocks like Essar Steels, Mukand, Tata Steel, SAIL and Jindal Iron & Steel have witnessed heavy buying. While Essar Steel jumped by more than 40 per cent, SAIL and Tisco gained around 5 per cent each. A sudden change of heart by the investing community appears surprising. While few would venture to say that this uptrend is on account of improved sentiment, rising volumes in these stocks anyway suggest that the recent buying is more than just due to better sentiment. And the cause for this buying interest is nothing but a change in perception that the worst is over for these companies.

Otherwise, looking at the financial performance for the last year, the shares of companies like Mukand should not have moved up. For March 1997, the company has recorded a net profit 14.04 crore, showing a net fall of 68 per cent despite a bloated other income. The share price, however, gone up by 20 per cent since the announcement of these results.

Similarly, during 1996-97, Tisco recorded a 17 per cent drop in net profit to Rs 469 crore, despite a more than doubled other income of Rs 57 crore; the net profit of Lloyds Steel fell 99 per cent to Rs 0.82 crore.This shows that bad results were expected and had already been discounted and investors are changing their valuations for the steel industry. The second half's results from Essar Steels have played a major role in changing the perceptions towards the steel stocks. Essar Steel has posted an operating profit of Rs 590 crore, up 229 per cent from Rs 170 crore. The market was expecting a loss at the operating level itself.

The thinking is that if Essar Steel can perform so well under bad market conditions, Tisco and Mukand, at least, will not do worse. Being working- capital-intensive, the availability of cheaper money on account of softening interest rates, would also help the industry. Besides major steel companies are expected to raise prices of hot-rolled coils bolstered by a 5 per cent rise in global steel prices. These factors seem to be responsible for the rising appetite for steel stocks.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.