Despite the bleak outlook for the heavy vehicle manufacturing segment, definitely for the first half of the current year and may be for the entire year, there has been a very strong demand for the stocks of both Telco and Ashok Leyland. But while Telco has some redeeming factors such as strong sales of its Sumo model and its LCVs (mainly the 207 family of vehicles) to make it attractive for investors and punters, the same cannot be said about Ashok Leyland, which essentially manufacturers heavy vehicles. But despite the consensus of equity analysts from leading research houses, who have been maintaining a sell recommendation for Ashok Leyland, the stock has beaten all expectations and appreciated by over 30 per cent in the last six trading sessions.

The stock has been moving steadily from a low of Rs 67.25 on July 1 to touch a high of Rs 89 on July 8. Similarly the volumes recorded at the counter has also jumped by three and a half times from 43,000 shares traded on the BSE on July 1 to a high of 1.42 lakh shares traded on July 7. The stock increasingly looks like a play on dividend yield.

"The decision of the company to give out a liberal dividend of Rs 5 per share shows the confidence which would reflect in their performance during the current year," said a research analyst at an FII brokerage outfit. Management confidence for the current year is all very well, but where will Ashok Leyland find the volumes to grow this year? With no recovery in industrial production and a marginal fall in imports for the first quarter of the current financial year, means that there will be no additional requirement of vehicles from the transport sector this year over the previous year. So growth if at all will have to come from realisations.

According to market sources, a leading FII brokerage house has sensibly enough, dumped the stock to avail of every possible gain. However, this continuous supply has so far been absorbed by the local punters, who have a bet that the price can appreciate by another 20 per cent by the end of the next settlement, considering that the stock still looks attractive enough from the dividend yield point of view.

Readying for the fall

Though the fall in the indices on Thursday was a relatively minor one, it should wake the market up to what can happen should this so called bull run continue for some more time, as it threatens to. It is not as if punters are unaware of the dangers of bidding stocks up with macro fundamentals looking worse now than at the beginning of the financial year. But even if they have to exit from their positions, to whom will they offload? The only way out will be to try and attract the retail investor back into the market and use that opportunity to exit from the market.

The fact that the market is in a dangerous phase is becoming more obvious now with the GDR prices declining for the past few days; so the momentum is obviously not the same in both markets.

One explanation could be that the GDR market did trade at higher multiples and at a premium to domestic listings. So there will be little reason for stocks to rise frantically there. A second explanation could be that the holders of GDRs are liquidating in those markets and simultaneously buying here to take advantage of fast moving domestic prices.

But this is a remote chance given that investors will not leave the relative safety of the GDR market and venture here; the orientation of the funds investing at present seems to be a little different and very short-term.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.