In a peculiar development reflecting the almost incurable bearishness seen in the equities market, entire sectors are being revalued as a whole. This simultaneous intra-sectoral revaluation is happening in the case of diversified companies with a large presence in cement (Grasim, Indian Rayon, L&T), large southern cement companies (Madras Cement, Dalmia Bharat Cement, India Cements) and tractor companies (Punjab Tractors, Eicher, Escorts).The market is also revaluating compressor and pump manufacturers (Elgi Equipment, Kirloskar Pneumatic, Ingersoll Rand, Chicago Pneumatic, KSB Pumps and Revathi CP) and second-rung paper companies (TN Newsprint, Rama Paper and Orient Paper). In fact, the scrips of most leading paper companies like BILT, Pudumjee Pulp and ITC Bhadrachalam are already at their 52-week lows. The sectoral revaluation also seems to have hit cotton companies like Maral Overseas, Vardhaman Spinning, Arvind and the non-ferrous metal companies (Madras Aluminium, Hamco Mining, Hindustan Zinc andBinani Industries).
The reasons for the revaluation may differ for each sector and range from the crises in neighbouring nations, which have in turn affected global prices of commodities (in the case of aluminium and cotton), to a rash of expected imports (paper, chemicals and synthetic fibres) and steep declines in domestic demand in relation to the existing capacities (cement, tractors and engineering goods).
In the case of companies like Chicago Pneumatic, investors who earlier seemed to appreciate the company's capability to earn good returns, now seem to have decided to play it safe. The company has a significant market share in terms of supplying specialised pneumatic tools to the automotive sector, and is therefore hurting from the current state of most automobile companies which have taken a knock of five to 10 per cent in terms of overall sales in the first half of the current year. This has, in turn, sent the stock crashinh by 58 per cent.
What is being missed here, however, is the fact thatthe company has in place an arrangement whereby it can significantly increase exports to its parent company or to its group companies worldwide, besides having a significant exposure to the mining sector in the country, where growth rates have doubled in the last one year.
In the case of other companies, the drop in stock values seems to be on account of a correction. An example here could be Ingersoll Rand. The company shares were on an upward spiral during the last few months, rising on the back of an exceptional first half and a positive forecast of 30 per cent growth for the entire year on account of unexpected large orders from ONGC, which has taken the company's growth rate above its past annual average growth rate of 15 per cent. The correction has brought the stock down by 17 per cent from its 1997 high. At the same time the market logic seems to be little out of sync in the case of companies like Carrier Aircon which has bucked the trend of slowing down earnings and returns seen in all the abovecompanies, but has, at the same time, been penalised. Carrier Aircon surprised the market by announcing a 30 per cent growth in revenues, against the airconditioing industry's average growth of just six per cent, and has reportedly increased its market share.
Ironically, the bullishness that was associated with the stock at the time of the last budget which saw the excise differential being reduced for products from the organised and unorganised sectors seems to have waned, at a time when the company is seeing the benefits of this relaxation in its growth rates. Despite this, the Carrier Aircon stock is available just 20 per cent above its 52-week low, while Ingersoll Rand, which also bucked the industry trend, is available at 20 per cent below its 52-week high.
Aaron Chaze
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
