New Delhi, Feb 13: If HLL sneezes, the market will catch a cold! Through a series of mergers and acquisitions, Hindustan Lever has today emerged as the undisputed mover of the market. HLL's hold on the Sensex will further strengthen after the proposed merger of Pond's India with it. This was already evident on Friday when the Sensex spurted by 79 points, the single largest contributor being HLL.The merged entity will have a market capitalisation of more than Rs 30,000 crore. The weight of the market leader in the Sensex will improve from the present 16.5 to 18.5 per cent on the assumption that the current price is maintained.
However, with earnings prospects brighter post-merger, the scrip price will settle at a higher level, increasing the weight in the index. Thus, the market movement, as measured by the Sensex, will be largely determined by HLL. Consider this: a one per cent change in the price of the HLL scrip will translate into a 6-7 point change in the Sensex. A one per cent change in the price ofthe other heavyweight, ITC, will see the Sensex move by just 3 points and in the case of Reliance it will be around 2.5 points.
Interestingly, six scrips out of the 30 comprising the Sensex enjoy a combined weight of 55.39 per cent in the index. These scrips - HLL, ITC, Reliance, MTNL, SBI and HPCL - are likely to dominate the trends in the Sensex. For example, on Friday when HLL moved from Rs 1,383 to Rs 1,506 and ITC from Rs 594.25 to Rs 614, the Sensex saw a rise of 79 points though other heavyweights like Reliance, MTNL and SBI lost some ground.
HLL and ITC alone accounted for a 58-point rise in the Sensex spurt of 79 points. If HLL's weight is adjusted for the Friday's closing price it will further go up to 18 per cent. Though HLL has seen some erosion in its share price from its peak of Rs 1,559.5 (on August 6, 1997, when the Sensex peaked at the 4,605.41 level) to Rs 1,383 on Thursday, its weight in the Sensex has gone up from 13.76 to 16.5 per cent. This is because the drop in the prices of theother 29 scrips has been sharper.
HLL has gained at the expense of SAIL whose weight has come down from 4.47 to 1.86 per cent, Hindalco (from 3.79 to 2.75 per cent), Telco (from 4.43 to 3.49 per cent), BHEL (from 4.8 to 4 per cent) and Mahindra & Mahindra (from 2.19 to 1.32 per cent).
Hindustan Lever's weight in the NSE-50 (Nifty) Index will also increase from the current 14.33 per cent to around 16.2 per cent post merger. Pond's India is also a part of Nifty with a weight of 1.58 per cent.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
