The week gone by has seen the Sensex hanging on to its new perch. Quitepossibly the close proximity of the post-election scenario has instilledsome confidence in operators to hang on to these levels. But there isnothing like fortifying oneself in avoiding the wrong scrips and sticking only to really valuable stock. The Indian bourses cannot do without FII support. That the FIIs have come back making some select purchases is good news. Even in South Korea, FIIs have started picking up chip making companies now, in the hope that chip prices would start climbing again, after the recent bottoming out. So may be the FIIs are on a come back trail. But, a word of caution. Don't drop your guard easily.At times there are deeper undercurrents, which you are unaware of. Take the reported unloading of ITC scrips by Jardine. That makes one feel uneasy.
True, Jardine could have picked up the scrip in the calendar year 1996, when the scrip traded between Rs 200-Rs 300, or even in the middle of 1997, when it was at Rs450. Yet, I feel suspicious. ITC has posted an excellent performance after these periods. So would one really book profit here, even partly? I only hope this does not turn out to be another case, similar to Peregrine's disinvestment. If that is the undercurrent, we should continue to be on guard!
What about a war in the Gulf? Well investors do not seem to be too convinced about its inevitability. Well, shrug your shoulders and be prepared to meet it as and when it breaks out? But, closer home turn, can scrips hold on firmly to the Friday's price level? And further improve upon it. Or will they erode slowly? There are no quick answers here. It all depends upon how many operators are willing to stake how much money in expectation of a post poll rally? The herd mentality shall prevail. Be that as may be, you can still look for some ways to protect yourself, while playing the game. In this column, I have earlier talked about what ails the macro economy. The only additional development I see is a renewedworry about the rupee exchange rate. While a detailed analysis would be time consuming, I can see the broad outlines.
The possibility of achieving reasonable export level in the coming fiscal appears to be receding.
There could be severe competition in textiles from the Far East. As to the diamond industry demand would go down in Japan and Far East in tune with their economy. On tea, we may do reasonably well.
But overall one should be on the look out, considering the ASEAN turnmoil.
The other support for the rupee, the FDI flows could have been interrupted because of the dissolution of the parliament and the fresh polls. We will know the figures only a little later. Even on the FII inflows one cannot make any easy assumptions.
The immediate outlook for corporates is not looking terribly attractive. The reversal of the interest rates and the high cost of ECBs have turned into huddles. The lack of demand continue to dog the industry. Nor is there much scope for the new government to stimulate demandvia more expenditure.
As to the threat for Indian goods in the domestic market from markets abroad, the Indian system for fighting dumping is too slow to be of any immediate help to corporates. This combination will rob any FII enthusiasm to rush to Indian markets in a hurry. The Indian stock markets are riding on the FII cushion.
Keeping this in mind you should moderate your risks. There are certain ways to fortify yourself though. Here are some suggestions:
Avoid companies, where promoters look for benefits to themselves in the way they go about. Mind you, promoters can always make money in one way or another in the huge turnover of the companies they run, or by means of kickbacks in the new projects they undertake. Most of the Indian auditors are pliable, I hear. I would welcome the auditing profession to counter this charge. Some promoters also reward themselves with preference shares withfavourable future options. They draw fat salaries even if they produce niggardly returns, sometimes aridiculous four per cent return on shareholder's funds. Go in for only those companies who care for their factor productivity. This means leveraging their capital, labour and excellence in human skills, research, product innovation etc., Examples are Asian Paints, BPL Ltd. As companies go about acquisitions and mergers, ask what does the shareholder get out of it? Sterlite could form a good case study. How does the Sterlite shareholder gain in buying the shares of Indal?Examine it. Look back at the track record of Sterlite over the last fouryears. You can make a judgement for yourself on whether the company adds shareholder value or promoter's value.
Lastly, go for only those companies who have established international standards for business operation and shareholder value. That is your best protection.Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
