As a result, against the promise of improvement that Synthetics & Chemicals (S&C) held out at the beginning of the fourth quarter last year, the performance that it finally reported was very disappointing. The hope that it held out was due to the rise in selling prices of SBR in the last quarter of 1997-98 by 7 per cent to Rs 48 per kg. There was an immediate impact on the S&C stock as well as on stocks of other companies like Apcotex Lattices, which hit their respective 52-week highs. There were hopes that selling prices had bottomed out and would improve further. Unfortunately, this did not happen.

The SBR business had hurt for all of the first half last year. There was an unusual 30 per cent in imports of SBR into the country (Synthetics & Chemicals is the country's largest producer of the same) from producers in the south-east Asian countries during 1997-98. There was a widespread demand from the industry that an anti-dumping duty be imposed, and based on the response from the government, it was anticipated that the duty would come in the first quarter of the current year. Now, it is close to the end of the second quarter, and there is no sign yet of the anti-dumping duty. There has also been a slowdown in offtake from tyre manufacturers. Lastly, the prices of styrene and butadiene, which are its major raw materials, did not fall in tandem with the prices of SBR.

Despite the improvement in selling prices in the last quarter that compensated somewhat for the earlier fall in prices in the first half of 1997-98, the company reported a loss of Rs 11.39 crore on revenues of Rs 161 crore (a fall of 31 per cent). Production of SBR was lower by 26 per cent. The company will face further pressure to generate a positive net income this year after its much delayed expansion project goes on stream, as fixed expenses will now have to be charged to the revenue account. The present operations run at barely 60 per cent capacity utilisation (present capacity of 41,000 tonnes). By the second half of the current year, the capacity will rise to 70,000 tonnes, which will force domestic prices even lower, since S&C will end up controlling 81 per cent on the installed domestic capacity. Everything will now depend on the imposition of the anti-dumping duty.

Market Rally

The present rally in the stock market that has rapidly spilled into the second-line pivotals has caused some concerns for more reasons than one. First, the numbers indicate that the domestic financial institutions and foreign investors have been sellers right through the rally. Till last week, the net short-sell positions were more or less evenly matched with the net long positions. Hence, there has been a depressed demand for funds, which has pushed money rates for stocks to a low of 5.5-6 per cent. The current buying has distorted this equation, which will also result in an immediate change in the money rates in the coming two weeks. The reason is that with delivery sales increasing from various mutual funds, the net outstanding positions will be distorted further, money will have to be found for matching against deliveries.

The notable feature of the present rally is the manner in which the bank stocks have reacted. This category of stocks that has overwhelmingly underperformed the market for the last nine months by large margins, has suddenly become an outperformer for no apparent fundamental reason. Market circles have put this sudden interest in revaluing bank stocks to the forthcoming UTI Bank issue. In the recent past, it has been seen that the returns on bank stocks to investors have determined the success of subsequent bank issues. Hence the probable uplifting of bank P/E multiples on the eve of a major issue. In the recent past, it was widely known that when the finance ministry prodded the public-sector banks to become active participants in the equity markets, they did that by buying each other's stocks. The result was also a draining of liquidity in a number of bank stocks, which has made it easier to manipulate these stocks as of now.