While rumours could have given a push to its stock price, the budget and financials do not suggest a very positive outlook. First of all, the budget had nothing positive to offer.

The corporate dividend tax rate has been hiked from 11 per cent 22 per cent. This should have a negative impact on Grasim, as the dividend income accounts a huge portion of Grasim. For 1997- and 1998-99, dividend income accounted for 27 per cent and 38 per cent of PBT respectively. An increase in tax is likely to reduce its dividend income. Besides, the investments in group companies may also not bring very positive results. As on March 1999, investment in MRPL and Sri Digvijay Cement stood at Rs 305 crore, nearly 6 per cent of the balance sheet size.

While Sri Digvijay Cement is a sick company, MRPL is yet to create a reserve for debenture redemption. Hence, the possibility of any return on this investment at least in the next couple of years, is unlikely. In fact, the company is required to make provisions for a decline in the value of investment in Sri Digvijay Cements. This, if done, will have a negative impact on the balance sheet, and the profits will be lower by at least 25 per cent.

As for other proposals, the duty on VSF was reduced from 45 per cent to 27.8 per cent with the basic rate coming down from 35 per cent to 20 per cent. The impact of duty reduction was immediately evident on the prices of PSF, which were reduced by 4 per cent, but VSF prices have not been reduced so far, indicating that demand growth is sufficient. As regards to the cement business, Grasim and India Cements are among the only cement majors that will benefit immediately from the expected turnaround in the sector.

For Grasim, though the cement plants located in the North enjoy locational disadvantage, the beginning of the firming up of cement prices in South will also result in the operating margins of its cement division being at par with margins in the previous year. The volume growth has, so far, not led to a sustainable price hike but with supply almost matching demand, the picture has to change soon.

Overall, while fundamentally, the outlook may not be very promising for the company, the technical position of the stock is encouraging. The stock has been posting higher bottoms which is a positive sign. The stock has made a good base at Rs 340, and unless it dips below this level, the medium-term players need not worry. On the upper side, it has resistances at Rs 385, and Rs 435 respectively.