The movement in the index was negligible this week. The rally of 258 points on Wednesday countered very effectively the large falls on Monday and Thursday. The week ended roughly where it began. This does not by any means suggest that the fall is over. I believe, like Mobius, that there is no logic or sense in the prices of infotech stock and that it must fall by another fifth or a quarter to make it reasonable. But then I cannot justify it. How can one justify a PE of 100 or more, or a price of over Rs 1,000 rupees for a company that has never made profits? I can't, and if one can and he is believed (the key word is believed), I am awestruck by his persuasive powers. As the legend goes, like Rumpelstilskin, he will be able to make gold out of hay.But this does not mean all shares are overvalued. I believe there are rich pickings in the old-economy shares. Look at them carefully. This is supported by the fact that things are looking up and the recession seems to be behind us.
A survey of 40 companies shows that the average net profit rose by 28.8 per cent (last year 5.1 per cent). Individually, Wipro's profit rose 121 per cent; ICICI Bank's profits rose by 71 per cent, and Kesoram's profit growth was a whopping 775 per cent. There were many others whose profit growth was impressive - Hindustan Lever, Global Trust Bank, Max India, Nestle, Dr Reddy's and the like. Diamond exports rose 32 per cent to $6.6 billion.
India now commands 55 per cent of the world market in cut and polished stones. The economic growth, according to the Asian Development Bank, is likely to quicken. It estimates economic growth to be around 7 percent.
Inflation, however, seems to be rising. It rose from 3.74 per cent to 4.22 per cent, and now stands at 4.64 per cent. This is worrying, but then every economy on the road to recovery tends to have a rising inflation. My suggestion is that until the market stabilises, to stand in the sidelines and wait.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.