Go bottom fishing!

 

Change is the only constant in the stock markets. The new breed of investors who thought the market always moved in a uni-directional manner were made to realise their folly. After touching a high of 30000 in March, riding on the hope rally of the new govern­ment, now completing one year in power, the market is taking a real­ity check. The fundamentals have to improve and markets cannot be buoyed only by expectations and ministers indulging in talking up.

The check started with the not-so- enthusiastic performance of compa­nies. This was followed by the selling by Fils. who showed their grouse over

Century Textiles

the raising of the Minimum Alter­nate Tax (MAT) demand in the only way they could. Notwithstanding the clarifications made by the minister of state for finance, Jayant Sinha, assur­ing Fils that the registered entities enjoying protection under the dou­ble taxation treaties signed by India will not be taxed, sentiment con­tinued to remain low. This, despite the fact, that the total dues will come down significantly. As per one view the total dues will be less than ?650 crore.

The poor results of IT companies, which are normally the first to report their quarterly results, set the ball roll­ing. Infosys shares dipped by ?100 to

Clariant Chemicals

a little under ?2,000 notwithstand­ing the company has upped the div­idend payout to 50 per cent of its PAT and declared a bonus of 1:1. Following a ?30 interim dividend, it declared a final dividend of ?29.5. For the quar­ter, the company’s PAT dipped by 4.7 per cent to ?3,097 crore and revenues fell by 2.8 per cent to ?13,411 crore. The management has made an opti­mistic prognosis of a double digit growth in FY16 in rupee terms. Info­sys’ results were relatively worse than its peers including TCS, HCL Tech­nologies and Wipro which reported subdued growth for the quarter.

For investors, IT shares have not yielded any returns over the last 4 months. Infosys’ shares at the current level are at the same level of ?1,975 as they were on 1 January 2015. TCS’ shares are ?50 lower at ?2,496, while HCL Technologies’ are ?100 above the level in January while Wipro’s were ?25 lower at ?523. The S&P BSE IT index dipped 300 points on the day Infosys announced results. The

Kesoram Industries


150

Share price

 

90_________________________________

1 Jan-23 Apr 2015

Change: 55% Marketcap: 1,555 crore

1200

 

 

400_______________________

1 Jan-23 Apr 2015

Change: 40°o Marketcap: 7,448 crore

Cienmark Pharma

L&T Finance Holdings

Zi

Share price

 

58_________________________________

1 Jan-23 Apr 2015

Change:-4% Marketcap: 11,405 crore

 

Sun Pharmaceuticals

1200

 

1 Jan-23 Apr 2015

Change: 14% Marketcap: 2,26,765 crore

Restructuring seems to be the order of the day. There were rumours about B.K. Birla trying to divest some of the assets of the diversified com­pany Century. The cement division was to be sold to UltraTech, a com­pany belonging to his grandson Kumarmangalam Birla in an all share swap deal. There were unconfirmedSun Pharma was the other stock in the news during the fortnight. After recording a 52 week high of 71,200 on 7 April, the shares dipped to 7947 on 25 April. The first development was the merger with Ranbaxy Labo­ratories where Sun Pharma allotted 8 shares of 71 each for every 10 shares of 75 each to the erstwhile sharehold­ers of Ranbaxy. This resulted in the dilution of capital to 7240 crore. The second event related to reports about Daiichi Sanyo’s, the major share­holder of Ranbaxy, proposal to sell its residual stake of nearly 9 per cent in Sun Pharma valued at roughly 722,000 crore. Pending the sale, which would increase the liquidity in Sun Pharma even further, shares of Sun Pharma shed more than 7200 in the last three weeks.

p/e has come down to 18-19, from the high of around 30-40 enjoyed by some of these companies. While the dividend yield on an average is still over two better than the over­all yield of the BSE Sensex compa­nies, the price-book value of these asset light companies is a little over 4. While these companies may not deliver super-normal returns of yes- ter year, we still feel it will be a good idea to retain at least some amount of IT shares in one’s portfolio.

news of Century selling off its paper division to 1TC and the textile divi­sion to Aditya Birla Nuvo another Kumarmangalam group company. In the process Century’s shares rose to 7793 on 13 April before dipping to 7688 by the end of the fortnight on B.K. Birla group denying the reports.

However, many of the subsidiar­ies of the global chemical companies were trying to align their portfolios with the changes carried out by the MNCs. Clariant for instance sold off its industrial consumer specialist business to Clariant India for a con­sideration of 742 crore. BASF sold off its paint business to Wruth, Bayer was also reported to restructure its product portfolio.

IPO boom

Some of the companies riding on cur­rent market conditions were also fine- tuning plans to go on a fund raising spree. Glenmark is planning to raise 7945 crore through a placement of shares to a Mauritius-based company belonging to the Temasek group. Bajaj Finance, a subsidiary of Bajaj Finserv, likewise plans to raise 71,400 crore; Jet Airways is planning to raise $400 million. Yes Bank, which sur­prised many analysts by reporting outstanding numbers for the quar­ter, is proposing to raise $1 billion for which it is seeking shareholders’ nod. The amount will be raised in one or more tranches. The bank has also increased the fii/fmp limits to 74 per cent. Quite a few other com­panies have filed their prospectus for raising funds through an IPO. UFO Moviez is one such company which

will be hitting the markets soon.

Tata Motors, which is in the midst of raising 77,500 crore by way of a rights issue, was ruling steady around 7500 level in the auto market. The last date for the offer of shares priced at 7450, which includes a pre­mium of 7448 per share, is 2 May. As against the other auto manufac­turers Tata Motors has an advantage that the slow sales in the domestic market are more than balanced by the strong demand for its vehicles globally. According to a report by Axis Capital, post their meeting with JLR distributors in UK, Tata Motors products enjoy a waiting list of 6-7 months. Axis has rerated the share and upped the target to 7707 from the earlier target of 7660.

Meanwhile the market is eagerly watching the fate of the recently introduced GST bill in Parliament. Smooth sailing notwithstanding, the walk out staged by the opposition on the day it was introduced could help in the rerating of India once again. It would also show that the Narendra Modi’s government means business and is planning to go ahead with reforms, however palatable or unpal­atable it may seem to the opposition parties. The Land Acquisition Bill has been deferred for the time being and investors are watching the gov­ernment’s move. For investors will­ing to take long-term bets this could be another opportunity to go bottom fishing as many of the well-run com­panies are also available at attractive rates across sectors.

♦ DAKSESH PARIKH daksesh.parikh@businessindiagroup.com

 

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