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Where are those adventurous investors of India Inc?

Published on Thu, Aug 24, 2006 at 17:00 | Source : Moneycontrol.com

Updated at Fri, Aug 25, 2006 at 10:12

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Around 116 largecap and 345 midcap companies listed on the BSE have shed their marketcap between April 3 and August 22, keeping in mind that on both the days market was trading at 11,500 levels.

Big names like ONGC , NTPC , Bharti Airtel , Wipro , ITC , BHEL , ICICI Bank , Indian Oil , HLL , SBI , Reliance Communication and many more not only lost on their market cap but also the performance of their stocks weakened. Some of the midcaps which went through the same loss were TVS Motor , Divis Lab , Kochi Refineries etc.

Looking into India Inc's loss in market capitalization and the recent softness in the markets, we wonder why their performance level has gone down when there are positive factors like, falling crude oil prices, US slowdown in interest rates, playing the market?

SP Tulsian, Investment Advisor, does not agree to the claim that India inc is not factoring in these positives and said, "Because these are factored that's why markets have seen a run up in the last 15 days. Take for instance the interest rate hike. India Inc has accepted that there won't be any further hike. May be on the domestic front we may have had a consequential rise by 50 bps, but Fed won't be increasing any rates. So taking that into consideration there has been a rise in the Indian markets in the last 15 days. The kind of run up we have seen in the midcaps has been because of that. And crude has just started falling. It's not that we are not giving credence or considering these developments."

Anand Rathi Sec report also gives a positive view on corporate India's robust show and says that in April-June their performance was robust and indications of good prospects this quarter have helped corporate tax collections jump 79% during April 1-August 15. The Budget has targeted a 34% growth for the full fiscal. According to official data, the government has mopped up Rs 21,783 crore in corporate tax during the period compared with Rs 12,141 crore in the corresponding period last fiscal. The collection, however, represents just 16% of the Budget target of Rs 1.33 lakh crore.

According to Deven Choksey, KR Choksey Sec, instead of finding out whether there is inherent weakness in the India Inc story, one should look at the specifics of the companies on why they shed their marketcap.

"There is a possibility that maybe in the earlier period, before the sell off period which started in May, valuation reach of these companies were not backed by fundamental strength, but was largely driven by liquidity play wherein there was more demand and less supply. Therefore these companies have not been able to catch up with the uptrend in the market," he said.

The marketcap of midcap and largecaps that were trading on both April 3 and August 22, have fallen by 20.83% and 11.74% respectively, bringing up another question as to whether investors are moving away from midcaps and looking at large caps?

Tulsian says the focus is still on midcaps as investors still see value and appeciation in the midcaps, "There has been erosion in the value inspite of index being at the same level. But, this is not a true refelection of the overall market. There has been erosion atelast to the extent of 50% in all midcaps and small caps, while the frontlines have eroded by about 32-33% which has partly recovered.

I won't say midcaps are not attractive vis-a-vis large caps because if you see the liking and inquiry from the investor's in the last 15 days, they have again started searching for midcaps. They say that the value and appeciation still lies in the midcaps, though the frontlines are the safe haven to park your investments because they are low beta stocks."

He said that in the last 15 days investors have become adventurous and are looking at quality midcaps. "They are not as rash as they used to be earlier and are now looking at quality midcaps."

Karvy Stock Broking report also says that midcaps are back in the limelight and that foreign institutional investors have reportedly ceased selling and are looking at investing again in select midcap companies.

But, Choksey, feels that market investors are not divided between midcaps or largecaps, they are just looking at value. Smart money will go into stocks which are available at deep values and at discounted price.

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