From: ramani@shakti.ernet.in (S.Ramani)
Newsgroups: misc.news.southasia
Subject: India - (Economy): Shares And Debentures
Date: 15 Apr 92 14:53:31 GMT
Organization: National Center For Software Technology


From	: S.Ramani
Source	: Infrastructural Leasing and Financial Services Corp
Date	: March 30 - April 4
Country	: India


Contributor's Note:

The views expressed in each article are the views of the authors and not
of that of the Organisation.  Neither the information nor any opinion
expressed constitutes an offer to buy any securities (shares or
debentures).  IL&FS may trade for its own account in any securities of
this issuer(s).  IL&FS, its affiliates, directors, officers, employees
and employee benefit programs may have a long or short position in any
securities of this issuer(s).

While all efforts are made to ensure that the information published is
correct and up-to-date, IL&FS holds no responsibility for any errors
that might occur.  Readers may also refer to IL&FS, MMO and EIU
departments for the latest forecast updates and brief comments.

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CAPITAL MARKET REVIEW NEWSLETTER

March 30 - April 4, 1992

The restructuring of the Indian economy to one that is globally
competitive is critically dependent on a massive inflow of foreign
exchange in one form or the other.  In the euphoria that has accompanied
the policy pronouncements of the Government, there has been very little
said about the implications of "opening" up the Indian economy without a
consequent inflow of resources of the magnitude required

With other counties competing for scarce resources it is necessary for
India to position itself aggressively for its fair share.  While it is
necessary that we open up the economy in a gradual but progressive
fashion, it is not in itself sufficient.  We need to keep abreast with
changes in policy environment in competing  countries

This would serve two purposes:  First, other countries have attempted to
open up their economy and hence there is no need for us to reinvent the
proverbial wheel.  A great deal of clarity in policy making, sequencing
of measures, and possible pitfalls of liberalization could be avoided.
The experience of other countries must be the fount of our wisdom.
Second, it would allow us to better market to the international
investor.  While reactions to the dramatic changes within the country
have been received favourably by the international community, it is
still obvious that they are following a "wait and see" approach.  While
this is inevitable, it is still necessary for India to aggressively
market itself abroad.  The Indian markets are large, Indian labour cheap
and Indian industry a solid base.  Points of comparison must not only be
with our past policies, but also with competing countries.  Are we
doing enough as compared to them?

Unquestionably the domestic market is deep.  The recent performance of
the capital market is only the most recent testimony of this.  But
unless we are able to attract foreign investments, the absence of the
concomitant benefits of new technology, different management practices
and other non-traditional inputs would seriously handicap the ability of
Indian industry to compete in global markets


CAPITAL MARKET REVIEW

The bulls were back with vengeance and it now appears that they are
virtually invincible.  The Bombay Stock Exchange rose by 547.65 points,
the biggest rise in a three day trading week witnessed till date.  The
sensitive index was at 3791.18 on Friday and the 100 share national
index also moved up by 272.96 points to touch a new high of 1747.46

The spontaneous rally was backed by heavy investor buying the present
euphoria continues with Corporate paper being aggressively chased by the
common man.  The BSES index was 1475 on March 20, 1991 and has moved up
to 3791.18 on March 27, 1992.  The carry forward charges transacted on
Saturday were 4.5 percent a month as against a normal 2 to 3 percent.
The high badla charges can also be attributed to tight money in the
month of March and more so towards the close of the financial year.  The
'badla' financiers have also turned investors and have deployed their
funds into buying shares.  Consequently, the 'badla' charges have gone
up.  However, it is expected that in the new financial year the 'badla'
charges will come down.  With continuing trade restrictions, trading
volumes remain restricted.  Demand, however, has got the impetus by
investors who paid cash.  There has been a sharp rise in the inflow of
the funds into the market.  The institutional offloading was well
absorbed by seasoned market operators and investors - though it is very
difficult  to distinguish between the two.  Cash shares continued to
score phenomenal gains, signifying pent-up demand for shares

The institutional offerings were a feeble attempt to influence the index
with a view to control the market.  However, the stock brokers with a
view to scuttle these attempts widened jobber quotes.  The offloading
was quickly absorbed and index moved up the minute the selling ceased.
Although institutional investors are reluctant sellers they have already
indicated that they would sell stocks provided the trading curbs were
relaxed

Another sentiment booster is the proximity of corporate results
announcements for the year ending 1991-92.  Most companies have chalked
out huge investment plans and several public offers/rights' issues are
in the offing.  Historically, companies normally paint a positive
picture of their performance to ensure good receptivity of their public
offers/rights' issues.  Further with valuation norms undergoing a
change, high stock prices could ultimately influence the offered price.
This factor alone could probably render surpassing projections for
corporate sector profitability for the year 1991-92

Demand for corporate paper can only be quenched by the increase in
supply of shares.  Public sector units (PSU) divestment will be a
definite challenge to the sustenance of this bullish phase.  However,
with the growth in investor population, capital markets are unlikely to
be adversely affected

Recommendations

Maharashtra Scooters Limited - A Bajaj Group Company currently quoted at
approximately at Rs 300 is a good buy even at current prices.  The
Company has equity capital of Rs 5.71 crores and the book value of Rs
84/- per share of Rs 10/- each.  The Company had reported an EPS of Rs
18.25 for the year ended March 31, 1991.  Sales were at Rs 119 crores
and the operating margin was 22 percent.  Maharashtra Scotters' workings
were slightly adversely affected for the first half of 1990-91 due to
slow down in the economy and high borrowing costs.  However, despite the
hurdles the Company reported net profit of Rs 7.84 crores for the half
year ended September 1991.  The Company is expected to report an EPS of
Rs 22 for the year ending March 1992.  Exports are likely to improve
because of the price competitiveness due to rupee devaluation.  It needs
to be pointed out that maharashtra Scooters Limited has hugh investments
and hence the risk of the main business being adversely affected is not
likely to result in the bottomline going into the red.  The P/E works
out to 13.6.  A  value stock at current levels when the total market
P/Es are over 47

Madras Cements Limited - is currently quoted at Rs 13,000 per share
(face value Rs 100).  The Company has the smallest equity capital to
tonnage capacity in the cement industry and even today the P/E is only
at 11.  Madras Cements has an equity capital of Rs 3.02 crores with
sales of Rs 140 crores for the year ended March 1991.  The Company made
a profit of Rs 18.51 crores for the year ended 1990-91 giving an EPS of
Rs 613.  The Company has a book value of Rs 1108.  Madras Cements sales
for the half year ended September 30, 1991 were Rs 89.7 crores and net
profit was Rs 13.51 crores.  With cement prices improving in the second
half, the Company is likely to declare an EPS of about Rs 1100.
Moreover, the capacity utilisation is higher than the installed capacity
of 1.2 million tonne.  Besides, cemend industry is witnessing a boom
phase again and is likely to remain firm for the next three years.
Madras Cements has also started exploring the export markets and
exported Rs 1.6 crores (FOB) of cemend in 1990-91.  With book value
expected to go up to about Rs 2000 in 1991-92, a liberal bonus can be
expected.  A good buy at current levels

Excel Industris at even Rs 1000 is value investment and so is Mahindra &
Mahindra at Rs 160/-.  Both these shares can show an appreciation of 50
percent even over present levels.  Videocon Appliances is likely to
declare an EPS of Rs 20/- for the year ending March, a good buy at Rs
210.  With the trade policy  to be announced, the  markets are expected
to gain further momentum in the current week.  It would not be
surprising if the index crosses the 4200 levels swiftly


Gul Teckchandani


TECHNICAL ANALYSIS


As indicated in the last newsletter the market entered into a new
bullish rally.  Both the BSES and BSEN indices opened up with a big gap
on the first day of the week ie., March 23, 1992 and broke away from the
"flag formation".  The BSES index closed at 3791 against the last week's
close of 3243 ie., a rise of 16.89 percent, and the BSEN index closed at
1747 against the last week's close of 1474 ie., a rise of 18.52 percent.
On the last day of the week there was a lot of selling pressure in the
"A" group scrips (most likely due to last day of the settlement), while
the "B" group scrips were firmer.  Both the Short Term Moving Average
(STMA) and Medium Term Moving Average (MTMA) moving averages continued
to rise.  The gap between the two, of almost 600 points, is quite
significant.  The 12 Day Rate of Change (ROC) chart is indicating that
the momentum is declining.  Moving Average Convergence Divergence (MACD)
which at the end of the last week was weakening suddenly reversed and
was quite firm during the week.  The number of advances have been higher
than the number of declines during the week and thus none of the
indicators till date have shown any signs of trend reversal

The manner in which the market has moved in the last week and the
aggregate analysis of all technical indicators leads to the conclusion
that the market is now surely getting overpriced and is entering into a
dangerous zone.  Trading needs to be done very cautiously alongwith
partial profit booking.  The market and the index movement shall have to
be observed on a  daily basis to look out for signs of trend reversal or
divergence


Rahul Shah


PRIMARY MARKET REVIEW


During the period under review, contrary to the trend prevalent in the
preceeding weeks, only two companies - Kuku Motar Finance and
Kunststoffe Industries, came out with primary market issues aggregating
Rs 3.63 crores.  Both these issues were equity issues at par

Peico's proposed Rs 28.30 crore rights issue has become mired in
controversy.  For a quick recap - a Memorandum of Understanding (MOU) was
arrived at between the parent company Philips Electronics N.V. and Tata
Industries Ltd., whereby the latter was to be offered a firm allotment
of Rs 46,50,000 FCDs of Rs 25/- each out of a total issue of 1,13,19,782
FCDs.  By virtue of this offer, Tata Industries's holding in Peico
Electronics would have gone upto 10.4 percent.  Trouble started when the
employees union and some managers started questioning the strategic
alliance between the two groups.  According to them, Peico which had
accumulated losses of Rs 16.4 crores in 1989, had already turned the
corner and hence could do without Tata's participation.  A writ petition
was consequently filed in the Bombay High Court alleging that Peico and
Tata Industries Limited had violated clauses 40A and 40B of the listing
agreements.  Clauses 40A and 40B of the Securities Contracts
(Regulation) Act, 1956, require a Company to notify the Stock Exchange
authorities within two days of any proposal/agreement, whereby any
person acquires/agrees to acquire more than five percent of the equity
shares of any Company.  The Court has ruled in favour of the employees,
granting an ad interim injunction restraining Peico from issuing
shares/FCDs.  In the meantime however, the Company has received consent
from the Controller of Capital Issues for the proposed rights issue

The Securities and Exchange Board of India (SEBI) has proposed certain
measures to ensure that the interests of the investing public are
protected while allowing free market pricing of public issues.  The salient
features of these measures are :

a.      Equity capital subscribed privately by the promoters, directors
and their friends should not be less than 15 percent of the total equity
if the equity does not exceed Rs 1 crore, 12.5 percent if the equity
does not exceed Rs 2 crores and 10 percent if the equity exceeds Rs 2
crores

b.      Promoters contribution to the capital should be brought in at
the same market price as other investors

c.      Promoters should make their subscription before the public issue

d.      Promoter's shares should have a minimum lock-in period of three
years

SEBI has also proposed certain guidelines relating to primary market
issues, salient among them being the following :

a.      Subscription list for primary market issues should be kept open
for at least two working days

b.      Rights issue should not be kept open for more than 60 days

c.      Gap between the closing dates of various issues should not
exceed 40 days

d.      Within 15 days of the closure of the issue, a report in the
prescribed format together with a compliance certificate by a chartered
accountant, should be forwarded to SEBI by the lead managers

The unprecendented boom in the secondary market has been attributed
largely to economics of demand and supply.  While the demand for scrips
have been fuelled by large inflows of money from various sectors into
the stock market, the supply side has remained relatively constant.
This scenario, is however expected to change in the coming days.  With
institutional funds getting scarce and costly, companies are
increasingly turning to the capital market for raising finance.  The era
of mega issues has already commenced - Reliance raised nearly Rs 900
crores while TISCO is shortly expected to raise over Rs 1,200 crores.
In addition, scores of companies are expected to adopt the primary
market route, encouraged by the recent spate of over-subscribed issues.
Increment to the supply side is also expected through continued sale of
Governemnt assets through the primary market.  Besides, initially PSU
disinvestment took place through mutual funds.  Future disinvestment in
PSUs is expected to take place directly through the primary market


Anish Mathew


MONEY MARKET REVIEW


The money market became tight in the week under review.  Call rates
opened around 15 to 16 percent at the beginning of the week.  However,
by the end of the week call rates had jumped to levels of 50-60 percent

The rise in calll rates resulted because of the present and anticipated
outflow of funds from the system.  Nearly Rs 500 crores  were withdrawn
by public sector undertakings from the banking system.  Another outflow
of Rs 500 crores is expected to take place by March 31, 1992.  Mutual
funds also withdrew from the market.  With the year ending approaching,
the window-dressing activity of the banks has been initiated.  Dealers
wanted to borrow so as to raise deposits for the bank as well as to meet
increased reserve requirements.  The announcement of increase in the
coupon rates on the new Government loans added to the volatility of the
call market.  The imbalance between demand and supply of funds resulted
in the spurt in call rates

Increase in coupon rates continues to have deflationary impact on prices
of existing gilt-edged securities.  With money market expected to remain
tight, the price of securities are expected to go down and further
depreciate the security portfolios of the banks.  Units prices continued
their spurt.  Transactions are essentially taking place on ready forward
basis; April 30, 1992 rates quoted around Rs 15.40.  Bonds market continued
to remain dull

Money market are expected to lose their present momentum.  The spurt
appears to be because of 'year-ending phenomenon'.  Market has enough
liquidity and demand for money  is e xpected to gradually go down by the
beginning of next month


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