BOMBAY, 27 January 2003 — This week, we take a look at a few sectors which have been ruling the roost on the bourses. We delve into the reasons as to why stocks in these industries have been scaling new heights and also look at what an investor can expect from these sectors.

Cement

Analysts are of the view that cement seems like a much better bet than technology from a short-term perspective. This is based on the back of positive developments expected in the sector from this year’s budget.

Cement prices have cracked in and around Bombay, by Rs.5-10 and in north India by Rs.5-7 for a 50-kg bag. In Southern India, the prices are still going strong. Analysts are of the opinion that the worst is over on the prices front for cement companies and their inventories are at an all-time low. They have made a forecast of a 9-10 percent growth in cement sales over FY03, and demand to remain buoyant next year as well.

For December, ACC reported a 10.7 percent increase in dispatch over the same month last year. L&T’s cement dispatches were up 10.4 percent, Gujarat Ambuja Cement’s (GACL) dispatches were up 34.5 percent at 842,000 ton, and Grasim, the last of the cement majors, shipped out 23.11 percent more cement in December.

And regarding performance for the quarter ended Dec. 31, 2002 (Q3), ACC, India’s largest cement maker, showed a net profit which was up 19.37 percent from Rs.169.3 million to Rs.202.1 million. Lower cement price realizations led to a 3.07 percent decrease in net sales from Rs.7.03 billion to Rs.6.82 billion.

Steel

Steel has been on the surge for some time now and steel prices are heading northward. Analysts are of the opinion that this upsurge in the cycle is expected to continue for atleast a couple of years and thus steel stocks should give good value for investors. Steel is in the limelight now with expectations from the budget giving them a boost.

The biggest driver of the current steel boom has been China which is expected to grow at a GDP of around 8 percent. China’s steel imports have gone up by 37 percent while exports have decreased by 30 percent thus indicating huge domestic consumption in China. There is also a spurt in demand from Russia. The other factor that will help Indian companies is the production cuts taking place in Japan.

It is very evident that global steel markets are bullish and demand from China will be sustained. The supply demand scenario in the local markets also indicates a price rise that should improve the margins.

And the icing on the cake has been a debt package which has been worked by the financial institutions for Jindal Vijaynagar Steel, Ispat Industries, and Essar Steel. These three companies owe a total Rs.180 billion-200 billion to the institutions. The package announced covers both debt and equity of these three companies.

Basically, the package completely recasts the financial architecture of these companies. The equity of these companies will be written down by 40 percent. These will be replaced by preference shares bearing a dividend of 0.01 percent. Also, part of the debt of financial institutions will be converted into equity such that their equity stake is the same as that of the owners of the companies.

As for debt, the institutions have agreed to lower the interest rate on the loans. The interest charged on 60 percent of the loans will be 14 percent, down from an average 16 percent-18 percent earlier, and 40 percent of loans will be converted into foreign currency loans and be charged an interest of 8 percent.

Banks

Bank stocks have been rising and are in the limelight. Market analysts are upbeat on the prospects of bank stocks in the medium-term though profit booking is expected to come in at higher levels in the short-term. So what is the advice for an investor? Banks continue to look good from a medium-term perspective, and investors may hold on to these stocks. But short-term investors may book profits when the stock touches higher levels.

Small-sized banks have been witnessing aggressive buying in the last one month. And this has happened ever since the central bank cut bank rate, CRR and repo rate by a quarter percentage point last October. The passage of the Securitization Bill, growing retail business and impressive have added more fuel to the fire. As a result, banking shares such as Dena Bank, IDBI Bank, Allahabad Bank, Centurion Bank, Union Bank, IndusInd Bank, Bank of Rajasthan and Bank of Punjab Andhra Bank has reported 46 percent jump in its Q3 net profit. IDBI Bank for Q3 reported a 207 percent rise in its net profit.

There is continued efficiency improvement in almost all the banks. Many are talking about second round of voluntary retirement scheme. Some are talking about returning capital to the government. The next three or four quarters is expected to be extremely good.

Analysts are of the opinion that bank stocks are still cheap on all parameters — price earning ratio (PE), price-book value, and price-adjusted book value. They opine that the sector as a whole, is quoting at an average PE of 3.5 as against 5-6, which is what peer banks in Southeast Asian countries are valued at.

Information technology (IT)

Currently there seems to be a total lack of interest in IT stocks, but the general consensus is that the outlook is satisfactory for the sector as a whole. Disappointing earnings numbers from tech in their quarterly results have made the sector fall out of favor with regional investors for some time now. Market punters say that prices could have more or less bottomed out in the sector, and there could be a fresh rally.

There has been a lot of selling by domestic funds over the past few days in the tech stocks. But foreign institutional investors, FIIs inflows have gone up in the sector. Buying is expected to come in the IT sector as the selling continues as the undertone remains bullish. This is because India’s outsourcing strategy is still intact, and that should be the key in the days to come. If there is a positive news flow is terms of series of large contracts being bagged, that would itself be a re-rating trigger for most of the IT stocks.