Despite the tragic incidents of the Srinagar blast and the comic events of the hijack hoax, the stock markets in India gathered momentum and firmed up to a Sensex level of 2813 by the end of the week. The sentiments were aided by the feeling that the markets in Europe and USA had bottomed out. The changed sentiment was also evident in the FII investment in October becoming net buyers. It was reported that FII s were buying scrips such as Infosys, L&T, Ranbaxy and SBI. The announcement that Infosys may consider an interim dividend of 10 % spurred renewed interest on the scrip from FIIs.

One of the major events during the week was the reported completion of the disinvestment plan of the Government. The first of the deals was a small but significant decision to privatise CMC through a sale of 51 % stake to Tata Sons at a cost of Rs 152 crores. Simultaneously, a decision was also taken on privatisation of HTL with 74 % stake being sold to HFCL for a cost of Rs 55 crores. Coming at a time the markets are in the low ebb, the deals appear to be extremely profitable to the private sector companies who have acquired the stakes. 

While the HFCL bid went on higher bid, it also provided some image boost to the Company reeling under an unfair mark as a tainted share. Tata Sons offer for CMC was the sole qualifying  bid received at Rs 197 per share as against the price of Rs 213 in the market. 
  
When the markets turn around, there will be politicians who will cry foul on these deals as if it was a sell out. It would be interesting to watch out if such critics have any comments to offer on the deals in the present scenario. The decisions however mark a major breakthrough and it should clear the grounds for more deals to be finalized.

In the meantime, the successful commencement of the disinvestment programme has raised the rumours about the possible privatisation of the UTI. Even though the finance minister has categorically stated that privatisation of UTI is not on the agenda of the Government, it is doubtful that the possibility can be ruled out in the event of continued pressure on the performance of the funds. The possible approach could be a scheme by scheme privatisation. It would however be interesting to see if the bids would be called for individual schemes or a bundle of schemes consisting of a mix of good and not so good portfolios.

While we can wait and watch this development, one can scout the current funds to identify which of them are in good shape. During the quarter ending June 2001, debt funds attracted an investment of Rs 11291 crores while Equity funds had a negative flow of Rs 4352 crores, indicating a significant shift of investor’s preferences. While the risk of further erosion of equity funds persist, the debt funds are hoping that if India follows US in interest cut policies, the existing portfolios will further strengthen.

It was heartening to observe that during the quarter ending June 2001, the Gilt Funds appreciated by nearly 20 % pa. JM G-Sec funs have been able to appreciate by around 23 % pa in the last year making it far better than any Bank investment. Similar funds from Birla, Kotak and DSP have also turned up similar impressive returns. Over the medium term of last three years, the debt funds as a category have maintained a rate of appreciation of around 11 % p.a. which must be considered very attractive.

Investors must however remember that this sort of return for Gilt funds is not natural and should not be expected for a long time. A consistent return of around 8 to 9  % pa should  be a more reasonable expectation from Gilt funds which are relatively risk free.

In the current market scenario where the possibility of a long war is looming large in the region, investing in Gilt securities should be a safe option for most conservative investors. The possibilities of the Government removing some of the tax sops on small savings will also drive many of the small savings investors to Gilt Funds, increasing the available investible resources of the top fund agencies. Even if the fall in the interest rates donot materialize immediately, in the present context, it appears that these Gilt securities may continue to provide better than Bank return in the coming few months.   

Na.Vijayashankar
October 6, 2001