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Life after Sensex

Nikhil Fallerio in Bombay

When the Bombay Stock Exchange Index Committee announced a restructured Sensex on October 13, four giants -- Arvind Mills, Steel Authority of India Limited, Indian Petro Chemicals Limited and Great Eastern Shipping -- were conspicuous by their absence.

It marked an unceremonious ouster for the four giants who have been part of the country's premier share index for no less than 20 long years. It also heralded the entry of four other companies -- two of them from the current market favourite infotech sector -- into the coveted index list.

Market observers see in the historic change a sign of the times. A S Manish Shah, vice-president, Gold Crest Securities, says, "This shows that the investors are fast losing confidence in reputed companies. This is a bad sign because the Sensex is actually a reflection of the market."

According to BSE-IC members, some reputed companies lack adequate liquidity and do not reflect the true state of the economy. With the markets all but doing the zombie act, fast growing stocks are expected to infuse some life into the market, stocks that are being fancied by the small and big investors alike.

The four unlucky equities will have to learn to adapt to life after Sensex. GE Shipping has barely survived the southeast Asian crisis and the reversal in trends in developed markets like the USA and Europe. It has witnessed a significant drop in demand for its dry bulk carriers and tankers.

According to its chairman K M Seth, bulk freight rates have been falling ever since the southeast Asian crisis erupted, and a direct consequence was the fall in trade in iron and metallurgical products. This is what pushed the share to its 52-low of Rs 22.95, weeks before the announcement was made.

With the chairman himself publicly declaring at the annual general meeting that the future was uncertain for the company, it was not surprising that heavy selling was witnessed at the GE Shipping counter. An analyst at Hong Kong Shanghai Banking Corporation says, "The question is: how long can GE Shipping survive the crisis? After all, its bulk business is shipping, if that fails, then where is the future?"

Similar sentiments have been expressed about the Lalbhai group. Since August, the group's fortunes have not seen an upswing. Ever since the Lalbhais planned to merge group company Arvind Intex with Arvind Mills in August, the price of the flagship scrip began a slide. Three-fourths of the company's market value was eroded.

That was also when the company installed a high-tech denim rope dying plant which failed to stabilise. Result: huge quantities of low-quality fabric. Last January, a major fire at its mill destroyed stock worth Rs 350 million and set tongues wagging about the financial stability of the company.

This April the group took a severe financial knock in closing a deal for the sale of Anagram Finance to ICICI. And in June, when the company declared its financial results for 1997-98, the figures were well below the expectations. It was apparent that the Lalbhais had hit a big speed-breaker.

Any reversal of fortunes calls for considerable time. With net profit down by 20 per cent, Arvind Mills saw its EPS drop drastically from Rs 30 to Rs 10.05. It declared a lower dividend of only Rs 2.5 as compared to last year's figure of Rs 5.5.

Sanjay Lalbhai, managing director, Arvind Mills, wryly says, "The scenario is a little bleak, so it is not surprising that we were removed from the Sensex." Lalbhai has realised that the stockmarkets are tough on low-lying shares and pally with the rising stars.

So has the Steel Authority of India. By declaring a half-yearly loss of Rs 6.16 billion in September, the steel behemoth did not endear itself to the market. The slide began in 1991 and chances of sailing out of the rough seas of recession seem remote. Arvind Pande, SAIL's chairman, admits, "It's a shocking scenario which has demoralised investor confidence in our company."

It was the same scenario that spelt finis to IPCL's long association with the Sensex. But unlike SAIL, IPCL's problems are of recent origin, starting with a loss of Rs 560 million during the first quarter of the current financial year. The company's outlook and optimism levels are at a new ebb. K G Ramanathan, IPCL's chairman, says, "When the stock markets reject you, it is very difficult to bounce back."

Indeed. With the four new entrants' market capitalisation around Rs 123.88 billion -- four times that of the ejected companies -- it will be very difficult for the one-time giants to force their way back into the Sensex. Especially so, given the way the New Four are growing and expanding at breakneck speed.

But a few analysts still reckon that old is gold. ''Even gold sometimes gathers dust and looks ordinary. A coat of polish, and the glitter would be back. And what's shining today may fade tomorrow,'' says one.

Quite.The new Sensex came into being today, the fruition of months-long campaign for inclusion of infotech stocks in the 30-scrip index. Earth did not shatter. Heavens did not fall. But the Sensex itself did, by 30 points!

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