The Hindu Business Line : Shipping stocks manage to weather the storm

INDIAN shipping stocks could effectively weather the storm that buffeted the bourses since May 13 in the wake of the pronouncements made by the new political leaders that were then in the process of cobbling together a government to replace the NDA Government.

Only the State-owned Shipping Corporation of India (SCI), the largest fleet owner, saw a significant fall in its stock prices and this was because it was on the block for sale of a majority stake. SCI's fall matches the tumbling down of the prices of other PSUs that were on the disinvestments radar, propelled by the signal that there would be no sale of profit-making PSUs.

Save for SCI, the stock of all other shipping companies had their value almost intact or suffered an insignificant fall, while some even registered an increase in the prices since May 13.

Take the case of Great Eastern Shipping, the country's largest fleet owner in the private sector. From a high of Rs 123.80 on May 13, it fell to Rs 112.50 on May 19, only to crawl up to Rs 118 on May 21, Rs 122 on May 24 and Rs 129 on May 26.

Almost similar was the case with Varun Shipping, largest tanker owners. From a high of Rs 24.70 on May 13, it fell to Rs 21,80 on May 18, then regained to Rs 24.40 on May 20 to settle at a high of Rs 23.50 at the close of May 26.

Smaller companies like Shreyas Shipping had a different experience — their scrip value increased during this period, at a time when the bourses were rocked by a volatility that was not witnessed since Harshad Mehta's time. From a high of Rs 15.75, Shreyas's scrip fell to Rs 14.50 on May 19 and inched up to Rs 16.80 on May 21 to settle at Rs 18.45 at the close of May 26 trading.

What is the reason for this trend? For one, according to analysts, shipping companies operate in a global environment. In other words, any political changes, except for any policy decisions that may impact shipping companies, would not affect the fortunes of a shipping company.

Secondly, the freight market has been booming at unprecedented levels ever since the Iraq invasion and increased imports of raw materials by China. This, coupled with the short supply of vessels, has firmed up freight market like never before and all shipping companies were able to reap maximum pecuniary gains.

"Strong economic growth in most parts of the world fuelled commodity demand, which in turn triggered trade. According to the IMF, it is apparent that the global economic growth will be stronger in 2004 and it will be driven more by fundamental factors," a shipping analyst told Business Line,

As per IEA estimates oil demand is expected to grow by 2.1 per cent in 2004 and around 35 per cent of the incremental demand will be from China. "It is believed that there will be no tonnage supply overhang as increase in supply will be absorbed by the demand, keeping the rates firm," according to the analyst.

On the dry bulk side, although the freight rates have fallen by about 20 per cent from their highs, these are still well above their long-term average. "CVRD, a Brazalian iron ore major, has forecast that the world seaborne iron ore trade is to expand by 7 per cent in 2004 and Chinese imports will account for 71 per cent of this increase. Thus this suggests that the dry bulk freight rates will continue to be healthy," said the analyst.

Against this background, shipping companies appear to be well-anchored on the bourses, irrespective of the new economic direction that the new government gives.

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