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Economy-sensitive stocks decline

Suresh Krishnamurthy

ON Thursday, the stock of Exide Industries and Hindalco Industries sank to their 52-week lows. While Hindalco Industries was able to bounce back strongly before the close of trading, it remains in the negative territory as far as the past 15 trading sess ions are concerned. Many more stocks, whose performance is linked to the growth of the economy, are also languishing.

Stocks such as BPL, Videocon International and MIRC Electronics have lost value significantly in the past few trading sessions.

The decline in stock price coincides with a significant decline in demand for colour televisions. The operating profits of these companies are also being squeezed thanks to intense competition. The onslaught of the multinational companies on the strongho ld of the Indian companies is also having an adverse impact on cash flows of these companies.

Companies such as BPL have also cut back on their dividend sharply. This is reflected in the stock prices of these companies.

The capital goods sector is another that is feeling the impact of the slowdown in the Indian economy. Stocks of Wartsila NSD, Thermax and Ingersoll Rand are close to their all-time lows. Only a revival in industrial activity can see a revival in the fort unes of these companies.

Similarly, stocks of auto and auto ancillary companies are also sharply down. Once again, slowdown in the demand for passenger cars and commercial vehicles has been behind the misery of the companies in the sector.

Stocks such as M&M, Exide Industries, Tata Timken and Sundram Fasteners are also down sharply expecting a decline in their financial performance in the near quarter.

Some of their expectations have already materialised. The stock of Exide Industries reported a 48 per cent decline in profits for the quarter ended June 2001.

The expectation of depressed financial performance applies even to a lot of multinational companies. For example, stocks of drug companies such as Glaxo, E Merck, German Remedies and Novartis have declined in the past 15 trading sessions. Once again, the demand in the Indian market is slowing down.

Overall, the slowing demand has spelt gloom for many companies dependent on the growth in the Indian economy. Evidence confirming the slowdown emerged in the form of industrial production numbers of the first two months of the year.

In April-May of this year, the industrial production rose by 2.6 per cent compared to 6.2 per cent in the corresponding period of the previous year.

There are only four sectors where earnings growth of some sort is expected -- cement, Indian drug companies and software services companies. In the case of the last two sectors, the expected export performance is behind the estimated growth in earnings. In the case of cement, price spurts unrelated to demand-supply dynamics is behind the optimism.