Vantage point

Friday, May 14, 2004


The Sensex crashed yesterday. And though just one day is not enough to make a judgement, my guess is that for the next couple of months, the markets will be in the 4500-5500 range. That will be the trend line for the first few months of the government until the budget is released.

The main reason for this is that the surge in stock prices over the past year has been driven in part by the prices of the Oil PSUs.

Let me just take ONGC as an example. In 2002, the highest price for the ONGC stocks was 406. It ended 2002 at 133. In 2003, the highest price was a whopping 812 and it ended the year at 348. yesterday itopened at 820 odd and ended at 720 odd.

Okay.....maybe ONGC is the wrong example because of the public issue. Let us take....HPCL.

2002 - High - 338 Closed - 133
2002 - High - 452 Closed - 269

In 2004, the high has been 542, and yesterday HPCL closed at 331, down from 378.

Now the thing is,the surge in these stocks has been mainly because the NDA government was keen on privatising these companies. However with the Congress and Left clear on the point that they will not divest "profit-making PSUs", you are going to find lesser and lesser takers for these stocks.

Add to it the fact that global oil prices have reached a 14 year high, and the oil companies have not been allowed to hike prices in India, it meansthat they will be taking losses. The first step of a new pro-poor-looking government will not be hiking oil prices. So this will continue and the OIL PSUs will keep becoming unviable.

Hence do not be surprised at further fall in their prices. Just than heavens for the IT stocks that will keep the market in a respectable position.

Many people have said "why sell profit-making PSUs?"

On the face of it, the question seems good. but please remember that it is not just about profits, but about profitability, efficiency and productivity. India needs more productive and efficient IOCL, HPCL, BPCL and ONGC. Privatisation is how they will achieve more productivity and efficiency.

The current maze of babudom, combined with the spectre of APM that still exists, means that those companies will never reach their true potential.

Disinvestment of all PSUs is necessary, and whether they make profit or not is irrelevant. The relevant factor is productivity and efficiency.