It's the money order, stupid

Remittances have propped up BoP, not FII inflows

The balance of payments (BoP) data for the June quarter are important because this was the quarter marked by foreign institutional investor outflows, and the numbers, therefore, answer the question: "How much is the BoP, and therefore the rupee, dependent on portfolio flows?"

Not much, as portfolio inflows were a mere $82 million during the quarter, compared with $3.7 billion in the fourth quarter of FY04.

At the same time, merchandise deficit rose from $4 billion in Q4, FY04, to $6.3 billion in the first quarter of FY05, the oil import bill being a big reason.

Although this gap was reduced substantially thanks to continued improvement in "invisibles", the current account surplus fell to $1.9 billion from $3.4 billion in the previous quarter.

It's worth noting that, among invisibles, software exports were maintained at more or less the same level, and it was only private remittances that saved the day. Remittances rose to $5.1 billion from $3.2 billion in the previous quarter.

One not-so-good trend has been the substitution of portfolio inflows by debt inflows. Loans during Q1 went up to $2.8 billion, much of it short-term in nature, from a mere $221 million in the previous quarter.

NRI deposits fell by $786 million during the quarter, compared to a rise of $124 million during Q4, FY 2004. And finally, the upshot of a smaller current account surplus and lower foreign investment was a lower level of accretion to forex reserves.

Note that the current account surplus during Q1 was $1.9 billion, while remittances also increased by $1.9 billion. It's those NRIs slogging away in the Middle East and sending money home who are propping up the rupee.

Dabur Pharma

Dabur India shareholders have gained around 16 per cent, with the listing of the erstwhile pharmaceutical division of the company, Dabur Pharma.

According to the scheme of demerger, shareholders of Dabur India were given one share of Dabur Pharma for every two shares held of Dabur India. Before this restructuring, Dabur India traded at Rs 79.4 on the NSE, giving a holding of 100 shares a value of Rs 7940.

Dabur India, which now has only the FMCG business, closed at Rs 72.15 on the NSE on Friday, giving it a value of Rs 7215. In addition, their holding of 50 shares in Dabur Pharma now has a value of Rs 1970, resulting in a total portfolio value of Rs 9185 and a gain of 15.68 per cent.

According to analysts, Dabur Pharma has enjoyed a good listing thanks to the rally in mid-cap pharma shares. At the end of its first year of operation in March 2004, the company had a return on equity of only 7 per cent and its basic EPS was Rs 0.97.

Things were slightly better in the quarter ended June 04, where operating profit grew 16 per cent, on the back of a 11 per cent growth in sales to Rs 58.75 crore.

The company is expected to benefit from the tie-up with Abbot, which will market its oncology portfolio in US, enabling it to leverage its partner's approximate 40 per cent market share in the American institutional sales market.

Also, the company is in the process of making a private placement with a private equity investor and this will lead to a considerable cash inflow. But even then, its trailing PE of around 40 more than fully discounts all its growth potential.

Auto sales "� still good

Most auto companies reported good monthly sales numbers for September. Maruti's domestic sales grew 23.9 per cent, higher than the 20.1 per cent growth recorded in the April-August period.

Similarly, Hero Honda's domestic sales grew 36.6 per cent, higher than the 34.6 per cent growth in the April-August period. And Bajaj Auto's growth in motorcycle sales jumped to 32.1 per cent last month, compared to a 23 per cent growth earlier in the year.

Based on the performance of these companies, who are market leaders in their respective categories, it's safe to say that the growth story in the passenger vehicles segment continues unabated.

There are no signs of a high base catching up. Most analysts expect these companies to continue growing at a fast pace, at least for the rest of the fiscal. But based on recent stock price movements, only the Bajaj Auto stock seems to have benefited from the higher volumes.

Since mid-May, Bajaj's share price has risen 22.4 per cent, much better than Hero Honda's gain of 11.2 per cent and Maruti's decline of 11 per cent.

Bajaj's CT 100 volumes have grown at a fast pace, and the model now has a two-week long waiting period. But the anticipated success of "Discover" has also contributed to the increase in valuation.

Hero Honda's valuation, vis-a-vis that of Bajaj Auto, has suffered after the entry of Honda in the motorcycles segment through its 100 per cent subsidiary.

Maruti's valuation, of course, was hurt because of Suzuki's JV plans. In summary, passenger auto sales continue to be good, but valuations reflect longer term concerns.

With contributions from Amriteshwar Mathur and Mobis Philipose