Pumping it in

FII investments in secondary market continue to be robust

The Sensex has now lost 3.7 per cent against last week's close, giving up all of the gains made last week. When ONGC's mega Rs 10,000 crore public offer sailed through smoothly, the markets had resumed their northward journey. But there seems to be a rethink now, what with the Sensex losing over 90 points two days in a row.

Till last week, the main short-term concern for the markets was whether there was enough liquidity to absorb the rush of IPOs that were hitting the market.

These fears are now allayed, since almost all public offerings have been over-subscribed "" the Biocon issue, yesterday, was oversubscribed in the first 10 minutes.

However, the high demand for the public offerings and the extent of oversubscription has dampened liquidity in the secondary markets.

Average daily turnover this month has dropped to Rs 5,370 crore on NSE's cash market, from Rs 5,720 crore in February and Rs 6,392 crore in January. One theory is that the rally will resume once investors get their refunds back.

As far as the market players go, the consensus is that the elections will not throw up a surprise and that reforms would continue. According to some analysts, this seems to be already priced in Indian stocks, which leaves room for disappointment.

Other negative surprises could be monsoons and cost increases, which means maintaining earnings growth would be anything but a cake walk especially since corporates have to contend with a high base effect as well.

Besides, capex hasn't been very aggressive, which doesn't point to high optimism from corporates' point of view either.

In such a scenario, it's interesting that apart from Hindustan Lever all of the top 200 (market cap) stocks in the Indian markets have posted a year-on-year gain.

Among the top 500, only 15 stocks have dropped in value on a year-on-year basis. The point is stock prices currently reflect a high degree of optimism, and this applies to almost all the sectors regardless of any change in fundamentals.

But FIIs, many of who are first-time participants in the India story, don't seem to be bothered much. So far this month, average daily net investment by FIIs stands at Rs 200 crore, which is among the highest in the past one year.

Foreign appetite for Indian paper is expected to remain high, and as soon as domestic funds return to the secondary markets, the momentum could pick up yet again.

Good time for pipe makers

Public and private sector firms have increased their oil exploration and distribution activities in recent times - ONGC has found two wells in the Bassein gas fields, while Cairn of UK has recently made its second large oil discovery in Rajasthan.

Meanwhile, surging demand for liquefied natural gas (LNG) has lead Petronet LNG Ltd ( PLL) to increase its capacity at Dahej to 10 million tonne.

No doubt these measures would expand the topline of oil companies in the next few quarters but these developments are also helping to improve the fortunes of an allied industry.

Manufacturers of specialised pipes for the oil industry, such as submerged arc welded and spiral welded, are experiencing a surge in their order books as their product would be key to transport oil to the end consumer.

Pipe manufacturers' order book have surged in recent times "" PSL Ltd has been recently awarded a contract for supply of 518 km of pipes from Indian Oil Corporation and they have also received an order from GAIL for the pipeline being laid out in Andhra Pradesh.

An upsurge in the company's performance is reflected with net sales in the quarter ended December 2003 jumping up 200 per cent to Rs 275.5 crore and net profit growing 120 per cent to Rs 6.72 crore. Growth is expected to remain strong for the next few quarters as the order book has swelled to Rs 3,200 crore. They are not alone.

SAW Pipes Ltd which was primarily focusing on the export markets of the Middle East and Central Asia, is now ramping up its domestic operations.

The company has bagged several projects from oil PSUs "" as a result, sales for the company in the quarter ended December 03 grew by 106 per cent to Rs 201.84 crore and net profits have shown a similar trend, surging three fold to Rs 12.7 crore.

SAW Pipes is expanding capacity aggressively by planning a capital investment of Rs 250 crore in Gujarat. The returns from this project should flow into the balance sheet in the next 15-18 months.

The boom conditions in this industry are not likely to come to an end soon as an estimated 17, 000 km of pipeline would be laid out by oil companies over the next 3-4 years.

Meanwhile, bulls have pushed up SAW Pipes stock price by 58 per cent over the last 6 months, while PSL Holdings has gone up 15 per cent in the corresponding period.

With contributions by Mobis Philipose and Amriteshwar Mathur