There was no cheer in the market for the investors at the end of the week. The Sensex continued to blow hot and cold and  finally settled down at 3296 not from 3307 at the end of the last week. The trading has been undecisive and not investment oriented. Concerns on UTI pressing large sales remain. The performance of most manufacturing companies including FMCG companies have been moderate to bad and investor confidence did not get any boost during the week.

The cabinet approval for amendments to the companies Act and repeal of the Sick Industrial Companies (Special Provisions) Act, 1985 attracted the attention of investors during the last week. Amongst other things, the Bill proposes to impose a maximum of 0.1 per cent cess on the annual turnover of companies with a paid-up capital of over Rs 10 lakh to be deposited to the proposed Insolvency Fund. PSUs would be exempt from contributing to the Fund. To begin with, the cess would be fixed at 0.005 per cent of turnover and the government expects to yield Rs 75 crore per annum from this provision. Companies under the Banking Regulation Act,. 1949 and PSU s would not be affected by the proposed legislation.

This announcement coming on the back of the news that more than 23 manufacturing companies in India have cut jobs to the extent of 40000 in the last two years and the continued slow down news from the US market has raised alarm in the industry circles. Some of the industry associations feel that the proposed move is a retrograde step that imposes a penalty on profit making companies to subsidise the loss making companies.

Yet another parallel development is the suggestion of the Wipro chairman Mr Azim Premji that the Indian Hardware industry needs to be nurtured atleast for another two years. There are critcs for this view as well.  

While opinions differ on the desirability of protectionsit policies,  the experience of investors in the liberalization era has not been good. The current policies of liberalization have been handled in such a manner that only a handful of  manufacturing company have been able  to maintain a growth in profits. The over reaction of the markets to the US slow down continues to cast a shadow on  the IT industry as well . 

Many analysts believe that there is no cause for alarm and  that Indian IT service industry is only marginally affected by the US Slow down. NASSCOM also predicts a 40 % growth in IT exports this year. Further, it has also been revealed that the flow of Venture Capital funds to India have actually doubled last year from around US $ 700 milllion in the previous year. 

In spite of these positive long term indications, the news of Ford cutting 4000 jobs and Dell predicting a fall in sales and profits will continue to haunt the markets and investors cannot have an easy pick of shares that are risk free.

In digging deep in exploration of stocks for investment, one company which is worth exploring is the Hindustan Oil Exploration Corporation (HOEC). This low priced  stock has attracted noticeable buying attention of late and is presently quoted around Rs 20.

HOEC was the first private company in India to enter into oil and gas exploration. HOEC is working on two production fields, seven developmental fields and six exploration  fields. HOEC is owned by Unocal of US, Hardy Oil exploration of UK, HDFC and IL&FS who  together own around 50% of company’s equity.

 The quarterly financial performance of the company was sparkling with sales increasing by 91 % to Rs17.3 crores and  net profits increasing by 176 % to Rs 8.8 crores. The annualized EPS  on a capital of Rs 58.7 crores was at Rs 6.2 indicating a price discounting of around 3.

 The company's continued exploration efforts coupled with its increased financial strength and technical competence through  partnership with global oil majors would drive future success. It is also expected that the oil prices in the current year may remain high. As a result the Company is expected to record a decent growth in profits during the year. The company paid a maiden dividend last year after making some large provisions. This year the prospects of a higher dividend is high. The share will at the current low price offer a good yield prospect. The prospect of striking yield in its ongoing exploration projects and increasing production in existing fields render a sudden spurt possibility to this scrip.

Na.Vijayashankar
August 18, 2001