The influence of the International markets continued to haunt the Indian  bourses during the week ending June 16, 2001. The uncertain outcome of the  introduction of rolling settlements from July 2nd further dampened the spirits  as the Sensex settled at 3373, the lowest in last two months. The Telco  results indicating a huge loss of Rs 500 crores shook the market sentiments  and pulled down shares across all sectors. Technology shares were the worst  hit, led by  Infosys Technologies, which dived by 10.55 % on Friday to Rs  3,401.90 rupees, its lowest close since April 27.

Despite the bleak prospects indicated by this trend, Nasscom has indicated  that the IT industry has grown by 55% in the year 2000-2001. The software  exports also  grew by 65% during the same period.  Even though the growth  in dollar terms was less at around 55 %, it is by no means disheartening to a  fundamental analyst.

While the reports of slow down in recruitments in Software industry indicate  that the players have turned cautious, Nasscom has estimated that the  software exports during the current year will grow by around 40 % and  exceed a gross figure of Rs 40,000 crores. This should stabilize the  sentiments in the market to some extent.

The domestic Software business has however been a cause of concern with  the growth coming down from 45 % last year to around 31 % this year. This  should however be seen as an indication of the general slow down in the  economy reflected in the Telco case. It  is also indicating the effect of the  "Globalisation" policies and if the Government continues to ignore the ill  effects, it will create a bloody situation in the Indian industry as well as with  the investors.

If this "Royal Massacre" of the "Indian Industry" is inevitable, the only  option for the investors is to be prepared to stick to such industries where the  impact would be relatively lower. One sector, which provides some  confidence, now is the Pharmaceuticals sector where some of the leading  companies seem to have growth prospects, which are attractive in the current  circumstances.

The Indian Pharma market is Rs 20,000 crores in size and is growing around  8 to 9 % pa. The Per capita expenditure in India is negligible compared to  developed countries and is a fraction of even countries like Pakistan and  China. The production mix is such that every type of drug from simple  headache pills to sophisticated antibiotics is being produced in the Country.  More than 25 % of the formulations produced in the country are being  exported.

The industry is expected to continue growing by about 8-9 % in the current  year and the key revenue drivers would be life style segments such as  cardiovascular, anti-diabetes, anti-ulcer and anti-depressants, which are  lucrative and fast growing.  Companies with strong marketing abilities and  flexible production capacities will reap a relatively better benefit in an  otherwise competitive market scenario.  Out of a few good investment prospects, one Company, which is emerging  as a market favourite, is Pfizer Ltd. It is a leader in the pharmaceutical  industry, animal health-care products and nutritional and health-care  products. The shares are traded currently around Rs 475 at a PE multiple of  around 32. With the proposed merger with Parke Davis, it is expected to  emerge as the 5th largest formulation company in India. The company has strong financial fundamentals. The net sales has gone up  from Rs 205 crores in 1998 to Rs 253 crores in 1999 and further to 288  crores in 2000 (Year Ending November). The PAT has also increased during  the same period from Rs 12.5 crores in 1998 to Rs 30.9 in 1999 and further  to Rs 39.5 crores in 2000. During the first quarter in the current year ending February 2001, it reported  a 33 % growth in net profits and 18 % growth in sales. Analysts project that  the Company is in a position to register a turnover of around Rs 421 crores  and a net profit of Rs 50 crores for the current year. The draft Pharmaceutical policy 2001 is generally favourable to the industry  and there are likely to be no adverse developments on the policy front. The  increasing population as well as the increasing "health consciousness" of the  society will ensure continued demand for pharma products from an  established, quality formulator. Investment in Pfizer is therefore reasonably  safe and would give a decent return in the long run. Any major uptrend in  the investment sentiment can take the P/E multiple of the Company to  around 45 –50 providing good prospects for investors at the current price  levels.

Na.Vijayashankar
June 16, 2001