In a mindless market

R. Srinivasan, Chennai

IN the article `People will not return to market for 20 years' (Investment World, April 15), Mr Iqbal Raja said that he was a voracious reader of stock market magazines, but ultimately he blamed the media for his losses in the stock market.

I feel he has failed to apply the logic and the basic principles of stock market game. Historically, stock markets have really helped those who aim for reasonable return and not the greedy ones. I have been associated with the markets since 1976, but I have never lost money.

Looking back, on a constant basis, Indian stock markets have historically given high valuations for MNC stocks. The prime reason for such a high valuation could be the then shareholder friendly attitude of these FERA companies. Mr Raja should look at the track record of some of the old time MNC favourites such as Colgate, Ingersol Rand, Glaxo, and others. The hefty dividends and the regular bonus issues are mindboggling indeed. Hence, in the past these MNCs were quoting high, supported by their excellent track record and payouts.

However, some companies adopted some short-cut methods like stock splits to create some speculative element in their share prices. The newly introduced electronic trading systems helped the speculators to do circular trading and thereby take up the respective stock prices to unbelievable levels.

Please take a close look at the recently announced Satyam results. The company has reported a PAT of Rs 316 crore after making a provision of Rs 96 crore towards depreciation. Leave alone the extraordinary income, the cash flow according to the figures works out to a whopping Rs 412 crore. This has been achieved on an equity of Rs 56 crore. However, the company has chosen to declare a meagre dividend of only 40 per cent. In other words, a mere Rs 22.5 crore is going to the paid to the shareholders out of the total cash flow generated -- Rs 412 crore -- comes to 5 per cent; poor by any standards.

I really do not know what the company is going to do with the rest of Rs 390 crore. Unless there is some serious cash problem, the company could have hiked the payout to a reasonable level. I feel this is the case with most of Indian software stocks and it is funny that none of the stock market analysts or the media highlights this point -- the payout. When an investor applies some logic on the above issue, he will not be tempted to buy stocks by paying hefty premium. Instead, he can very well pick some low-priced midcap stocks such as Shanthi Gears, Blue Star, Vanavil Dyes, Lakshmi Auto Comp or TNPL.

The share prices of these companies have been hammered down to unbelievably low levels. Just look at the dividend track of the above mentioned companies. It was fabulous, and thank God, the so-called stock market analysts and the media did not look into such scrips with the result investors like me are safe even in this mindless market. Of course, stocks are not bought just for dividend, but the payouts really reflect the generous cash flow situation of the companies.

The tech bubble has burst and now analysts will look for safer companies as those mentioned above by applying the simple logic of payout as an important parameter of valuation. Our stock market is poorly researched and I feel most analysts are like `goats' simply following one leader -- in 1992 it was Harshad Mehta and now it is Ketan Parekh. It is really shameful that our stock markets are one of the oldest in the world and till today no contrarian has developed to break the shackles and look differently.

I have also been reading lots of stock market magazines/papers and used to watch the tele channels regularly. I am sorry to mention here that neither the media nor the tele channel has gone beyond some 20 so called ICE shares during the last two years. Old goodies were out of favour for them. With lessons learnt, now they should have a broader vision, since markets are not made of ICE stocks alone and we have more than 6000 companies listed on the bourses. When the stock market analysts change their perception and attitude, investors will automatically follow them and this will result in a more balanced and healthy stock market in India.

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