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Suresh Krishnamurthy

Stocks in which ICICI, IDBI and IFCI hold stakes have run up sharply in value, backed by expectations of an economic revival. In most cases, it is an opportunity for shareholders to reduce exposures. However, in a few cases, there may be an investment opportunity.

IT IS not only the mutual funds that have generated returns of close to 100 per cent in the last six months. Stocks in the portfolios ofIDBI, ICICI and IFCI have appreciated by an average of more than 100 per cent in the April to September 2003 period.

According to a study by IDBI, FI-assisted companies have also been reporting increases in net profits. However, these are generally companies that have been afflicted by some weakness or the other. The primary objective for shareholders should therefore be to utilise the run-up to reduce exposures to such stocks. The FIs themselves may be looking to cut exposures to some stocks.

At the same time, it would also be worthwhile to peruse the portfolio for possible investment candidates. Since FI-assisted companies have generally been those in the manufacturing sector, an economic revival could lead to a turnaround in the fortunes of some stocks. However, the risks are higher and any downturn in economic activity could reduce your portfolio to worthless paper.

Broad-based rally: Details of price performance are available only for a portion of the portfolio of financial institutions. They indicate that a substantial proportion of stocks in the portfolio of FIs have been virtually re-rated by the markets. In IDBI, which has been the biggest beneficiary from the bull-run, 55 stocks have recorded gains of more than 80 per cent. Same has been the case with the portfolio of stocks held by ICICI and IFCI.

Some of the FI-assisted stocks that have recorded a sharp rise in value are Bhansali Engineering Polymers, MRPL, Sakthi Sugars, Jindal Vijayanagar Steel, Essar Steel and Tata Teleservices.

The stock of Bhansali Engineering Polymers has rustled up gains of 1,600 per cent between April and September. Other stocks mentioned have gained between 200 and 350 per cent.

Predictably, a number of them belong to the steel industry. Apart from steel, stocks from textile and chemical industry also figure in the list. In the heyday of 1996, companies from these industries found the financial institutions willing to finance their plans.

Most of these projects suffered setbacks and their recovery may still be dependent on an economic revival.

A task cut out: Shareholders in FI-assisted companies have their task cut out. Even after the appreciation in the last six months, the market price may be below the price at which they invested in the stock.

Examples of a few such stocks are TNPL, Lloyds Steel, Essar Steel, Flex Industries, Pritish Nandy Communications, SWIL and Varun Shipping. In these cases, the market price is still below their initial offer price. In a majority of such cases, particularly in the case of steel companies, it may be better to cut losses and get out.

Another option is to closely follow the FIs themselves. FIs have been selling their stake in a few companies to promoters or other groups.

For example, IDBI has sold its stake in companies such as MRPL and Gujarat Borosil. That can precede a possible restructuring. Also, FIs have been adding to their stakes in companies such as Recron Synthetics and JK Corp.

These may also enable these companies to emerge out of a hole that they presently find themselves. In addition, the loan packages themselves are being restructured, as was the case with Kopran Drugs.

Such restructuring can lead to share price appreciation. Investors can hold on to such stocks though it may be a risky option to pursue.

Stocks of value: Finally, the list may contain stocks that may be worthy of investment consideration. They may be only a handful in number, but might have the potential to surprise investors.

Stocks such as Prism Cement, Adlabs Films, Tinplate Company, EIH Associated Hotels, Garden Silk Mills, SRF, Gujarat Heavy Chemicals, Rajshree Sugars, Nocil, Gujarat State Fertilisers, Gujarat Alkalies, Dena Bank, Chambal Fertilisers and Ajanta Pharma are a few examples.

Most of these stocks suffer from some weakness or the other. The risks therefore are high but the pay off could also be high.

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