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Stocks crisis: Value among the wreckage

Have panicky investors, in their haste to get out of Indian stocks, thrown the baby out with the bath water?

Indian stocks have plummeted virtually across the board since the beginning of March amid a flood of accusations of shady dealing and stock price manipulation.

But are concerns over market surveillance and transparency reasons to sell shares of companies like Hindustan Lever or Reliance Industries?

Both are extremely well managed companies with rising profits. Yet the share prices of both have fallen the past five months, as concern over casino-like trading practices in Indian share markets undermined confidence their ability to fairly value any listed company.

Infotech stocks in particular have fallen sharply to levels some fund managers now see as bargains.

The Bombay Stock Exchange's information technology index has plunged 45 per cent since February 28, more than twice the decline of the broader market.

The shares of Wipro, India's largest tech stock by market value, now trade at half the price they commanded at the end of February.

Shares of Infosys Technologies, the second-largest software company by market value, and Satyam Computer Services, the country's fourth-largest software exporter, have dropped by a third.

Many of the infotech shares in the K-10 index have fallen by even more.

The shares of Himachal Futuristic, which makes telecommunications equipment, have plunged over 80 per cent during the past five weeks, and those of Global Tele-Systems by over 65 per cent.

Global now trades at a price/earnings (PE) of only five times its projected earnings for the past year to March, Himachal at less than three.

Bailing out

Shares of highly regarded companies in other industries have sunk as well as investors rushed to bail out of anything Indian.

Consumer goods maker Hindustan Lever, India's largest company by market value, has fallen just over four per cent. That is not much, but the point is it's fallen at all.

Hindustan Lever is expected to soon report its net profit rose 22 per cent to Rs 3.2 billion in January-March quarter, according to a Reuters poll of brokerage estimates.

In recent years the company has been a talent farm for its parent Unilever, producing executives now running divisions of the Anglo-Dutch giant's worldwide operations. Shares of petrochemicals maker Reliance Industries, the country's second-largest company by market value, have fallen 7.7 per cent -- and now trade at a P/E multiple of only 14.4 to its annualised earnings for the nine months through December.

How good a company is Reliance? Its net profit has risen for 43 consecutive quarters, and many analysts believe its move to become a domestic telecommunications powerhouse could sustain the increase for years to come.

Earnings results

Earnings results to be announced over the next month may help refocus the market's attention on fundamentals.

Many Indian IT stocks, beginning Wednesday, are expected to report profits more than doubled in the January-March quarter from a year earlier.

Among India's top three listed software companies, a Reuters poll of 12 brokerages found that:

• Wipro, India's largest tech company by market value, is expected to report its net profit surged 130 per cent to Rs 2 billion on sales that increased 24 per cent to Rs 9.18 billion.
• At Infosys, India's third-largest software exporter, net profit is estimated to have risen 115 per cent to Rs 1.85 billion on sales that doubled to Rs 5.61 billion.
• At Satyam, the country's fourth-largest provider of software services to foreign clients, net profit is expected to have doubled to 838 million rupees on sales of Rs 3.53 billion, up 72 per cent from a year earlier.

Many analysts expect the earnings and revenue growth of these companies to come off the boil in the next two quarters due to the US economic slowdown. US clients account for about 60 per cent of the total foreign revenue of Indian software companies.

However, so far none of these companies have said they will be hurt by the US economic slowdown.

(With reporting by Umesh Desai)

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