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Parekh report on US-64 to aid rally of infotech, pharma and FMCG shares

Anurag Joshi in Bombay

The implementation of certain recommendations of the Deepak Parekh report on the Unit Scheme-64, which relate to banking investments in the capital markets, would lead to a further surge in scrips of the infotech, pharma and fast moving consumer goods sectors, according to market observers.

Scrips belonging to the three sectors have hogged the limelight in the stock markets for a long period and the surge in these scrips after the Union Budget 1999-2000 reinforces the loyalty of market participants, they said.

The committee headed by Housing Development Finance Corporation chairman Deepak Parekh was instituted to suggest measures to rejuvenate the US-64.

The panel has recommended that the commercial banks be encouraged to invest upto Rs 15 billion in the corpus of a scheme to be floated by the Unit Trust of India, which will be dedicated to the infotech, pharma and the FMCG sectors.

According to the Reserve Bank of India guidelines, banks can invest upto five per cent of their incremental deposits in equities. However, this has not yet caught the fancy of the banking sector. Commercial banks continue to employ a substantial chunk of their deposits in zero-risk government securities.

The US-64 has invested about Rs 12 billion in equities of these three sectors since July 1998. Given the market support the scrips enjoy, the US-64's returns from such investments have appreciated considerably.

The trustees of the scheme are hoping to transform it into a debt- oriented fund by off-loading the equities which have depreciated considerably in value. Even stocks of public sector companies would be transferred at book value to the Special Unit Scheme 1999.

Experts feel that long-term rally in the market 'favourite' scrips would enable their retention in the US-64. Financial institutions and insurance companies also have said they will make higher investments in the capital markets. Heads of financial institutions have already announced more active participation in the secondary market.

The Life Insurance Corporation of India has invested Rs 80 billion in the markets during the current fiscal, an increase of Rs 20 billion over the previous year. LIC chairman G Krishnamurthy has indicated that the institution would continue its investments taking advantage of the post-Budget bullish phase.

According to experts, infotech, pharma and FMCG companies enjoy high market capitalisation on the bourses. The rally in these scrips has aided the post-Budget surge in the Sensex, given their weightage in the key stock indices of the capital market.

Two of the top three companies in terms of market capitalisation are from these sectors. FMCG major Hindustan Lever is at the top position with a market capitalisation of over Rs 500 billion, while Wipro is at the third position with a market capitalisation of around Rs 200 billion. Wipro is a highly diversified company. However, over 80 per cent of its revenues, lately, are coming from the infotech business. It also has a presence in fluid power, medical equipment, consumer goods.

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