Don't believe me? Here, let me do the math for you. At Rs 8.50 a share (as on June 9, 2000), the company's 10.77 crore shares can be bought for Rs 91.58 crore (about $21 million). And it won't be a bad deal at all. Sure, it reported a loss of Rs 62 crore on sales of Rs 1,500 crore last year, and has debt to be repaid. But its book value is still almost twice its market price. Besides, if you were to re-value its assets today, then some of its real estate alone would be worth more than the market value. Agreed that when an acquisition bid is actually made, the stock price will go up.But the point is that even at double its current price, HM should be worth it.

What's true of HM is true of most other old economy companies in India. They make a great bargain for the cash-rich and market-hungry transnationals. Consider what's happening in the cement industry. Transnationals such as Lafarge and ItalCementi have bought into six million tonnes of capacity in the last one year. The reason? At $80 per tonne, an existing cement plant is at least $30 cheaper per tonne than a new one.

It shouldn't be surprising if more such deals came from other commodity industries. For, the setting is ripe. BT's analysis of 2,109 companies listed on the Bombay Stock Exchange shows that more than half of them-1,206 to be precise-are quoting below their book value. And if you thought these companies were some nondescript, hole-in-the-wall ventures, think again. Eveready Industries, Voltas, Modi Rubber, and the Steel Authority of India are some that could be sporting transnational ownership soon.

Part of the reason why these industries are going cheap is the boom in the Information-Communication-Entertainment (ICE) stocks. Too much of investor dollar is chasing a handful of stocks. As a result, while ice stocks are soaring, the others are starved of investment. In the abrasives industry, heavyweight Carborundum Universal trades at a p-e of less than four; in auto ancillaries, chemicals, and consumer durables, the multiples are between 2 and 10. In fertilisers, stocks of majors like Indo Gulf and Nagarjuna Fertilisers trade at four or five times their current earnings.

A low stock price makes a company's stakeholders vulnerable to corporate raiders. It also raises their incentive to cash out. That's why it should come as no surprise if a company in HM's situation decides to sell out. To shore up their stock prices, such Indian companies must prove they are capable of withstanding transnational competition. And competing in the liberalised environment hasn't been easy. Data compiled by the Centre for Monitoring Indian Economy (CMIE) show that industry's growth has been uneven in the last decade. During 1990-93, the manufacturing sector grew at a real rate of 5.1 per cent, rose to 12.1 per cent in 1994-96, but slumped to 3.4 per cent in 1997-99.

When the going is good, many industries and companies tend to do well. But, apparently, few are able to buck a negative trend. The most susceptible industries, CMIE data reveals, include capital goods, textiles, automobiles, paper, and refractories. That's not to say that industry is nervous. There has been significant growth in gross fixed assets (GFA) across industries. Half of CMIE's 98 industry groups recorded GFA growth of more than 25 per cent per annum. During 1990-93, 60 of the 98 groups grew assets at 15 per cent a year; by the boom years of 1994-96, the number of industries with comparable growth rose to 86.

But as hundreds of corporate examples have proven, growing assets is one thing; making them pay is quite another.

-R. Sridharan

S T O C K M A R K E T
Future index?

Come September, and the S&P CNX Nifty will go global. That means investors trading on the Singapore Exchange Derivatives Trading (SGX-DT) will be able to trade in the 50-stock Nifty-based futures. With the listing of S&P CNX Nifty on the Singapore exchange, Indian markets join global indices such as those of Taiwan and Nikkei (Japan), which are traded on SGX-DT-the global hub of futures trading.

As a prelude, on June 12, 2000, the National Stock Exchange (NSE) kicked off trading in the S&P CNX Nifty index futures, and recorded volumes of Rs 2.31 crore for 71 trades on the first day. Put simply, index futures are post-dated contracts where the underlying asset is not a stock but the index itself. Here's how it works: an investor is bullish on the market and expects the index, say S&P CNX Nifty, to cross 1,600 points. The investor goes ahead and buys the market by taking a position on the index future. Nifty futures contracts in India could tot up to 2 lakh a day in the future.

With Nifty vaulting on to SGX-DT, the global acceptability of the Indian index would go up substantially. Already, the Nikkei index trades more on the SGX-DT than on the parent bourse. The Taiwan index too records 10,000 to 12,000 contracts a day on the SGX-DT. Says R.H. Patil, 58, Managing Director, NSE: ''A number of FIIs take positions in stocks from overseas. Tie-ups with global exchanges will facilitate such trades.'' Adds Arup Mukherjee, 24, CEO, IISL: '' Nifty will become a benchmark for all participants with interest in the Indian securities market.''

The NSE has signed an agreement with SGX whereby the former will receive 10 US cents per contract executed on SGX-DT. The next step for NSE is listing of the Nifty futures contract on Chicago Board of Trade (CBOT), the world's oldest and largest futures and options exchange. Then, investors on CBOT-with which SGX-DT has a tie-up-will be able to trade in Nifty futures. Clearly, a nifty move.

-Roshni Jayakar

A D M I N I S T R A T I O N
Bloated bureaucracy

Running a one-billion strong country isn't easy. Nobody knows it better than the government in New Delhi. Which explains why it has 39,45,797 employees on its payrolls. The single largest employer is also one of the most generous. Although it hasn't significantly expanded its ranks in the last 10 years-it only added 24,153 workers in that period-it has opened its purse strings like nobody's business. From Rs 9,970 crore in 1990, wages and salaries have shot up to Rs 38,659 crore.

Apparently, there are about 61 types of facilities, benefits and allowances that are applicable to employees in general. Small wonder, then, that 16 per cent of the government's non-plan expenditure goes towards paying the wage bill. Says D.H. Pai Panandikar, 67, Director General, RPG Foundation, "The taxpayer's money, which could have been used productively, is diverted to an unproductive sector.''

The Fifth Pay Commission of 1997 had recommended that the headcount be slashed by 30 per cent, and that the 3.5 lakh vacant posts be scrapped. It also suggested the merger of several ministries and departments, and to increase pay for those good enough to be retained. But the government made a populist move: it accepted the pay hike suggestion while glossing over downsizing.

Ergo, 36 of the 77 departments with the Central Government and the Union territories increased their roll numbers, while 32 managed to shrink them. The greatest rise of 1,18,637 has been in the Department of Police. At number two is the Department of Telecommunications, which in the last decade made room for 36,260 more employees. The Department of Revenue created 15,429 jobs, and the Ministry of Information and Broadcasting a comparable 13,367.

Departments that have had major reductions in strength include the Ministry of Finance's audit wing (7,744 jobs were cut) and the Science and Technology Ministry's Department of Health, where the head count was slashed by 4,506.

But the government is loath to let go of its employees and has been running a redeployment scheme since 1966. The scheme, which at last count had 8,956 surplus employees on its roll, has managed to load 8,587 of them onto other departments. A voluntary retirement scheme took care of 234 staffers, 72 have been either fired or have resigned, and 63 await redeployment.

A report by the CII recommends that the government usher in zero-based budgeting to reduce expenditure by 10-15 per cent. It suggests that the administration focus on activities where market forces do not work, including primary education, health, supply of drinking water, law and order, and legislation. But, then, who can govern the government.

-Biju Mathew

L E G I S L A T I O N
Finally, a fair deal

For an industry weaned for decades on a restrictive regime, the New Competition Policy should mark a watershed. For the first time, both industry and consumers, have a comprehensive set of laws that actually encourages competition, but discourages abuse of dominance. The Monopolies and Restrictive Trade Policy Act of 1969 was framed for an economy where to be big was considered evil. Real competition never existed because by restricting the number of industrial licences issued, it created a market where companies did not have to compete. They merely had to allocate their production to the markets within the country. Small wonder, then, that the MRTP Act did not have any provisions to deal with anti-competitive practices. So much so that it does not even define certain offending trade practices such as abuse of dominance, cartelisation, bid rigging, refusal to deal, or predatory pricing. Points out H.L. Tiku, 58, a corporate lawyer: "The new policy is going to be more powerful and effective."

Since most of the world's anti-competitive laws-80 countries have them-have been fashioned after the American model, India's New Competition Policy shares more than just a passing similarity with it. Except for the fact that in the US competition laws are called ''anti-trust'' laws, and in India they are simply referred to as ''competition laws'', the laws share identical objectives. The idea is to encourage competition, and prohibit and punish anti-competition activities. Perhaps, the best news that the new policy brings is that big is no more bad. But hurting consumer interest is. Finally, the consumer is beginning to get a fair deal.

By Namrata T. Vishwanath

M U T U A L  F U N D 
No more suckers, mister

A mutual fund is only as good as the instruments it invests in. A truism, but one that mutual funds often like to gloss over in their zeal to lure investors. Market watchdog, the Securities and Exchange Board of India (SEBI), knows that only too well. It can do little about making a fund's portfolio deliver, but it's done the next best thing: put curbs on the way fund managers hardsell their mutual funds to investors. Recently, SEBI introduced a new code of conduct for mutual fund advertisement that virtually bans the funds from making alluring statements to investors. The code is applicable to all means of communication, including advertisements, interviews, press conferences, and even seminars.

In particular, the new law restrains mutual funds from using exaggerated or unwarranted claims, superlatives and opinions, which can not be substantiated by available public data. It requires them to also avoid future forecasts and estimates of growth. ''It will give a consistency in the industry's communication and no one will be able to hoodwink investors with misleading advertisements,'' says Suraj Mishra, 34, Vice-President and Head of Marketing at Prudential ICICI AMC.

Product launch information must also ensure consistency and completeness. For instance, such advertisements must contain the name of the fund, its managing company, scheme classification, investment objective, investor benefits, risk factors, and the entry and exit load. Besides, product information must not be comparative. Says Rajan Krishnan, 38, Vice-President (Marketing), Zurich Asset Management India: ''The industry badly needed a standard guideline for launch communication.''

All performance calculations are to be based only on NAV and the payouts to the unit-holders. All advertisements displaying returns or yields must disclose in the main body of the advertisement and in the same font state that ''past performance may or may not be sustained in future''. Where performance is compared against benchmarks, funds will have to use appropriate benchmarks like the BSE, NSE indices for equity schemes and I-Sec Bond index for debt funds.

The SEBI's is a small move to enforce industry discipline. But it won't make up for lax investing.

-Dilip Maitra

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