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ICE stays red-hot, while FMCG simmers down... BT showcases the cool, and the not-so-cool, sectors to be in.

By Brian Carvalho


The BT-500: Why They're Changing

The Perspective Of Star Fund Managers

2005: A Market-cap Odyssey

How We Did It

Brand them as ice stocks, or TMT scrips, or with any other esoteric contraction you can think of, but it would be easier to put it this way: that it's the technology thing that's in like never before on the Indian stockmarkets. Indeed, there's no running away from the flavour of the infotech-oriented stocks, which just keeps getting stronger. Companies in the fast-moving consumer goods (FMCG), pharmaceutical, financial services, and cyclical and commodities sectors are still making their presence felt, but the proportions are changing. Not only is the software services bandwagon racing ahead of the old economy pack, it's also picking up a number of newer players along the way.

Consider: just 11 TMT companies (in the private sector)-technology, media, and telecom just in case you're still wondering-figured in last year's BT 500. The figure this year: 25. What's more, the top 10 TMT companies had a market capitalisation of Rs 26,952.76 crore in the 1999 tables, which is just a sixth of the number in this year's study-Rs 1,61,092.90 crore.

It's no surprise that Wipro continues to cling on to its numero uno position in the TMT sector, but at No. 2 is Johnnie-come-lately HCL Technologies, which went public only in December, 1999. But while one Shiv Nadar company storms into the top 10, another, hcl Infosystems, bows out from the elite list. Although HCL Infosys has moved up five notches in the composite tables-from 60 to 55-it has lost ground to second-rung software stocks like Visual Soft, Silverline, and ITIL. The last named, part of the Usha Group, has catapulted from nowhere (167 last year) into the 24th slot, with its market cap leap-frogging over 10 times.

But the most glaring loser seems to be Tata Infotech, which for the first time sank into the red last year. It plunged from 26th to 68th in the overall list (and from fourth in the infotech ladder to 21st). Not just that, Tata Infotech is one of the very few that actually witnessed an erosion of market cap-from Rs 1,809.36 crore in the 1999 tables to Rs 1,281.7 crore this year.

Among the non-software companies in the TMT top 10, there's media player Zee Telefilms, and telecom players Hughes Software and Himachal Futuristic Communications (HFCL). There's also Pentamedia Graphics, which is more of a provider of animation content for the entertainment sector. In fact, in the top 25 TMT companies, the only other non-software presence is that of Global Tele-Systems, another telecom services company.

The software services wagon still rolls. And there's little danger of it derailing soon, although many existing players will soon start making way for fresher ideas. ''Today many of the infotech companies are just delivery firms. Those that can move up to define clients' e-Commerce strategies and provide end-to-end-solutions will last the long haul,'' says Anup Maheshwari, Vice-President (Investments), DSP Merrill Lynch Investment Managers. Adds Kumar Subramanian, Vice-Chairman, Silverline Technologies: ''We have 1,700 people globally, which we want to take up to 4,000. This is because there is plenty of demand in the e-world for specialist skills, for higher value-added services.''

Potential For Growth

Clearly, for companies that are not up to product development, there's still potential for growth, if they're willing to move up from plain vanilla bodyshopping. Similarly, in the pharmaceuticals sector, for those who don't have the resources-both financial and human-to research and develop new molecules, there's always the huge global generics market to pursue. As for the transnationals, their strategy is straightforward: once product patents come into force from 2005, they'll rely on new launches for growth, says DSP's Maheshwari. If you take a look at the top 10 pharma companies, you'll see a homogeneous mix of all these three models: R&D focused firms, those eyeing the global generics markets, and the transnationals. Six of the top 10 are Indian firms, with Ranbaxy and Cipla taking the top two positions.

The market cap of the top 10 pharma companies tots up to just Rs 33,603 crore, roughly a third of their counterparts in the FMCG sector. Of course, if you knock out Hindustan Lever (market cap: Rs 53,635.50 crore), and ITC (Rs 21,801.60 crore), from the list, the FMCG tables look dull, with the remaining eight companies totalling just Rs 25,057.70 crore. The big global names like Colgate-Palmolive and Procter & Gamble have been shunted down the ladder. Colgate, for instance, has slipped 15 notches to the No 33 position overall, although its market cap has inched up marginally.

As for the commodities and cyclical stocks-okay, the old economy if you insist-the top 10 has a healthy representation of various industries. There's steel (Tisco), aluminium (Hindalco), engineering & construction (Larsen & Toubro), four-wheelers (Telco, Mahindra & Mahindra), two-wheelers (Bajaj Auto and Hero Honda) and cement (Gujarat Ambuja, which, incidentally, comes a couple of notches above its 'strategic partner' acc). And then there's Reliance Industries and Petroleum. Together the two command a market cap of Rs 36,073 crore, making up close to half of the market cap of the top 10 in this diversified sector.

Of course, yesterday's faithfuls like Bajaj Auto, Telco, Tisco, HDFC, and ACC have made way for the infotech brigade at the very top. Even Reliance Industries finds itself pushed down to No 5. Yes, the software wagon still rolls.


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