Is there more blood on the street ahead?

If the economy is to grow at the pace it is doing, rising consumption of things like cars, houses and white goods will require inputs like steel, writes J Mulraj.
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Updated on Mar 18, 2007 11:03 PM IST
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None | ByJ Mulraj

The Indian stock market continued the slide it began before the budget, which was exacerbated by a let down. The budget only concentrated on collecting even more absurd taxes to pay for untamed profligacy and on making pre-election gestures while doing nothing for the economy.

Last week, the Sensex plunged to 12,430 points, and the Nifty to 3,608. The biggest Sensex fall of 453 points, on Wednesday, was a reaction to the fall in the US markets, on fears of home mortgage default risks.

It had nothing to do with the India story, which remains intact. Corporate India is gung-ho, with lots of news of capital expenditure and acquisitions. Reliance Industries was in the news, with reports of a 51:49 venture with Dow Chemicals and more gas finds in the Krishna-Godavari basin. It also signed an agreement with GAIL to ship gas across India through the latter’s pipelines. Reliance is also making a bid to acquire a stake in French retailer Carrefour.

The Essar group has signed a sweet deal with Vodafone in which it has a put option, exercisable in the next four years, to sell its stake in Hutchison-Essar for $5 billion. The group plans to invest Rs 1,350 crore in telecom retailing over the next few years.

Recently listed Idea Cellular of the Birla group also plans to invest Rs 580 crore in long-distance telephony over the next three years. Suzlon is raising its bid for REpower to $1.7 billion. None of these indicates an end to the India story. Industrial growth clipped along at a healthy 10.9 per cent growth rate in January.

If the economy is to grow at the pace it is doing, rising consumption of things like cars, houses and white goods will require inputs like steel. India is the seventh largest producer of steel but will need to ramp up if it has to take its per capita consumption from 22 kg to over 300 kg, on a par with the developed countries. There is an outcry against the export of iron ore which, if converted into domestic steel would not only provide the steel needed to fuel 8 per cent GDP growth, but would also fetch the government far higher tax revenue. If export of sugar can be banned to curb prices why not iron ore? Mindful of the need to provide iron ore at a reasonable price, an export duty has been slapped. The government is also thinking of changing a formula under which ore is supplied to steel makers like Rashtriya Ispat Nigam Ltd, Essar and Jindal which do not own mines.

This could be a buying opportunity and there could be some goodies around Gudi Padwa. Buying fundamentally strong shares during this dip would be advocated.

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