The Telegraph
Since 1st March, 1999
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Stock salve in Unit Trust elixir
- Markets hope bailout will ease the pressure to sell holdings

Mumbai, Sept. 1: The lifeline thrown at Unit Trust of India (UTI) has raised hopes of a rebound in the stock market, which feels that the Trust will hold out for some time on the plan to sell its stakes in blue chips.

Crisis funds will ensure that the mutual fund major does not have to sell its kitty of shares to raise money for redemptions. That would leave the market with less of stocks than would have sloshed around if UTI offloaded.

UTI, assailed by fears of redemption pressure and liquidity problems in some of its assured return schemes, had been a heavy seller in the market of late. Since the chances of that appear to have receded, bourses could see a relief rally on Monday, brokers said.

On Friday, the Bombay Stock Exchange (BSE) sensex leapt 67 points to end at 3181.23 on reports that the Centre was assembling a rescue raft for the crisis-prone UTI. “Therefore, we do expect a positive open on Monday as pressure on the Trust has now ebbed,” said a broker.

However, observers are split on whether munificence for UTI will trigger an across-the-board buoyancy, and if this was the trigger the markets had craved for.

There are others who reckon the package will affect the fate of several companies in which UTI wanted to sell its stake. Some believe it has only been put off.

Of particular interest are ITC and Larsen & Toubro (L&T). Analysts say mutual funds may cling on to the shares, at least for the short term. If this happens, both companies could face choppy waters in the weeks ahead. A leading BSE broker expressed disappointment over the government’s dithering on the fate of UTI’s ITC shareholding in its bailout plan. “The stock could come under pressure from now,” he said.

Both ITC and L&T ended weak on Friday as BAT and Nusli Wadia denied being in talks with UTI on purchase of its stake. A. V. Birla group chairman Kumar Mangalam Birla also rejected reports of an open offer in L&T after acquisition of the Trust’s stake. Market watchers feel UTI will insist on a minimum price of Rs 1000 each for ITC and Rs 307 for L&T shares.

With bourses yet to witness the return of institutional investors, sources say a big negative could be the differences of opinion in the government on the Hindustan Petroleum and Bharat Petroleum sell-off. “As there are no major triggers, the relief package will not make much of an impact. I see a rotation of public sector stocks to frontline information technology shares,” another broker said.

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