The present move will have a very beneficial impact on HDFC. Consumer finance today is the fastest growing segment in the market for finance products. CCFSL has so far banked on the HDFC retail network to sell its products; and this benefit will now accrue directly to HDFC. Consumer finance logically is an extention of housing finance, where a home buyer would look for home appliances,consumer electronics and could extend into PCs, two-wheelers and automobiles.

However, the flip side is that though its non-mortgage portfolio will grow it will also throw up direct competition to the likes of ICICI (which has inherited a large car finance portfolio when it took over ITC Classic and Anagram Finance's assets) as well as the foreign banks that have already begun to agressively accumulate consumer finance portfolios. The sooner HDFC begins consumer finance the better for even marketing of financial products will be competitive as leading NBFCs such as Lloyds Finance have also announced they would do the same. The retail drive will get a boost as and when HDFC gets into insurance.

The HDFC stock has been an underperformer in the stock market not due to its own performance but rather due to the general apathy towards the financial sector. However, while the negatives have been discounted including the possibility of a hike in interest rates, the potential long term upside has not been factoredinto the stock price. First, the repeal of the Urban Land (Ceiling and Regulation) Act is on the present government's agenda, which will rev up housing demand pushing up growth rates. Second, additional benefits will accrue when the housing sector gets industry status, thereby improving prospects and conditions of lending to corporates in this sector. And third, HDFC is the only financial services company to have shown an increasing trend in its return on average assets and should continue do so in the current year.

Essel Packaging: Buyback price

After an uninspiring second quarter performance from Essel Packaging (EPL), following a decline in its cosmetics packaging business there finally seems to be some good news for shareholders. The company had earlier indicated that they would jump at the opportunity to buyback their shares. The price that was anticipated then was Rs 225 per share, being the price at which the last rights issue was made. Now, the thinking within market circles is that thebuyback price will be hiked to Rs 275, hence the rush of speculators to the stock.

Despite some minor setbacks in the first half which might slowdown its growth rates for the current year, EPL will continue to generate a large amount of free cash and continue to better its return on equity (RoE). For the last financial year, the RoE was close to 15 per cent; this will improve after the buyback. Reducing its capital and improving its asset turnover ratio has been a focus of the management. With debt already restructured last year and strong internal accruals, restructuring the equity is a certainty by the middle of next year.

Local pharma stocks recover

The fact that the Patents Bill has not been tabled in the Lok Sabha during the winter session (there are just two days left for the session to end) has practically ensured the end of the rally in MNC pharma stocks. On the contrary the Indian pharmaceutical shares have raced along, on the expectation that the Patents Bill will now be indefinitelydelayed thus giving additional breathing time to the Indian pharma sector. However this is more opportunistic rather than wishful thinking on the part of the speculators for the bill may be delayed, but the government has indicated its seriousness in passing the bill in the budget session in a couple of months time.