To some extent the rally consists of speculators moving from the over-heated stocks into more stable but potentially rewarding ones.

The spurt in bank stocks is not entirely surprising for each and every one of the more prominent bank stocks, both in the public as well as private sector, has been appreciating exactly in line with the Sensex for the past two weeks.

The Government recently reduced interest rates on most of its small-saving schemes, with cuts ranging from 0.5 to 1 per cent depending on the maturity. This move though not directly related to the banking sector could have far-reaching implications for the profit-earning potential of banks. Banks revalue their fixed-income portfolio at a YTM determined at the end of the year. Bank analysts feel that if at all there is a generalreduction in interest rates that can last until March 1999, then there is a good chance that the depreciation hit which banks were expecting to take on their investment portfolio may not materialise. Further, most banks have made provisions for depreciation in investments in the first half; depending on the extent of the fall in interest rates these provisions might even be written back. SBI for example could enjoy a write-back of up to Rs 150 crore.

But there is still little reason for optimism for the simple reason that asset quality continues to remain a problem and there is uncertainty over what the final NPA provisions will be. Analysts feel that the sentiment for banks should continue to remain positive even if bank managements decide to utilise any saving on depreciation to provide for additional NPAs, as this will be a good long-term development.

Manugraph Industries; meeting expectations: Manugraph Industries has been one of the few companies not engaged in popular industries that hascaught the market fancy in the new year. The stock has raced up to Rs 20 from Rs 14 in a few days. The reason for the spurt in the stock is in the company's financial performance; or rather the improvement in both the performance and financial health of the company. The revenue target of Rs 100 crore for the full year will be met comfortably. Of this figure, Rs 50 crore will be export revenues. The company should report a profit after tax for the full year at Rs 4.5 crore improving the earnings per share to Rs 5.5 from Rs 4 reported last year. The company has already reported Rs 39.5 crore in revenues in the first half and usually reports 60 per cent of revenues and profits in the second half.

The first half performance from Manugraph Industries too has been within expectations. The stock has been reflection these positive changes. The stock price traded below par just prior to the announcement of the half yearly results, and tripling in value since then.

The company which is India's leading printingmachinery manufacturer had undertaken a successful restructuring of both its operations as well as its capital structure. The first part of the restructuring was to reduce the cost of debt, which it has done very sucessfully. The company expects to redeem debentures worth Rs 10 crore on the 27th of February 1999, besides repaying dues to IDBI and the EXIM bank. The next and more important shift that has taken place is in marketing. Manugraph has consciously cut down its presence in the domestic market for high end printing presses. Instead it has concentrated on the export markets. For the last two years it has raised the proportion of export revenues to almost 45 per cent of total revenues. Given the simultaneous reduction of emphasis on domestic sales, overall revenue growth has remained flat, but the profit margins have improved tremendously.

This trend has accelerated during the first half of the current year. Despite revenues remaining flat at Rs 39.5 crore for the current first half over thecorresponding period last year the profit after tax has increased by 55 per cent. This was the result of operating margins improving to 16.5 per cent from 15 per cent and a reduction in interest cost by 10 per cent.