But whenever the Sensex has dipped on panic selling, the recovery has been as fast as the fall. Although the market is in a negative trend for the past three weeks, the buying force at lower levels shows that the market does not want to remain low. In fact, this is the main feature which makes the outlook positive as far as the medium-term health of the market is concerned.The reason is not far to seek. All the other indicators except the problems at the border have been pointing towards a positive outlook. A clear sign of revival in two major sectors, steel andcement is a major indicator. Both these sectors have shown an indication of recovery by increased offtake coupled with higher prices. Bright prospects for the monsoon also augur well. And finally, the main positive factor, the inflow of money from the FIIs have also been favourable.

As such, though the short-term outlook is far from impressive due to rising speculation over the war, selective buying seems to be the right strategy for the long to medium term investors. Once the problem at the border is solved, the market will most likely enter into a new bull run which would take it to a new high.

L&T

Yet again, rumours have started that the cement division of L&T will be hived off. In all probability, the cement division will be hived off but not as a standalone entity. The new entity will consist of both the construction and cement division. L&T's cement division can not be hived off as a stand alone subsidiary for two very simple reasons. One, it will result in a negative net worth for the newcompany and the equity dilution required to make it positive will be large. Consider some simple calculations. The PBIDT of L&T for 1998-99 (excluding other income) is Rs 729.86 crore and OPM is 10 per cent. Engineering and Construction account for 60 percent of the revenue. Hence, it is safe to assume that the minimum OPM of the division has to be 10 per cent. In other words, the contribution to PBIDT is Rs 437.5 crore. Switchgear division, according to the management, has an OPM of 40 per cent and accounts for 6 per cent of the turnover. This means it contributes Rs 175 crore to operating profit. Cement accounts for 22 percent of sales. Assuming that all other divisions operate on break-even basis, cement division can't have an OPM of more than 8 percent. However, according to the management, the division contributes 10 per cent of PBIDT. Even if one includes other income to calculate PBIDT, the OPM of the division works out to be 5.5 per cent. Even operationally (before interest and depreciation) thecement division is a non performer. Second, unabsorbed depreciation and carried forward loss, which provides tax cover to the company will be lost. Since neither can be carried forward for more than eight years, if hived off, a major chunk will lapse. Even if the company chooses to hive off the division, it would not survive as a standalone unit. Therefore, some other division would also have to be hived off along with the cement division. The cement division is a drag on the company because of its high costs, but with the first signs of a turnaround, if the division breaks even, L&T's net profit could increase by at least Rs 65 crore.

--Deepak Singh Tanwar & Urmik Chhaya