This dissimilitude in movement is not unique only to India. While the Nasdaq Composite Index has raced to around the 5000 mark recently, the Dow Jones Industrial Average has lagged behind with the index hovering around the 10000 mark for a while now. A look at the turnover statistics of the Bombay Stock Exchange for the last two trading sessions purports another interesting picture. The top ten convergence stocks accounted for over 68 per cent of the total traded value of the exchange on Monday's trading session.

On Friday these accounted for over 62 per cent of the total traded value. If one were to take into account the Hughes Softwares and TV 18s of the world it would not be erroneous to assume that well over 80 per cent of the trading interest on Indian bourses is concentrated on the stocks of the new economy.

Where is all this leading? Well for starters we do not have a recognised technology index such as the Nasdaq Composite. For many of the numerous Indian retail investors and day traders, the market barometer is still the Sensex. But one often comes across a scenario where the Sensex has fallen whereas the convergence stocks have gained considerably. (This despite the fact that software stocks form 28 per cent of the index). Furthermore, no amount of restructuring of the index will be able to reflect this polarisation in the markets.

Over and above acting as a barometer, the Sensex/Nifty also act as a benchmark for most of the Indian fund managers and mutual fund investors. While it is absolutely preposterous to compare the returns of IT/technology funds with that of the Sensex/Nifty, existing mutual funds are often found to be using the same comparison for advertising their existing as well as newly formed funds. A properly constructed technology index would help investors in comparing and judging the quality of the fund manager.

Lastly and most significantly, the maintaining of a technology index becomes essential for the stock exchanges wishing to introduce trading in index-based derivatives. This is because the primary function of any index-based derivative product is to provide a facility for an investor to hedge the systematic risk that is inherent in any portfolio. But, as it has been seen above, most of the portfolios are constructed around convergence stocks. Thus, an investor would be more interested in hedging the sector specific risk inherent in his portfolio or stock rather than hedging his risk against an index that hardly reflects the movement of these stocks. While NSE has already stated that it will be kicking off trading in futures with the Nifty as the underlying index, BSE would do well to introduce a new technology index when it meets to review the composition of the Sensex. This would enable it to garner a considerable share when trading in index futures is kicked off.

Wockhardt
Wockhardt's domestic pharmaceuticals sales in the quarter ended December 1999 declined by 7.1 per cent to Rs 72.9 crore. Its branded products sales also fell by 3.3 per cent to Rs 62.6 crore. The results followed the poor performance by Glaxo, Burroughs Wellcome and Smithkline Beecham Pharma about a fortnight ago. This fuelled the apprehension that the growth expectations in the pharma industry were wrongly estimated. Little wonder that most pharma stocks are now taking a beating.

Overall sales, however, improved because of a jump in sales of the medical nutrition division by 80 per cent to Rs 9.7 crore. Exports also improved by 9.1 per cent to Rs 27.3 crore. Wockhardt also reported a 10.7 per cent growth in its life sciences business. The company says that the decline in the pharma business was mainly because of generic business of Merind which was down by 22.4 per cent in the quarter. It seems that the takeover of Merind has backfired. Merind has a fermentation plant for complete local manufacture of Vitamin B12. The same vitamins are also manufactured by Glaxo and Themis.

In recent years many other reputed and large manufacturers including some multinational companies have started manufacturing vitamin B12 formulations which in turn intensified competition. Glaxo leads the pack with a well established network. But despite having one of the largest networks, they too are facing the impact of the falling growth of vitamins. Therefore it has to be seen how Wockhardt will position its vitamin formulations in such a competitive market.

Wockhardt also says that the negative pharma growth in the last quarter was because of higher sales bookings done in the last quarter of 1998. This implies the fact that the company has a most unwelcome practice of boosting sales by including order bookings in the sales figures. During 1997-1998, the company has claimed to have registered a handsome growth of 36 per cent in sales. Obviously, the growth was inflated by order bookings. Such practices casts doubts about the current year's figures of sales and profit.

Boosting of sales by including order position will also inflate profits and tend to give false comparison of financial results.

The company claims that two of its drugs in the antigestic therapeutic segment - Spasmo-Proxyvon and Proxyvon have achieved higher growth of 46 per cent and 25 per cent respectively. In fact, the higher growth is the result of low base of these new drugs. These two drugs are based on Dicyclomine and Dextropropoxyphen generic drugs and face strong competition from Ranbaxy's "Sudhinol" and Jagsonpal's "Parvodex". There are a large number of multinationals in this segment with a major presence in antigestics. The company also claimed to have high growth of Sparx and Aziwork which are used for respiratory, genito-urinary, skin & soft tissues and surgical infections. Sparx has a major competition with well established brands such as "Spardac" of Cadila and "Sparlox" of Sun Pharmaceuticals.

-- Emcee (with contributions from Mobis Philipose and Dhruv Rathi)