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Foreign Institutional Investments and Emergence of Computer Software Consumer Non-Durables and Pharmaceutical Sectors

There appears to be a excellent deal of co- ordination and similarity in business approach among the five Funds in spite of each having diverse investment advisers. All of them started looking at the computer software, pharmaceutical as well fast moving consumer goods sectors while sinking their coverage to commodities and chemicals.

The FII preferred sectors appear to have caught the concentration of others too. The appearance of software, pharmaceuticals and personal care products in BSE market turnover could be a response of the local investors, particularly the mutual funds promoted in association with FIIs, to the FIIs' investment strategy. For illustration, Prudential ICICI Growth Plan managed by Prudential-ICICI Asset Management Co. (AMC), a combined venture of Prudential Corp. Plc., of UK and ICICI, by the end of 1998, had a sector of its net asset value (excluding cash) in consumer goods companies, 17.01 % in pharmaceutical companies and 15.91 % in software companies. The collective share of the three sectors worked out to as high as 58.56 %. Correspondingly, in the case of Birla Advantage Fund, managed by Birla Capital International Ltd., as on November 30, 1998, the share of the three sectors stood at nearly half of the largely value of investments. It may be noted that after the mid-November amendment, the three sectors have an on the whole weightage of 43.52 in the Sensex. Taking advantage of the reputation of software scrips, a few companies are reported to have even changed their names indicating their involvement in information technology, in all probability, to mislead the investors.

Prudential-ICICI introduced a new fund specializing in what are now being commonly referred to as FMCG (fast moving consumer goods) scrips. According to Prudential-ICICI, FMCGs includes, tea, coffee, bread, butter, cheese, biscuits, soaps, detergents and various additional products that you use daily. Hindustan Lever, Cadbury, Britannia, Procter & Gamble, Nestle, Reckitt & Colman, Henkel Spic, Indian Shaving Products, Marico & Smith Kline Beecham these are companies which quality great brands, a strong distribution network across the country, professional management and financial soundness, spaced out from consistent performance year after years. As an indication to this reality, the stocks of these companies have performed superior than the market in the last three years, giving an annualized return of 34.3 %in comparison to an annualized return of only 4 % in the BSE 200 and the Sensex.

The stress on FMCG thus in fact implied emphasis on transnational corporations (TNCs) because of their well-known brand names, large advertisement expenditures and distribution networks. The significance of TNCs in market turnover of BSE may be a reflection of this occurrence. This, observed in the context of new FCCs avoiding the stock market may mean that the existing listed ones will carry on to be the favorites of investors as they have limited options. Ironically, these are the companies that may not need to elevate resources from the Indian investors.

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