Wipro Diminished

The

Morgan Stanley Capital International (MSCI) has revised its Emerging Markets

Free Index for India. Weightages of stocks were diluted, added and lowered.

While 14 stocks were added to the index, 10 were deleted. However, two major

changes that occurred were the lowering of Wipro’s weightage from 100% to 30%,

and the addition of Zee Telefilms at 60% of its market cap. The changes in the

India index will bring down the overall weightage from 9.08% to 7.45%.

Impact on Wipro’s stock

It is interesting

to note the lowering of Wipro’s weightage. Looking back, we find that the

decline in Wipro’s stock price started with the fall of the Nasdaq. The crash

at Nasdaq did affect all the technology stocks back home–almost a bloodbath.

The second phase of decline in the stock price happened after market corrections

took place and Wipro’s stock, which was overvalued according to analysts, was

hammered on the bourses. Wipro’s performance in the last fiscal has not been

exceptional. And except for its infotech business, Wipro has not been able to

perform well in its operations. An analyst with a domestic investment bank says

that Wipro’s price was definitely overpriced and corrections had to take

place. As far as liquidity and float is concerned, the daily volumes were very

low and it was a disturbing sign that the price had shot up enormously. "It

was difficult to sustain such a high price of the scrip," he says.

The lowering of weightages,

according to MCSI, has been due to the low liquidity of stocks. But the

liquidity of Wipro’s stocks has not changed since MCSI gave it a weightage of

100%. Some of the international fund managers had expressed concern over Wipro’s

low float and said that though Wipro was the largest stock in the MSCI India

index, yet no one could buy it.

_{Wipro still strong}

Additions

1. Aptech
2. Digital Equipment
3. DSQ Software
4. Escorts
5. Essel Packaging
6. Global Tele-Systems
7. Himachal Futuristics
8. Hughes Software
9. JaiprakashIndustries
10. Pfizer
11. SilverlineTechnologies
12. Sun Pharmaceutical
13. SSI
14.  Zee Telefilms

Deletions

1. Arvind Mills
2. Bombay Dyeing
3. Essar Steel
4. Indian Rayon
5. National Organic
   
   Chemicals
6. Reliance Petroleum
7. Sesa Goa
8. Southern Petrochemicals
9. Thermax
10. United Phosphorus

However, Suresh C

Senapaty, Corporate Executive Vice President, Finance, Wipro, says, "The

reduced weightage given to Wipro by Morgan Stanley does not in any way reflect

on, or change, the fundamentals of the company. Although Wipro’s weightage was

reduced because of the percentage of the float, in absolute terms, the float is

significant in the market. The stockholders of the company are growing

aggressively." He was also bullish about the company’s performance in the

last fiscal. "Wipro continues to be among the high growth performers in the

country, having achieved a 77% increase in profit after tax in the last

financial year. Wipro’s ten-fold growth of profit after tax in five years,

from Rs32.2 crore in 1995 to Rs300.6 crore in 2000, was a target set and

announced in 1995, and achieved as planned by the company," says Senapaty.

As far as the MSCI is concerned,

the lowering of the country’s weightage was factored in by the market.

Reportedly, a MSCI official had commented that the relative importance of the IT

and drugs stock had risen, which reflected the changes in the country’s

economy. The drop in India’s weightage is largely because of the re-inclusion

of Malaysia, the upgrading of Taiwan and the rebalancing of China in the

Emerging Markets Index.

All in all, the changes in the

MSCI India index will have relatively low impact on the stocks and the flow of

foreign funds into the country. Wipro’s stock, however, has taken the beating

not because of the lowering of its weightage, but due to a variety of reasons,

including the overvaluation of the stock.